Bitcoin 101: A Beginner’s Guide to Understanding Cryptocurrency
Where should one begin with Bitcoin? As an essential first step, it’s important to know that Bitcoin is a cryptocurrency, meaning it’s a digital or virtual form of money. Unlike traditional forms of money, Bitcoin isn’t controlled by any single entity or government. Instead, it operates on a global scale, which means that no individual government has control over it. This unique feature is a significant part of Bitcoin’s appeal, and we’ll explore more of this as we progress.
Welcome to a series of posts designed specifically for beginners with little to no experience with cryptocurrencies. The aim is to provide a guiding light through the often confusing world of digital currencies and help you avoid some common pitfalls.
Recent news might have highlighted various concerns about Bitcoin, such as the Fear, Uncertainty, and Doubt (FUD) around China’s ban on Bitcoin mining, its high energy consumption, or the FTX scandal. However, the important thing to remember is that Bitcoin continues to operate regardless of these factors. Through this series, we will delve deeper into why these issues may not significantly impact Bitcoin’s long-term growth and success.
Let’s take a step back and delve into a little bit of history. The concept of Bitcoin was first introduced in a white paper published in 2008 by an anonymous individual or group using the pseudonym Satoshi Nakamoto. You can read the original paper to gain an in-depth understanding, although this series aims to distill the basics for newcomers.
Understanding Bitcoin requires a clear concept of what money is. Essentially, money is an item that serves as a store of value, a unit of account, and a medium of exchange. Furthermore, it should be durable, portable, divisible, uniform, have a limited supply, and be widely acceptable. We use money every day, typically in the form of government-issued currencies like the U.S. dollar, which meet these criteria and characteristics to varying degrees.
Now, how does Bitcoin fit into this framework?
Store of value: This is a debatable point. While some argue that Bitcoin acts as a reliable store of value, others disagree. Check out this article from Binance Academy for more perspective on this topic.
Unit of account: Bitcoin can easily be considered a unit of account as its gain or loss is viewed as profit or loss, respectively.
Medium of exchange: With increasing acceptance globally, Bitcoin is gradually becoming a mainstream medium of exchange. We’ll dive deeper into this in future posts.
Durable: The durability of Bitcoin hinges on its storage security. Carelessness can lead to loss of Bitcoin, a topic we’ll explore later.
Portable: Given its digital nature, Bitcoin can be transferred anywhere with ease.
Divisible: Bitcoin is highly divisible. The smallest unit of a Bitcoin is a Satoshi (SAT), and one Bitcoin equals one hundred million SATs.
Uniform: All Bitcoins are identical, meaning they’re fungible. This uniformity ensures that one Bitcoin can be replaced with another without any difference.
Limited supply: The total number of Bitcoins that will ever exist is capped at 21 million. At the time of this post, approximately 18.7 million Bitcoins are in circulation, with some having been lost over time. The last Bitcoin is expected to be mined in 2140, a milestone we likely won’t witness.
Acceptable: While Bitcoin is widely accepted in many parts of the world, there are still areas where its use is restricted.
We are still in the early stages of Bitcoin’s journey. Its current prices are only the tip of the iceberg compared to what the future potentially holds. We’ll continue to delve into this exciting world of cryptocurrencies in future posts. For now, let’s pause here to avoid overwhelming you with too much information at once. Please feel free to pose any questions, and stay tuned for more!
Here are the other volumes of Bitcoin Baby Steps:
Thank you for reading Bitcoin Baby Steps!
Thanks Rick. I look forward to a better understanding! Keep posting!
Thanks Rick, very helpful