Introduction
Bitcoin has gained significant attention as a decentralized digital currency using a technology called blockchain.
In this tutorial I will provide you with a short guide to understanding Bitcoin starting from its fundamental concepts .
What is Bitcoin?
Bitcoin is a digital currency that operates on a peer-to-peer network and stores transactions on a blockchain. It was introduced in 2009 by an anonymous person or persons using the pseudonym Satoshi Nakamoto. Bitcoin allows users to send and receive funds without the need for intermediaries like banks.
How does Bitcoin work?
Bitcoin transactions are recorded on a public ledger called the blockchain, which is maintained by a network of computers known as nodes.
These nodes validate transactions and secure the network by solving complex mathematical problems.
Bitcoin Mining
Although all nodes are capable of creating blocks on the blockchain in reality only nodes with very fast hardware are capable of doing it.
These nodes are known as miners and the process is called mining.Miners are rewarded with newly created Bitcoins for their efforts.
Bitcoin Wallets
Bitcoin wallets are software applications that allow you to store, send, and receive Bitcoins.
Bitcoin wallets come in various forms, such as desktop, mobile, web, and hardware wallets.
Unlike real world Wallets Bitcoin Wallets don’t actually store Bitcoins. They store public and private keys that give you access to Bitcoins.
Bitcoin Wallets can be connected to the Internet in which case they are known as Hot Wallets whereas if they aren’t permanently connected they are known as Cold wallets.
Cold Wallets are considered more secure than Hot wallets.
Buying Bitcoin Using Exchanges
Crypto currency exchanges are platforms where you can buy and sell Bitcoin using traditional fiat currencies or other crypto currencies.
Most exchanges require users to complete a verification process to comply with regulatory measures. This typically involves providing identification documents.
Just like with banks it is important to choose a reputable exchange with robust security measures to protect your funds.
Using Bitcoin – Sending and Receiving Bitcoins
Bitcoin transactions involve sending funds from one wallet to another by entering the recipient’s public key . The key is similar to a bank account number.
Each Bitcoin transaction may incur a small fee, which is paid to miners as an incentive for including the transaction in the blockchain.
Bitcoin Units
Bitcoin, like other currencies, has its own unit system for measuring and denominating the currency. Here are the commonly used units of Bitcoin:
- Bitcoin (BTC): Bitcoin is the base unit of the cryptocurrency and represents the original digital currency. When people refer to “Bitcoin,” they usually mean this unit. For example, if someone says they own 0.5 BTC, it means they have 0.5 Bitcoin.
- Millibitcoin (mBTC): A millibitcoin is one-thousandth of a Bitcoin (0.001 BTC). It is often used to express smaller amounts of Bitcoin in everyday transactions. For instance, if you see a price listed as 5 mBTC, it means it’s equivalent to 0.005 BTC.
- Microbitcoin (μBTC) or “bits”: A microbitcoin, also known as a “bit,” is one-millionth of a Bitcoin (0.000001 BTC). This unit is used to describe very small amounts of Bitcoin, such as fractions of a cent. It can be helpful when dealing with tiny transaction values .
- Satoshis (sats): The smallest unit of Bitcoin is called a “satoshi,” named after Bitcoin’s mysterious creator, Satoshi Nakamoto. One satoshi represents one hundred millionth of a Bitcoin (0.00000001 BTC).
It’s important to be familiar with these units to accurately understand and communicate Bitcoin values in different contexts and to engage in Bitcoin transactions.
Bitcoin Transactions vs Bank Transactions
Because Bitcoin is a fully decentralised computer network there are no humans to help you with incorrect transactions like there are with normal banks.
With a normal bank account if you send money to the wrong account you can usually get it back by contacting the bank.
With Bitcoin those funds are lost! For this reason you must make sure you are familiar with how Bitcoin works before you start using it in the real world.
Summary
Bitcoin has revolutionized the concept of money and introduced a new era of decentralized digital currencies.
As a complete beginner, understanding the fundamentals, security measures, and currency units of Bitcoin is crucial.
Related Tutorials and Resources
- Bitcoin nodes explained
- How to Set Up a Bitcoin Regtest Test Network
- Bitcoin Test Networks
- Introduction to Bitcoin Core