BITCOIN BEGINNER'S GUIDE 2020
Last Update October 2020
Introduction to Bitcoin - Bitcoin Basics
In this beginner’s guide to Bitcoin, we are going to try to provide you with the Bitcoin basics.
We’re going to discuss topics like;
What is Bitcoin? Why does Bitcoin even exist? What can you do with Bitcoin? Why are there different brands of Bitcoin? How to get started with Bitcoin? How to buy Bitcoin? Where to buy Bitcoin? How to store Bitcoin? And much more…
Throughout this Bitcoin 101 guide, we’ll try to stick to the point as much as we can and forward you to dedicated content articles if you want to dig deeper into a specific topic. Now, while Bitcoin & Blockchain technology can be viewed as complicated, it shouldn’t scare you away. Like, the internet, or e-mail, it’s just a matter of getting used to it. Our aim with this Bitcoin guide is to help you get started and point you in the right direction.
As the Bitcoin phenomenon is still capturing the hearts and minds of thousands and thousands of people around the world on a daily basis, we think it is vital that new entrants into the Bitcoin eco-system can have a clear understanding about what Bitcoin is, or at least decide for themselves what they want Bitcoin to be for them. As you’ll learn, there are many flavors of Bitcoin & applied blockchain technology, once you open ‘Pandora’s Box’ of cryptocurrencies.
A simplified way to look at it is if you’d compare blockchain technology as the technology behind the internet. Blockchain technology will empower many applications, Bitcoin arguably being the most important application. A new kind of money! A monetary system, store of value, means of exchange, transaction platform, all-in-one. People’s money, no more middleman!
Again, don’t let the learning curve scare you away. Once upon a time, we had to buy paper and a pen, type or handwrite a letter, go to the postal office, ask their approval & pay them to send our letter through their ‘transport & delivery system’ to an approved destination & hope it would get there in time. While it took us a while to get used to e-mail, the slow internet, and the wild stories about hacking & spamming, we ended up in a much better place. Not perfect, but much better.
Bitcoin & Blockchain technology are no different. We’re at the beginning. You can decide for yourself whether you stick to learning the basics or if you want to dive really deep into this technology. However, we would recommend, at least take the time to learn the basics, as this technology will potentially dominate our lives at one point in the future, just like the internet & email have done.
Now while for each one of us, the journey that we have taken to get to this Bitcoin Beginner guide will be different. It’s important to acknowledge how you came here.
What attracted you to join the crypto space and learn about Bitcoin?
Are you attracted to it as an investment? A store of value? Internet money? A way to voice your concern about the current monetary system, or are you simply excited about the advent of a blockchain powered smart economy & open society?
Whatever the case may be, do take it into account as you go along and choose how you want to dip your toes into the cryptocurrency and blockchain ecosystem.
The truth is that there are many ways you can learn or participate in the eco-system, and they’re all good, as long as you stay true to yourself.
Example: if you don’t like risk, don’t start trading, and don’t fall for the ‘Lambo’, get rich quick narrative.
If you’re only here for Bitcoin as a store of value, that’s ok, but please live and let live. Allow other people to back different opinions. Why do we say this, you ask? Well, if you haven’t already, you’ll find that the crypto sector has many tribes. Some only like Bitcoin, others will favour Ethereum or other altcoins.
We’d suggest to keep an open mind, learn what you need to and decide for yourself what Bitcoin and cryptocurrency should be. Remember that your actions, your voice and thoughts will help define the direction of this movement.
In conclusion -in our opinion – this is an amazing, exciting sector with the potential to revolutionize many aspects of our lives & It just makes sense to educate yourself, have your own opinion and enjoy the ride!
What is Bitcoin?
Bitcoin is meant to be peer-to-peer electronic cash. Internet money that we can send to one another without having to ask permission to anyone. – NO banks, no middlemen!
Bitcoin is meant to be scarce & NOT issued by any government, money which you cannot create at will.
In total, no more than 21 million Bitcoin will ever be created.
The issuance of Bitcoin follows a strict mechanism in which those who protect the Bitcoin network (called miners) are rewarded with newly created Bitcoin. (current block reward is 12.5 Bitcoin approximately every 10 min). This block reward halves every 4 years & It will take roughly 120 years to issue all the Bitcoin.
The quote hereunder comes from the original Bitcoin white paper:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
How does Bitcoin Work?
In order to avoid overcomplicating the explanation of how Bitcoin works on a technical level let’s us just remember the following:
- The Bitcoin network refers to a group of computers running a software containing the ‘Bitcoin algorithm.
- Anyone can run this algorithm anywhere around the world- No permission needed to provide computing power and participate in securing the network and ‘mine Bitcoin’.
- Every computer running this algorithm will essentially be rewarded with newly mined Bitcoin, in return for their computing power which is powering and securing the network.
- The more computing power running this algorithm, the more secure the network becomes.
- about every 10 minutes (1 block per 10 minutes) this network comes to an agreement of which new transactions have been registered on the public blockchain.
To learn more about how Bitcoin works, how it was created, and who created it, you read about it in our article “What is Bitcoin“. However, right now, you are packed with the knowledge that Bitcoin is a new kind of internet money – secured by a decentralised network of computers- which can not be debased and that is a key part of the puzzle if you want to understand Bitcoin.
Why did Bitcoin emerge out of the woodworks? Why Bitcoin? Well, while the birth of the internet age has brought us amazing new opportunities, it also brought us new problems to solve. How can you ensure privacy in a digital world? Is it possible to create internet money, and if so, how can you make sure it cannot be ‘copied’, ”duplicated’?
In a way, Bitcoin is the confluence of decades of research work done by a group of cryptographic experts called the ‘cypherpunks’ on the subject of privacy, and the opposition against the eternal money printing philosophy of governments around the world.
If you want to read some more on the cypherpunks and its origins, we’d refer you to the following medium article:
Money printing philosophy of governments around the world
If you don’t really understand what money printing means, or even why it is not in your best interest, we want to give you the following thought process. If you are, however, already well acquainted with the the concept of currency debasement, don’t hesitate to jump to the next block.
We work & convert our time/energy into a currency
So, when you go to work to provide for yourself and your family, you are effectively exchanging your precious ‘time’ for ‘money’. In other words, the money you receive in exchange for your time is meant to preserve your energy for a later date. While you will use some of that money, “stored energy” for your daily expenses, you will keep a portion as ‘savings’. Your savings are really ‘stored time or economic energy’ denominated the currency (Euro, Dollar, and so on…) you are using, with the idea to save it for a future expense.
However, think about this! Whenever governments create money out of thin air they are actually stealing your ‘saved energy’ bit by bit, every day. What’s more, by stacking enormous amounts of debt, they are robbing time from your children and future generations.
This magic trick used by governments is not easily detected by the masses who are too busy working to accumulate wealth for themselves and their family. Let’s face it! We open up our bank account, see a hopefully growing number of Euro’s, Dollars in our account and we think we are richer. For a brief moment, we are. Until the money printer goes brrrr… 🙂
…but why does money printing affect the value of my wealth?
Imagine a glass of tasty milk representing your ‘saved energy based on your economic activity’, now add a drop of water to it for everyday. The water represents money created by governments and banks out of thin air, not backed by the creation of economic value. While you might not notice at first, I promise you that over time, it won’t taste anything like the original milk and it will simply lose its value.
In other words, years of your hard work and oh so precious time are taken from you as fiat money gets devaluated with every additional unit of currency that is being printed. What’s worse, you probably are saving for when you become older, for when you plan to retire, for a time where you are most at risk of not being able to provide for yourself. Think about that!
So why Bitcoin? That’s why Bitcoin!
People around the world deserve an asset in which they can store their economic energy without having to worry about government creating more money to cover up for failed socio-economic policies.
Now, if you are reading this, and you happen be part of the government, don’t think of this as a personal attack, because it is not. It is simply a belief that government as a whole will be more efficient over time when there is true accountability and an incentive to be prudent and efficient. Those among you in government who have better ideas will actually start leading en helping our society, rather than those who are just ‘smooth talking’ they’re way to the top.
In other words, a sound & supranational store of value like Bitcoin can form the basis of a new world financial system in which true value creators are being rewarded. If you wonder who is this true value creator… it’s you. It’s your hard work, it’s your time. No one should be able to steal your stored energy – your money. Bitcoin cannot be diluted, it’s that simple.
What can you do with Bitcoin
When we try to explain what Bitcoin is, we easily fall into the trap of describing this permissionless, un-confiscatable magic money, however, do we pay enough attention to explaining what we can do with Bitcoin in a practical way? So, what can you do with a Bitcoin? In this segment, we’ll explore the current utilities of Bitcoin. Can you buy something with Bitcoin? Can we send it to one another? Can you earn interest on your Bitcoin holdings?
What can you do with Bitcoin?
- Send Bitcoin to any Bitcoin public address on the Bitcoin Network via Bitcoin transaction
- Receive Bitcoin on your public address through the Bitcoin Network
- Buy Products and Services with Bitcoin
- Hold Bitcoin as an investment
- Hold Bitcoin as an inflation hedge
- Hold Bitcoin as savings
- Earn interest on your Bitcoin
- Use your Bitcoin as collateral
Sending Bitcoin & Receiving Bitcoin
Bitcoin allows you to send and receive any amount of Bitcoin across the Bitcoin network without having to ask permission to a centralized entity. As Bitcoin pretends to be a store of value and means of exchange, this feature is an essential part of what makes the Bitcoin network valuable.
Did you know that each Bitcoin is divisible into one hundred million satoshi’s?
Why use the Bitcoin network? What advantage does it have over traditional save haven assets like gold or the ‘fiat banking’ network?
Comparing Bitcoin to gold:
Whenever you want to move physical gold from one place to another, it will need to be physically transported. This is cumbersome, costly, and poses additional security issues in times of war. Having said that, we do also like gold for a different set of reasons!
A key advantage that Bitcoin has over the fiat banking system:
If you want to send fiat (euro’s or dollars) via your bank, you essentially have to ask permission every time you transfer your funds. In times of crisis banks and governments can freeze your assets at any time. This has happened before and will probably happen again.
As long as the sender knows your Bitcoin public address, he or she can send you Bitcoin. You can easily verify your Bitcoin balance by consulting one of many Blockchain explorers. On the flip side, you must understand that anyone in possession of your of your Bitcoin public address can equally verify its balance, so you’ll need to learn how to manage your different Bitcoin addresses in such a way where there is at least one public Bitcoin address which you keep private. There are a couple ways you could set this up, but this is not part of this introduction to Bitcoin right now.
How can you send Bitcoin?
If you want to send Bitcoin, you’ll need the Bitcoin public address of the person or entity you want to send Bitcoin to, and you’ll need to connect to a service that is able to connect with the Bitcoin blockchain network. A good and easy choice is the Bitcoin.com wallet, with over 11 million downloads worldwide.
You’ll find a large number of Bitcoin service providers offering Bitcoin mobile wallets, Bitcoin desktop wallets, Web wallets, cryptocurrency exchanges, and so on.
Alternatively, you could download a full node of the Bitcoin Network on your computer and make your connection with the Bitcoin network.
However, no need to worry about this right now. Let’s continue to unravel some of the Bitcoin basics.
(However, if you can’t wait and you already want to dive deeper and learn about the different kinds of cryptocurrency wallets, check out our article “5 types of cryptocurrency wallets“)
Buying goods and services with Bitcoin. What can you buy with Bitcoin?
Spend your Bitcoin by transacting directly on the Bitcoin network:
Nowadays, you can rather easily spend your Bitcoin in thousands of stores around the world who are accepting Bitcoin directly. For your daily spending and small transactions, Bitcoin Cash (BCH) will be preferable to use, as the Bitcoin BTC network currently has high transaction fees, making it unusable as cash. (We will get into the different versions of Bitcoin in the next segment.) At the time of writing Transaction cost for the BTC network is 2.2 USD per transaction. Transaction cost on the BCH network 0,004 USD/ transaction.
Map of where you can spend your Bitcoin: https://map.bitcoin.com/
Spend your Bitcoin with Bitcoin Debit card services:
Another way to spend your Bitcoin is to use a Bitcoin debit card service. While this allows you to spend your Bitcoin in all locations where visa or MasterCard are used, do take into account that by doing this, you are re-introducing a middleman.
There are many different crypto debit-cards available in the market with which you can spend your Bitcoin or other cryptocurrencies. Two popular choices are Crypto.com and swipe.io
Bitcoin as a savings account – ‘Hodling’ Bitcoin?
Bitcoin as an inflation hedge?
One of the main reasons that Bitcoin is seen as the ideal asset to hold as savings, has to do with Bitcoin’s ability to function as an inflation hedge. As no more than 21 million Bitcoin will ever be created, users of the Bitcoin network find solace in the fact that this is money that cannot be debased into oblivion, and thus acts as a hedge against inflation.
Bitcoin as an investment?
Bitcoin is increasingly becoming a preferred asset to be used in an investment portfolio.
Traders and investors often mention some of the following reasons for this:
- Investment in Bitcoin as part of an investment portfolio as an inflation hedge. (digital gold)
- Investing in Bitcoin as an asymmetric investment
- Investing in Bitcoin as an uncorrelated asset
- Investment in Bitcoin for its network growth potential. The larger the network, the higher the network value
- Investing/trading in Bitcoin for its high volatility
Earning interest with Bitcoin
You can now also earn interest on your Bitcoin, through certain Bitcoin interest account providers like Blockfi, Celsius Network, and others. These accounts are also referred to as Bitcoin saving accounts. However, you should know that these accounts are not to be compared to accounts in the traditional banking sector.
If you want to learn more about how you can earn interest on your Bitcoin holdings and decide if this is something for you, don’t hesitate to check out ‘Best Bitcoin Interest Account‘
Use your Bitcoin as collateral
Platforms like Lend, BlockFI, Celsius Network, and others are accepting Bitcoin as collateral for taking out a loan. So, instead of selling your Bitcoin or other cryptocurrency assets, you are able to take out a loan against the value of the deposited Bitcoin.
Ok, so we’ve covered some of the main reasons why Bitcoin is becoming so popular. We’ve briefly touched on what we can actually do with Bitcoin today, however, we still have to touch on an important topic. Why is there anything else than just Bitcoin? What is all this talk about other Bitcoin networks and altcoins?
Different Bitcoin Flavours or Bitcoin Brands & Altcoins
As we’ve learned in our segment ‘what is Bitcoin’, we now understand that Bitcoin does not have a state actor deciding what the rules are for Bitcoin & its monetary rules are hardcoded in the Bitcoin algorithm. So, essentially there’s an agreement – consensus- among people around the world that the Bitcoin rules are fair to be considered as a valuable form of money, and Bitcoin’s proven utility is driving a constant inflow of new users of the network.
Ok, great, but why are there so many other cryptocurrencies and Bitcoin brands on the market?
Why is there not just ‘Bitcoin’?
Well to start understanding this, it’s important that we understand the following:
- Technology is only valuable if people find it provides utility and therefore, use it. When technology is being used, it’s like an unwritten social contract where the user states ” as long as you provide the utility that I desire, I’ll use the technology”. In other words, the Bitcoin Network derives its value from the utility it provides to its users. The larger the network of users, the larger the value of the network.
- While people have decided that they find value in the rules which are hard-coded in the Bitcoin network, this does not mean that this ” technology, idea, code” cannot be copied or slightly altered depending on an alternative vision for Bitcoin. However, you cannot copy a network effect! If people are not using your network, there is no value.
- Additionally, the breakthrough of Bitcoin has opened the door for many more applications – beyond internet money – which use Blockchain technology in order to provide utility. If you check coingecko.com or coinmarketcap.com for example you’ll find a list of over 5000 cryptocurrencies who are trying to convince the world they have utility. Obviously, most do not and will disappear. However, those with utility for the world will survive as long as they have a strong network of users.
So, back to our earlier question. Why is there not just Bitcoin?
Simply said, there are different schools of thought on what Bitcoin should be & this has led to differences in opinion on how the Bitcoin Network should evolve and solve its scaling issues.
As a result, different groups of people have tried, or are trying, to express their vision for Bitcoin by building & supporting alternative cryptocurrency blockchain networks.
Each network in a way pursues its own narrative, whether that be internet money as cash, a store of value, decentralized smart contract platforms, decentralized content storage platforms, decentralized social platforms, and so on.
In the case of Bitcoin, until now, the main battle has been about the choice between Bitcoin as a store of value vs Bitcoin as cash. This has led to a very contentious hard fork and which resulted into a large split in the Bitcoin community. Bitcoin (BTC) – store of value narrative & Bitcoin Cash (BCH) – means of exchange narrative.
A hard fork means that a network splits into two separate networks, each following its own consensus rules.
Over the past 10+ years, since the inception of Bitcoin in 2009, there actually have been many forks, and alternative versions of Bitcoin, however as we’ve noted before, only the strongest networks survive in this environment. People vote with their money and decide which Bitcoin network provides them with the most utility.
An example of Bitcoin copy is Litecoin (LTC): Litecoin, is similar to Bitcoin, but it has faster block propagation.
Example of a Bitcoin Hard Fork is Bitcoin Cash (BCH), which eventually also went through a hard fork resulting in the birth of Bitcoin SV (BSV).
Bitcoin copy VS Bitcoin Forks
A soft fork will only result in an upgraded network, the community remains united. A hard fork on the other hand, indicates a split in the community, where some will prefer one network over the other, or decide to support them both. When such a hard fork occurs, both networks will share the same history of stored transactions, however, they will now each independently have their own set of transactions stored on a separate network going forward.
What happens to my Bitcoin token when a fork occurs?
In the case of a soft fork – Nothing happens
In the case of a hard fork – You now have 2 tokens. The original token and the same amount in the new, or hard forked network.
How to buy bitcoin? Where can you buy Bicoin?
Nowadays there are many ways to buy Bitcoin. However, efore you go out and buy Bitcoin, just remember that you should consider taking true ownership of your Bitcoin. (This is true for any cryptocurrency you consider purchasing!)
What does true ownership of your Bitcoin Mean?
There’s a saying in the Bitcoin community and the cryptocurrency community at large, which states, “not your keys, not your Bitcoin”, or not your keys, not your coins. This essentially refers to the fact that you can either take full control & responsibility of your Bitcoin by keeping the private keys with you or you can entrust a third party to do that for you. Much like you could have cash in your hands, or cash in the bank. If your bank blocks your assets, there is nothing you can do.
Where to get or buy Bitcoin?
- Buy Bitcoin on a cryptocurrency exchange:
- Mine Bitcoin in instead of buying it:
- Buy Bitcoin From a friend:
- Buy Bitcoin via an OTC desk:
- Get Free Bitcoin through a Bitcoin faucet:
- Kiosk – Bitcoin ATM
- Bitcoin voucher
1) Buy Bitcoin on a cryptocurrency exchange:
Buying Bitcoin cryptocurrency on a cryptocurrency exchange is usually a two-step process where you first fund your account with your fiat currency, like USD, EURO, GBP,… Once your account is funded, you can now simply exchange your fiat for Bitcoin or any other cryptocurrency offered by that exchange.
Sometimes you can also pay immediately for the cryptocurrency with your VISA or MasterCard. However, be aware that the cost applied when purchasing Bitcoin with a credit or debit card is usually pretty high. Usually between 5%-8%!
Depending on the exchange you’ll have to go through the process of KYC verification.
Well-known & usually recommended exchanges are:
Coinbase.com: Coinbase.com is a beginner-friendly exchange. (They also have Coinbase pro, if you are interested in trading your assets.)
Kraken: Kraken is more oriented towards trading
The easiest way might be xxx, however, if you want to have a more detailed overview about where you can buy Bitcoin. Read up on it here: How and where to buy Bitcoin
2) Mine Bitcoin in instead of buying it:
Mining Bitcoin refers to using your own, or rented computing power to help to secure the Bitcoin network. It used to be profitable to doing so with your own regular computer, however, over time it has become too hard to compete with professional or dedicated ASIC miner computers. You can however easily start an account with www.genesis-mining.com/ or mining.bitcoin.com/ There you can purchase a plan to mine Bitcoin or other cryptocurrencies. As it gets mined, it will be sent to your Bitcoin Wallet.
3) Buy Bitcoin From a friend:
Sometimes, the easiest way is to have a friend sent you some Bitcoin and pay him directly. This allows you to go through the steps with someone you trust & allows you to hop on board with less of a headache :-). Also, your friend will probably not be charging any extra fees.
4) Buy Bitcoin via an OTC desk:
Buying bitcoin through an Over-the-counter (OTC) trading desk is also an option, however, this personalized service is geared towards large buyers, institutions, family offices, and so on. An OTC desk will help them to buy or sell large amounts of Bitcoin in a manner where the large order does not necessarily affect the price.
5) Get Free Bitcoin through a Bitcoin faucet:
If you just want to test out how Bitcoin works before you invest in it, you can search for a Bitcoin faucet. Bitcoin faucets used to be very popular, however as the transaction fees on the BTC version of Bitcoin became too high, these faucets for BTC have disappeared.
However, you will still be able to play around with Bitcoin Cash (BCH) faucets or Bitcoin SV (BSV) faucets for example. Both these Bitcoin networks have very small fees allowing you to play around and send satoshi’s over the Blockchain network. (1 Bitcoin equals one hundred million satoshi).
In essence, with a free amount of satoshi, you’ll be able to test everything out for yourself. Create wallets, fund them with the free Bitcoin, send bitcoin from one wallet to another, and so on. If you want some free Bitcoin Cash just follow the link below.
Bitcoin Cash (BCH) Faucet – https://free.bitcoin.com/
6) Kiosk – Bitcoin ATM
The number of Bitcoin ATM locations is growing rapidly worldwide. According to CoinAtmRadar.com there are currently over 10500 Bitcoin ATM locations.
7) Bitcoin Voucher – Bitcoin Coupon
Another easy way to purchase Bitcoin is to buy a Bitcoin voucher. This can easily be done online and is also a great way to introduce someone to Bitcoin by gifting them some Bitcoin.
How to store Bitcoin?
You can store your Bitcoin on an exchange, on a mobile wallet or desktop wallet, paper wallet, or hardware wallet. What is the best way to store your Bitcoin?
It really depends on how you want to participate in the Bitcoin ecosystem. As a rule of thumb, for small amounts, you’ll be good with all of the above. Just remember that you could lose it. If you want to store larger amounts of Bitcoin, we’d suggest you check our article. “Safest Ways To Hold Your Crypto?“
Bitcoin Getting Started - Final thoughts
As we’ve noted in the introduction, it makes sense to learn about Bitcoin. Over time, it will become clear that Bitcoin, cryptocurrency, and blockchain technology are here to stay. The ideas behind them are much too powerful to ignore.
We hope that this ‘Bitcoin Getting Started Guide’ has been helpful as a place to start. We are fully aware that we’ve just scratched the surface but hope it provides a practical way to get started and allows you to dig deeper whenever you are interested and ready for it.
We’ll keep this guide updated and link to new material as we go along. Thanks for your time & have a nice day!