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Beginner Guide What is Bitcoin?

Discussion in 'Beginner's Bootcamp' started by xyzzy, Jan 10, 2018.

  1. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    Since you are on this forum, we assume you are interesting in becoming a Bitcoin trader or investor.

    The first thing we recommend before jumping into the crypto trading world is having a basic understanding of the technology behind Bitcoin and cryptocurrencies. You don’t want to throw your hard earned money at something you don’t understand. That’s the quickest way to lose it.

    Bitcoin Basics
    So, what is Bitcoin? Well, simply put, Bitcoin is a cryptocurrency, a type of digital currency.

    In a nutshell, cryptocurrencies are digital currencies that utilize encryption and cryptography to control the generation of new units of currency as well as secure and verify transactions of that currency, without needing a third party mediator, such as a bank (or a “Federal Reserve”). What does that mean? It means we can trade crypto for goods and services without using paper/fiat money, the value of which is determined by governments and private banking institutions. Instead, its value is controlled and regulated by a decentralized computer software network.

    Sounds pretty disruptive to the status quo right? That’s because it is. Good bye paper money.

    The Blockchain
    So how does it work and how can it replace the current system of paper money and banks? From a high level perspective, Bitcoin and other cryptocurrencies act as a decentralized, software banking system that functions as a distributed ledger that tracks transactions. Every Bitcoin transaction is validated and recorded on something called the blockchain, which we will get to in a bit. For now, check out the graphic below for a comparison between the current monetary system and cryptocurrencies.

    distributed_ledger.jpg

    See the difference here? Currently we use a centralized ledgers which are controlled by banks. Bitcoin allows us to use and regulate money via a distributed ledger, which is updated and maintained by a network, not by a single entity. This distributed ledger is called the blockchain. Check out the graphic below for a snapshot of how the blockchain works. Let’s walk through each of the 6 steps.

    How-Blockchain-works1.png

    Step 1

    Ok, so let’s say you want to send Bitcoin to a family member. First, your Bitcoin is stored in an account. The name of that account is a long string of random letters and numbers. For example, our Bitcoin Tip Jar public address for Masters of Crypto is: “1AU7Zyj2VMiGUN2ge4wUG3Uq698ibSSqUX”. This is what is called your public address. It is public, meaning people can look it up on the blockchain and see all transactions in and out of your account. However, no one will know, at least not directly, who owns that address, so don’t worry too much about privacy.

    Now, your public address is secured by what is called a private key. You can think of it as the password used to access your public address. Your private key allows you to authorize the use of the Bitcoin in your public address, so it is crucial that you record it down somewhere safe and never lose it. There are many lost Bitcoins in public addresses with lost private keys. Don’t be one of them. We think it also goes without saying that just like passwords, you don’t want to go around sharing your private key to others.

    So, to send Bitcoin to a family member, you use your private key to access your public address and send Bitcoin to your family member’s public address.

    Step 2

    The transaction is represented online as a “block”, which will have the information associated with that transaction. Something like, public address A sent X amount of Bitcoin to public address B at this day and time.

    Step 3 & 4

    Now that transaction block that you initiated gets broadcasted throughout the network, and miners take note. To simplify it as much as possible, mining is the procedure of which transactions are validated on the blockchain. When you send Bitcoin to a family member, someone must “mine” the transaction to validate it. To ensure it is a real transaction.

    This validation consumes a lot of computing power and energy. When it is validated, the miner is rewarded with Bitcoin, and the transaction is added to the blockchain and finally goes through. Every time you send or receive Bitcoin, that transaction is validated by a miner (or miners) somewhere around the world. Pretty cool, ya?

    Step 5

    Once the transaction block is validated, it is added to the public blockchain for all to see. Now you understand why it is called the blockchain. It is a sequence of blocks of transactions that have been validated by miners and linked together through a sequential chain.

    Step 6

    Congratulations! You just sent Bitcoin to a family member! Without a bank. Without a government. Hopefully you should begin to see now how it works and how it can impact how we exchange value.

    This guide should help answer the question "What is Bitcoin", so next time a family or friend asks that question, you will know to send them this guide :).
     
  2. Sean Louk

    Sean Louk Scholar Premium Member

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    Nice article. Everyone here should already know what Bitcoin is, though. One would hope...
     
    xyzzy likes this.
  3. Shren Coastapps

    Shren Coastapps Contributor

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    Great Information! Your step by step guide is appreciable.
     
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  4. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    You would be surprised! :p

    I am glad you liked it @Shren Coastapps!
     
  5. Neumal Fernando

    Neumal Fernando Scholar

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    Thank you for sharing! :)
     
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  6. JessAnd

    JessAnd Beginner

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    Thank you! Very useful!
     
  7. VictorVEnciso

    VictorVEnciso Contributor

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    Very well illustrated! I might have to use this picture to explain it to my members
     
  8. Carlos Lopez

    Carlos Lopez Contributor

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    I found this information very useful! I can't wait to learn more about it
     
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  9. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    I'm glad to hear that Carlos!
     
  10. Jessica Amero

    Jessica Amero Contributor

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    Sharing information is always good, thanks!
     
  11. Abril Keys

    Abril Keys Contributor

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    Adding more information is always better, but I'm agree with you :emoji_sunglasses:
     
  12. sasory

    sasory Contributor

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  13. nguyenhoanghuuduy

    nguyenhoanghuuduy Beginner

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  14. Abril Keys

    Abril Keys Contributor

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    xyzzy likes this.
  15. xyzzy

    xyzzy Master of None Staff Member Super Admin

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    Of course, glad you found this useful Abril!
     
  16. CryptoICOs

    CryptoICOs Contributor

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    Very well written. Thank you!
     
  17. Leif Staff

    Leif Staff Beginner

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    Step by Step Information, Thank you very much! really helps alot
     
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  18. Bilkymesk

    Bilkymesk Beginner

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    Thanks for your nice post. Can you share more about how to earn and keep bitcoins safe?
     
  19. CryptoRyuzaki

    CryptoRyuzaki Scholar

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    Earning bitcoins has few options:
    1. Trading Cryptocurrencies (Similar to stock market) - For these you need to use Cryptocurrency Exchanges like Binance, KuCoin to trade between cryptocurrencies
    2. Mining - Although technically it can be done with a computer with a mining software, it is not profitable (Electricity spent vs Cryptocoins generated). To be profitable, you need specialized cryptocurrency mining hardware (like Antminer)
    3. Air Drops and Bounties - New cryptocurrencies are introduced frequently and they provide few free coins as drop drops/signup(to market and promote their new cryptocoins) and for other things like blogging about the cryptocoin, joining their twitter handle and retweeting their tweets etc.

    I have a list of cryptocurrencies which offer free sign up bonus - you can find the link for that in my signature. Feel free to ask any questions on this forum that you have.
     
  20. geoffreycelen

    geoffreycelen Contributor

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    Thank you for explaining all the aspects of bitcoin in a very interesting way. It is very useful to the beginners.If you want to stay updated with the latest updates, trends about cryptocurrency and bitcoin you can visit one of the most updated website crypto news trends
     

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