This whole website is all about teaching people how to use Bitcoin and other related technologies, providing a beginner friendly place for newcomers to learn about all of the cool uses, features, and services that you can take advantage of when you make the switch to digital currency. If you are new to all this then please take the time to look around our site once you have finished reading this page!
What Is Bitcoin? A Very Basic Introduction for Beginners.
Bitcoin is a digital currency and electronic payment system combined into a single package. It uses a ‘peer-to-peer’ network, meaning that users can make payments directly to each other, without the need to go through intermediaries such as banks or credit card companies. New coins are also issued by the network itself, without the need for a central issuing authority such as a bank.
It was invented in 2008 by somebody using the name ‘Satoshi Nakamoto’, who has since disappeared from the public eye and cannot be located. The name itself is widely believed to be a pseudonym, and some commentators even believe that it was used by a group of people, rather than an individual.
The currency code of Bitcoin is BTC, although some people also use XBT to follow the conventions laid out by the traditional financial services industry. A currency symbol of ‘Ƀ’ or ‘‘ is also used, in the same way that symbols such as ‘$’ or ‘£’ are used to denote dollars or pounds respectively. Each Bitcoin is divisible into smaller units called ‘Satoshis’, which are a roughly equivalent to cents or pennies. But unlike cents or pennies however, which represent one hundredth of the main currency unit, a single Satoshi is worth just 1 hundred millionth of a Bitcoin. This allows for much greater flexibility in the amount of money that can be sent.
Because there is such a big difference between a one Satoshi and Ƀ1, other units such as the microbitcoin (µBTC) or ‘Bit’, representing 1 millionth of a coin, and the millibitcoin (mBTC) representing 1 thousandth of a coin, are sometimes used as well.
Newly generated coins are paid to people called ‘miners’, who run software that helps to secure and maintain the network. Anyone can become a miner simply by running the software on their computer, but fierce competition means that making a profit from it today usually requires an investment in specialist computer hardware or access to cheap electricity rates.
When a user sends coins to somebody there is an optional ‘miners fee’, sometimes called a ‘transaction fee’. Although this is entirely optional, it does ensure that your transaction is processed quickly and is particularly important if your payment includes a lot of data.
Eventually the network will stop creating new coins, as there is a hard-coded maximum of 21 million coins, after which no more can be generated. At this point, which will probably take several decades to reach, miners will earn revenue from transaction fees alone.
Due to its extensive use of cryptography, it is sometimes known as the first ‘cryptocurrency’.
Why Buy Bitcoin?
Please note: whilst everything you can read in this section remains as true as when it was written, a new page has been created on our site which provides a (hopefully) improved version: Why buy Bitcoin or another digital currency?
If you are looking into all of this for the first time then you may well be thinking to yourself: “That is all very interesting, but why should I buy Bitcoin?”
There are many reason why you should consider buying and using Bitcoin:
- It’s Cheap – Transaction fees are lower than the equivalent charges imposed by payment systems such as credit and debit cards, Paypal, bank transfers, and so on. For small transactions which you don’t mind taking longer to confirm, you don’t even have to pay any fees at all! Because retailers are often forced to pay substantial fees to accept credit cards, many of those who accept BTC will pass some of that saving onto customers in the form of discounts.
- It’s International – International money transfers are usually very expensive, and if you go through the banking system they can also take days to go through. Bitcoin is the first truly global currency of any significant size. Sending money to somebody on the other side of the world with Bitcoin is no more expensive than sending money to your neighbour, or buying something at your local shop. International payments are almost instant and cost a tiny fraction of what you would pay in fees, and lose in currency conversion, when sending money through traditional methods. They can also be sent to any part of the world where there is an internet connection (or SMS, if you use a third party service).
- It’s Safer than a Bank (#1) – This may surprise some readers, but keeping your money in Bitcoin is substantially safer than keeping it in a bank, protecting you from two major risks. When you put your money into a bank account you are trusting that bank to keep your money safe and to allow you to access your funds whenever you need them. Sometimes this trust is misplaced. Banks can mismanage funds and lose your money, they can become insolvent and suffer bank runs, and they can prevent you from accessing your own money. Since the financial crisis and global recession which began in 2008 (perhaps not-so-coincidentally the year Bitcoin was invented), we have seen many examples of this kind of thing, from the bank levvy in Cyprus to failing banks requiring huge bailouts from taxpayers. Many governments now offer partial insurance to protect bank deposits, but this is always limited to a maximum amount, depends on your government being able to afford another round of bailouts if necessary, and does not apply to people in all countries. Because Bitcoin does not require you to trust your money to a third party, nobody can lose your funds through mismanagement, corruption, fraud, or risky ‘casino banking’ practices. It is also impossible for anybody to force you to pay for other people’s bad behaviour through things like the bank levvy or negative interest rates.
- It’s Safer than a Bank (#2) – Customers of traditional financial services provided by banks, credit card companies and the like suffer from high rates of theft and fraud. Cards can be cloned, identity theft fraudsters can gain access to your accounts, and everything from payment terminals to ATMs to paypal accounts to in-house bank software are regular hacked into by thieves, leading to the loss of customers’ money. This may also surprise some readers, but Bitcoin has never been hacked. One of the biggest myths about BTC is that using it leaves you open to the risk of hackers stealing your money. This myth was born out of a series of high profile attacks against major digital currency exchanges in which many users lost their coins. These exchanges, often created by naive enthusiasts with little experience during the early days of the network, provided services which involved them taking their customers coins and storing them on central servers. This voided the innate security advantages of the peer-to-peer network and provided a target for hackers and fraudsters with insider access. It was these early and amateurish services and not Bitcoin itself which became a target for hackers. Today, more experienced and professional entrepreneurs are creating exchanges and online wallet services which do not require this kind of centralized service, and in any case you can always choose not to trust your coins to a third party at all, keeping full control of your own wealth yourself…
- You retain full control of your money – In addition to possibly losing all or part of your money, banks also impose restrictions on how you use it. This can take the form of limits on how much you are allowed to withdraw from your account per day, where you are allowed to spend your money (credit card providers famously joined forces with Paypal to deny funding to WikiLeaks, for example, whilst things like gambling and erotic websites are routinely blocked), and enforcing capital controls on how much money you are allowed to transfer out of the country. Nobody has authority over accounts created on a peer-to-peer network other than their owners, so nobody can tell you how and where to use your own money.
- Less Fraud and Misuse – When you set up a direct debit from your bank account you are effectively giving somebody permission to take your money, and trusting that they will only take the amount they are rightly owed. There are many examples in which this doesn’t happen, from simple mistakes clearing out people’s current account and leaving them with nothing to even buy food, to predatory loan companies taking hidden fees and charges from the accounts of vulnerable customers. Likewise, retailers have a huge problem with chargeback fraud, in which a fraudster makes a payment, receives the product, and then claws back the money they spent – effectively stealing the product from the retailer. With Bitcoin you know that the coins you have in your wallet are yours, and nobody can use such semi-legal methods to steal from you.
- Enhanced Financial Privacy – Contrary to its popular image, Bitcoin is not anonymous. All transactions are recorded on a public blockchain which anybody can view, however it is possible to create an ‘account’ without needing to provide anyone with identity documents. This not only means that it is much quicker and easier to start using Bitcoin, or to create a new wallet account, than it is to get a new bank account or card, it also means that users can enjoy a greater level of financial privacy. Today we live in a world where personal information is a valuable commodity which can often be used against you by the people who have access to it, influencing the services you get access to and being employed by marketers to manipulate you. The ability to conduct your finances in private means that you can put your mind at rest that your personal data will not be tracked, sold on to other businesses, or used against you in the future.
- Enhanced Transparency – It may seem like a contradiction to list both privacy and transparency as reasons why you should buy Bitcoin, but if you do choose to reveal the connection between your public addresses and your personal identity then your full financial history will be accessible by anybody without them needing to convince a third party to pass on valuable data. This means that you have full control of your own personal information, to be as private or as transparent as you choose to be. It also means that businesses and public organizations can offer drastically improved levels of transparency and accountability.
- Money Creation Without Usury – The first eight points in this ‘why buy bitcoin?’ section are all practical considerations relating to you as an individual. But there are also broader moral, social, and economic reasons which are important to consider. Many people do not realize that most modern currency is only created when somebody borrows it into existence. This can be because a central bank lends money to other banks or to government, or because a private commercial bank wants to create money out of thin air in order to lend it to one of their customers. This means that somebody owes interest on every dollar, euro, pound (or whatever) in your pocket. Quite aside from the fact that it is dangerous and unfair to allow commercial entities to control a country’s money creation for their own profit, this creates an economy intrinsically based on debt, which requires ever greater levels of debt in order to grow (see: national debt can never be repaid) and is fueling an unsustainable global debt bubble. If everybody were to pay off all of their debts, there would literally be no money. This means that people are not free to choose not to borrow money at interest – if they tried to make this choice then the money supply would start to dry up and those who need money the most would always be forced to start borrowing and paying interest again. This is called ‘usury’. According to major world religions such as Christianity and Islam, usury is highly immoral. But our whole monetary system is incapable of operating without usury. New digital currencies such as Bitcoin provide an alternative system capable of issuing new currency without usury.
Get Started With Bitcoin
All you need to get started is a ‘wallet’ – the software or app you use to receive and to spend your coins – and some coins to put in it. It really is that simple.
To learn more about the different wallet options that are available please take a look at our article: Bitcoin Wallets Explained.
There are many different places you can go to buy coins, depending on where you are in the world and how you want to pay. One popular site which offers peer-to-peer trading and can therefore be used in most countries and with most payment methods is localbitcoins.com. For ease of use you may also like to consider all-in-one services like Coinbase, which provide a way for you to buy coins and a wallet to store and spend them from.
You can also get a small amount for free, just to try it all out before you make that commitment and buy your first Bitcoin, from a faucet website.