If You’ve Ever Wondered What Is A Bitcoin This Post Is For You
This post is the first in a blog series called, ‘What is a Bitcoin’. If you’re short on time and you don’t want to chose to join the free beginner’s guide to bitcoins email course, these posts are for you.
If you just want to know how to get bitcoins read this article. Alternatively, if you have general questions like what is bitcoin mining, you should also read this other post . Both are part of the same What is a Bitcoin series.
Cryptocurrencies and in particular, bitcoins have gained more and more media attention since their emergence in 2009.
Much of the coverage is because of the huge rises in their values. Just this year the cost of 1 bitcoin has risen to $4500. But like many others you might just be wondering what is a bitcoin, how do they work and is it worth buying one?
Despite all the coverage, what is noticeable is the lack of clear information on the subject. If you’re like me, you don’t have an advanced degree in computer programming. So it is difficult to find a clear and simple answer to, “What is a bitcoin?”.
I’ve been following the bitcoin market since 2010. While my interest in primarily for investing, I’ve developed a pretty good understanding of how they work. As a result of all the misinformation on bitcoins I decided to put together the free email course.
If you haven’t completed the course, this blog post is for you. I’ve listed below what I think are the most important facts about bitcoins. Its a massive, ever changing subject so below are only the highlights.
Key fact 1
Bitcoins are a form of digital money. Unlike coins, paper money or gold you can’t touch them. Usually the value of bitcoins is given in US dollars. As of September 2017, the current value of one bitcoin is $4500. Compared to other investment the returns seen has been incredible. For example, an investor in the the S&P 500 might see a return on his money of 8% over one year. Just since the start of 2017, the value of bitcoins has increased 400%!
The chart below shows you clearly how big the gains in bitcoins have been. On the bottom line you see time, the chart covers just over 12 months. The blue line it the price of bitcoins. The orange line on the bottom is the S&P500, the main index in the US for stocks.
The orange looks flat while the blue line, bitcoins has gone into orbit. Millionaires have been made in this market in a very, very short space of time.
Bitcoin price chart
Key fact 2
To buy bitcoins you need a ‘virtual wallet’. Since the money is digital so is the wallet that holds it. While you can buy and sell bitcoins through your home computer, it is more common to use an app on your cellphone. The wallet has two 16 digit passwords contained within it.
One is a public key and the other is the private key. If you decide to buy a bitcoin, your wallet reveals your public key to the wallet of the person selling the bitcoin. This key tells the vendor where to send the bitcoin and the amount being bought. The private key is the password used to confirm the transaction from your side of the purchase.
Key fact 3
You don’t buy a whole bitcoin to invest. Each bitcoin can be split into 100,000,000 units. One unit is also known as a ‘satoshi’. One satoshi is 0.00000001 of one bitcoin.
When buying bitcoins you can specify how much much of your native currency you want to spend. So for example, if you have US dollars (it could be Euros or Japanese Yen etc) and you decide you want to buy $100 worth of bitcoin. So for the current price of bitcoin of $4500 you can buy 0.0045 satoshis – (4500/100,000,000).
Key fact 4
Fact 4 highlights one of bitcoins biggest attractions. Both buyers and sellers can choose not to reveal their real identities. While they can remain anonymous, the identity of their bitcoin wallet will be shown. This identity is collected and added to the ledger of historical transactions of that bitcoin. The ledger is kept on the ‘blockchain’ and allows for purchases and sales to take place with complete anonymity.
You might think this can lead to fraud. However, that would be wrong. It is impossible to forge or counterfeit bitcoins. Because a history of each bitcoin is kept on the blockchain there is a record of every transaction ever mad. Anyone can access and examine the ledger if they wish. The whole history from the day the bitcoin is mined is open to the public to see.
Key fact 5
Above we talk about mining for bitcoins. Each new bitcoin is created when it is mined. The actual process of mining is in reality computers performing very sophisticated calculations. This is ‘digital mining’.
However, just because it is digital don’t think that bitcoins can be mined forever. That would mean there is an infinite supply of bitcoins. An infinite supply of anything would mean that demand would always be met and the price would never be more than zero.
Part of the protocol of bitcoins defines the total number of bitcoins that can ever be mined. That number is 21 million. As of writing this article, there are currently 16 million coin in circulation.
