What is Bitcoin (BTC)? A Beginner’s Guide

From being an idea on an email mailing list, to having a market cap of hundreds of billions of dollars, Bitcoin has experienced unprecedented growth and adoption in just over 13 years. A revolutionary idea when introduced in 2008 by pseudonymous creator Satoshi Nakomoto, Bitcoin has reshaped the concept of money and digital value, paving the way for thousands of other cryptocurrencies in the process. But what actually is this “magic internet money”? Follow this guide as we cover everything you need to know about Bitcoin.

What is Bitcoin?

Bitcoin is the world’s first and most widely recognised cryptocurrency. 

A simple but revolutionary idea, this internet native digital money allows for secure peer-to-peer transactions. Unlike traditional government issued currencies like the Dollar or Euro, Bitcoin is decentralised: so any two people, anywhere in the world, can send Bitcoin to each other without the involvement of an intermediary - such as a bank or another financial institution.

Bitcoin also exists independently of any government or state. It operates on a decentralised peer-to-peer network which is powered by its users. Every Bitcoin transaction is recorded and verified on a shared public ledger called the ‘blockchain’, which tracks who owns what - similar to how a bank tracks its assets.

Bitcoin can refer to the Bitcoin software protocol as well as the network's native monetary asset, which goes by the ticker symbol BTC. 

What is Bitcoin used for?

Over time Bitcoin’s use cases have grown beyond its original intent as a peer-to-peer payment method: 

Payments: One of the main use cases for Bitcoin is an alternative form of payment. Bitcoin can be used to make purchases online or in-store at businesses that accept it. Bitcoin is accepted as a means of payment for goods and services at many merchants, retailers, and stores.

Money Transfer: Bitcoin provides an alternative solution for people who send and receive money internationally through remittances. Many people use the Bitcoin network to send money to friends and family in other countries because it settles faster, more securely, and at lower transactional fees than through legacy settlement methods such as the SWIFT network, where they can be charged exorbitant fees up to 15-20 percent in certain countries.

Store of Value: Bitcoin is also commonly used as an investable asset to store value. Since its inception, the value of Bitcoin has experienced a highly appreciative growth trajectory. Many of its proponents who advocate for Bitcoin as an asset refer to it as ‘Digital Gold’ due to its similar characteristics, namely its scarce supply and durability.

Recommended Reading: How to Buy Bitcoin (BTC) Easily in Australia

How does Bitcoin work?

From a user perspective, Bitcoin is pretty simple. To access it, one just needs a mobile app or computer program that provides a personal Bitcoin wallet address which allows the user to send and receive Bitcoin. 

Behind the scenes, it’s a little more complex. Let’s take a look.

Transactions: Bitcoin transactions are recorded on a public ledger known as the blockchain. When a transaction is made, it is broadcasted to the Bitcoin network and verified by nodes, known as “miners”. Miners compete to solve a cryptographic puzzle, and the first one to solve it adds the transaction to the blockchain, in a block, along with other transactions. 

Security: Bitcoin uses cryptography to ensure the security of transactions. Each Bitcoin wallet has a public key and private key. A public key is an address that identifies your account on the Bitcoin network, and is used to receive funds, sort of like a bank account number. The private key is a unique password used to sign transactions and access funds, similar to a bank PIN. 

Mining: Bitcoin Mining is the process of creating new Bitcoin and verifying transactions and adding them to the blockchain. The Bitcoin network holds a continuous competition in which all the miners around the world race to be the first to solve a complex cryptographic puzzle. Every 10 minutes or so, a winner is found, and the winner updates the Bitcoin ledger with new valid transactions. In exchange for their effort, miners are rewarded with new Bitcoins and transaction fees.

Proof of Work (PoW): To create new Bitcoin, miners must expend computational energy, much like how physical work is needed in order to ‘mine’ gold. Bitcoin uses a Proof-of-Work (PoW) consensus mechanism that relies on a SHA-256 algorithm to form consensus. The more energy that is directed to mining Bitcoin, the more secure the network becomes. The protocol adjusts the Mining Difficulty Rate roughly every 10 minutes, depending how many miners are competing to discover blocks at any given time.

Bitcoin’s Key Network Features 

Decentralised: No single entity controls or owns the Bitcoin network. Instead, it is maintained by a decentralised network of computers (known as nodes) that work together to process and validate transactions on the Bitcoin network. All users of the Bitcoin network collectively retain control of it.

Distributed: All Bitcoin transactions are recorded on a shared public ledger known as the ‘blockchain’. Every node stores copies of the ledger and runs the Bitcoin protocol software. With over 13,000 nodes at the time of writing, the Bitcoin network would continue to function as designed even if the vast majority of network nodes were to go offline simultaneously. 

Permissionless: Anyone, anywhere can participate in the Bitcoin network without needing permission from a central authority. There are no gatekeepers.

Immutable: The Bitcoin blockchain cannot be changed. No entity can manipulate, replace, or falsify data stored on the network, making it censorship resistant.

Transparent: The Bitcoin ledger is fully open-source, so anyone has access to the entire source code at any time.

Bitcoin’s Key Economic Features

Fixed Supply: One of the key parameters of the Bitcoin protocol is that there will only ever be 21 million coins. Of this total supply, just over 19 million bitcoin are currently in circulation, with the last Bitcoin expected to enter the supply in the year 2140. 

Deflationary: The rate at which new Bitcoins are created and added to the circulating supply decreases along a defined schedule that is built into the code. The issuance rate is cut in half approximately every four years, in an event known as ‘the halving’. 

After starting with 50 bitcoins per block in 2009, the current block reward is now 6.25 bitcoin per block. The fourth halving, in 2024, will reduce the issuance to 3.125 BTC, and so on until approximately the year 2136, when the final halving will decrease the block reward to just 0.00000168 BTC.

What gives Bitcoin Value?

At a fundamental level, Bitcoin has value because we, as people, have decided it has value - just like gold.

Many of its proponents value Bitcoin because it shares many of the characteristics associated with traditional money and commodities. Its unique properties as a natively digital form of money also offer many distinct advantages over traditional assets for people to store and exchange value.  

Scarcity: With a total fixed supply capped at 21 million Bitcoins, BTC’s supply is more limited than both gold and silver. Its built-in deflationary supply schedule also ensures Bitcoin’s supply cannot be inflated or manipulated in any way making it a ‘hard asset’. 

Durability: As a purely digital asset, Bitcoin cannot be destroyed. Bitcoins transaction history is permanently etched on its immutable blockchain. 

Portability: Bitcoin can be transferred anywhere in the world at any time via the internet. 

Divisibility: Bitcoin is highly divisible and can be subdivided up to eight decimal places. The smallest unit of currency is named after Bitcoin’s creator, Satoshi. 1 BTC equals 100,000,000 Satoshis (or Sats for short). 

Fungibility: Like cash or gold, almost any Bitcoin can be traded with and easily interchanged with any other Bitcoin.

Acceptability: Bitcoin is accepted by millions of individuals, vendors and businesses globally.  

You can also Buy and Sell Bitcoin for other cryptocurrencies at exchanges like Coinstash, which provides the largest number of crypto assets in Australia.

Who created Bitcoin? 

The question of who created Bitcoin is a fascinating one and has been the source of much speculation and investigation for over a decade. However, their real identity has never been uncovered.

What we do know is that the idea for Bitcoin first appeared in a 2008 White Paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. The listed author of the paper is Satoshi Nakamoto, a presumed pseudonym for a person or group whose true identity remains a mystery.

Nakamoto released the first open-source Bitcoin software client on January 9th, 2009. The Bitcoin genesis block was famously tagged with the headline “Chancellor on brink of second bailout for banks”, in reference to the 2008 Great Financial Crisis.

Nakamoto authored a trove of emails and forum posts offering their thoughts about the future of Bitcoin prior to leaving the project completely in late 2010. Today, hundreds of developers contribute to Bitcoin’s code, where they make everything from routine bug fixes to efficiency improvements. 

How to Buy Bitcoin (BTC) Securely

The easiest way to buy Bitcoin is to purchase it through an online exchange like Coinstash. Coinstash makes it easy to buy, sell, send, receive, and store bitcoin using its simple user-friendly app. 

Get started with your first Bitcoin purchase today!

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