You’ve probably been hearing a lot recently about Bitcoin and are wondering what the big deal is. Nothing quite like Bitcoin has ever existed before so it is difficult for a lot of people to conceptualize what it is exactly. This is mainly due to the fact that it functions as a combination of many things simultaneously (some of which had never existed before!).
At its core Bitcoin is a combination of the following;
- Digital currency (think electronic cash controlled only by you)
- Digital asset/commodity (think stocks, bonds, etc.)
- A deflationary store of wealth (think gold, or a bank account controlled by you)
- A worldwide payment mechanism (think credit cards and wire transfers, such as Visa, MasterCard, or Western Union)
- A protocol for trustless consensus known as the Blockchain This is probably the most important function of bitcoin and was considered an impossible computer science problem until Bitcoin solved it (see Byzantines Generals Problem for further info). This unique solution is enabling bitcoin to rapidly become a new protocol for value transfer on the internet similar to how TCP/IP or HTTP are used as information transfer protocols. This protocol will allow for thousands of new applications including smart contracts, asset swaps, Distributed Autonomous Organizations (DAOs), smart law, verifiable voting, etc. that are only beginning to be developed.
Some fundamental properties of Bitcoin that make it different from other forms of money;
-
Total supply cap of 21 Million Bitcoins. Each Bitcoin however is easily divisible. A unit breakdown is as follows; 1 Bitcoin (symbol BTC or XBT) = 1,000,000 microbitcoins/ubits/bits = 100,000,000 satoshis. You can think about bits & satoshis how you think of dollars & cents (1 bit = 100 satoshis) as the primary transactional units for Bitcoin.
-
Open source. The bitcoin software is openly available on GitHub for anyone to review, audit, clone, or contribute towards development.
-
Decentralized. Bitcoin uses peer-to-peer technology to operate without the need for any third party middleman. This significantly reduces fees associated with normal payment networks (PayPal, Visa, bank wire, etc.) from 2-3%+ to less than 1%. At the same time decentralization makes it highly resilient (see antifragile) as there is no central point of failure and the protocol can be updated as needed to address any issues that arise.
-
Irreversible. Once a Bitcoin payment is sent and confirmed by the network there is no way to undo the transaction. This is a big bonus for merchants as it eliminates chargebacks. Buyers however should make sure that the party they are transacting with is reputable before sending payment.
This guide tries to address the most common and important concepts below but if you want to learn more the FAQ of the Wiki is a great resource as is Bitcoin.org. If you need some 1 on 1 help check out the friendly folks at /r/bitcoinbeginners.
First off, you can buy any amount of bitcoin (from as little as $5 worth) but never buy more than you would be willing to lose, there are no guarantees that bitcoin will rise in value or even exist in the future although cryptocurrencies in general seem like they are here to stay and bitcoin has a lot of advantages over its competitors.
-
US: Coinbase.com (for linking your bank account), Mycelium mobile wallet with localtrader or Localbitcoins.com (for buying with cash and extra anonymity).
-
Non-US: Mycelium, Localbitcoins.com, Bitstamp, Bitfinex, btc-e, Kraken, Vault of Satoshi, Cavirtex, etc.
Note: Only keep coins on an exchange that are going to be used for trading, if you are just purchasing coins make sure to transfer them to your personal wallet (your private key) immediately after purchase, and make sure your wallet is encrypted. A good rule of thumb is that if you are not the sole possessor of your private keys you don’t own the bitcoins. If you leave your coins on the exchanges you are essentially accepting an IOU from the exchange for your coins as they are the ones holding your private keys.
- Coinmap.org local businesses accepting bitcoins
- Overstock.com everything under the sun
- Gyft.com thousands of retailers such as Amazon, Target, Whole Foods, CVS, Home Depot, Sears, etc.
- Tigerdirect.com all your electronic needs
Anyone can mine for Bitcoins but you will most likely operate at a loss unless you have free electricity and are very knowledgeable about mining in general. It is advised for newcomers to stay away from mining and leave it to the professionals unless you are just interested in it as a hobby and not with the intention of turning a profit. If you want to learn more about mining you can read more here.
Use 2 Factor Authentication (2FA) everywhere it is offered (mobile wallet, exchange, email, etc.). Google Authenticator and Authy are two great apps for handling 2FA. It's important to keep a backup of your 2FA tokens in case your phone gets lost.
Mobile wallets are good for storing as much cash as you would be comfortable carrying in your physical wallet, for convenient “on the go” spending at retailers, etc.
Bitcoin intended for “savings” should be kept in an offline wallet (also known as cold storage or paper wallet). Instructions on how to set up offline wallets can be found here. At a minimum you should disconnect your computer from the internet when generating offline wallets but ideally you should be running on a clean operating system as well (either a computer that has never & will never be online or by booting into a LiveUSB linux system).
Note: Do not use brainwallets unless you are an expert, they are known to be vulnerable to theft unless set up correctly.
-
Coinbase.com is the easiest for newcomers and is generally trusted but be aware that they hold your private keys so if they ever disappeared for any reason you would have no recourse for recovering your coins.
-
Mycelium has a nice interface and allows you to store your private keys so they can’t run away with your coins. They also have a great local trader feature for finding other people who want to buy & sell bitcoin in your area.
-
Blockchain allows you to store your private keys and is well respected in the community.
- Changetip for tipping on reddit (/u/changetip), twitter (@changetip) and github (@changetip) with more coming soon!
- Quickcoin for tipping easily on Facebook
- Coindesk for bitcoin related news
- Tradeblock for news, markets and mining.
The Whitepaper that started it all by none other than Satoshi Nakamoto himself! Still haven't been able to get your question answered? In that case it's fine to post it here however please use the search bar to see if your question has been answered before and remember to follow the community rules outlined on the sidebar to receive a better response. The mods are very busy so please do not message them unless you notice problems with the functionality of the subreddit or if you need your identity verified for an AMA. Welcome to the Bitcoin community!