What is Bitcoin? An idiot-proof guide for everyone focused on learning BTC.
Ever heard about bitcoin? Bitcoin is quite possibly one of the most innovative inventions in the computer world; some may even argue Bitcoin’s creation as innovative as the creation of the WWW (the Internet). Bitcoin is a somewhat confusing digital currency that has been used since 2009, invented in 2008 by an anonymous developer from MIT. There is a small percentage of people in the United States who have heard of and have used bitcoin before, but the knowledge of bitcoin needs to be shared to others. Bitcoin is the perfect example of micro-economics at its finest. What is bitcoin? How do you store your bitcoins? What can I use it for economically, and more importantly, why should we care? All of these questions will be answered and discussed as simply as possible in the next few paragraphs.
I think the best way to explain the rest of my article is by revisiting a blog write-up that I did concerning Bitcoin, titled “Introduction to Bitcoin – 101 Part 1”, written a couple of years ago. You can find the direct link to my old blog tucked away at www.gobbah.tumblr.com – I take full credit for the work. Unfortunately, both my other two blogs www.talkaboutbitco.in and www.wanderthedark.net are both gone for good now. I fortunately found my basic write-up of Bitcoin on my old Tumblr, and will use its content for this paper. In this discourse I will be discussing bitcoin, what bitcoin is, how to use and obtain bitcoin, different bitcoin wallets and which wallet to use, the bitcoin blockchain, and more. Let’s dive in!
What are bitcoins? Most people have heard about ‘bitcoins’ at this point, but have no idea what they actually are and what they’re used for/their use. To start, bitcoins are just another form of currency, except decentralized. Think of it this way — you offer to sell me a computer, and I hand you the cash directly. No eBay, no Dell, no middleman. With bitcoins, there are no chargebacks — this is one of the beauties of bitcoins; this makes merchants lives much easier.
Not only are these bitcoins decentralized, they are (almost) anonymous — no one can see your bitcoins; how many bitcoins you have, where they’re stored, etc. Unfortunately, sites like the Silk Road (which additionally sell legitimate items, by the way) give bitcoins a bad aura, making it seem like a drug-only related currency. This is far from the truth. At this point, bitcoins are being used in so many places. We have the first bar accepting bitcoin payments in China and we have Subways in Pennsylvania that accept bitcoin payments.
Now you might be asking yourself — how do I pay, now that I have a digital form of money? Easy. You simply can scan a QR with your smartphone and send money; sites like coinbase.com even support services where you can simply text Coinbase “send 20$ to x@x,com” and 20USD worth of bitcoin’s will be taken out of your bitcoin storage. More commonly, however, bitcoins are sent through an instant (besides the whole confirmations part, which I’ll explain later) transfer to another bitcoin address.
We know what a bitcoin is and know how to pay with it, but where are we even putting these coins? These bitcoins are stored in three different kinds of wallets. These three forms of wallets are known as 1) software wallets 2) web wallets and 3) cold wallets. All of these have their pros and cons. Software wallets are exactly what they sound like — a program you install to your computer. The official client (which I recommend to more serious bitcoin users, as it’s the most safe/stable) for bitcoin is bitcoin-qt, which can be downloaded off of bitcoin.org (bitcoin’s official website). If you’re a newer user to software wallets, I’d recommend MultiBit instead — you don’t have to download the blockchain.
Now, the blockchain is one problem of using the bitcoin-qt program. Imagine every PayPal transaction made and recorded, and you have to download the whole log file of every transaction; this is essentially what a blockchain is. The official client will download the whole client, making your bitcoin network always enabled and up to date. On the other hand, this obviously takes a long time to download — get a cup of tea and do something else when you’re downloading your blockchain; it’s going to take hours. There’s been a lot of bitcoin transactions, to put it simply. MultiBit, while not as stable (and obviously not developed by members of the Bitcoin Foundation) allows you to instantly send and receive bitcoins without waiting — it skips the whole blockchain download.
Why not use a web wallet? Wouldn’t that be the much easier way to transfer bitcoins? It actually is — much faster. However, always remind yourself that your coins are stored on a website only (thankfully, some sites put these coins into cold wallets, which I’ll get to in a second). Obviously, these sites are at risk of being hacked and having your bitcoins stolen. Only recently, self-proclaimed “safest web wallet” inputs.io was hacked, and 250,000 bitcoins were stolen. 250,000*750USD (bitcoin was 750USD two years ago when this happened, now it is about 250USD) is a lot of money, if you ask me. If you’re going to use a web wallet, please use blockchain.info. This site allows you to (literally) create a bitcoin wallet for you within 15 seconds with no email needed — thankfully, this site puts most of its coins into cold storage.
Now, you might be asking ‘what is this cold storage he keeps talking about?’ Cold wallets are simply pieces of paper, for example, with your ‘public’ and ‘private’ key printed out on a piece of paper. One QR on the left is your ‘public’ bitcoin address, where you use to send/withdraw money. The other QR (usually on the right) is your ‘private’ key. Never give this key out. If I were to scan your private key QR, per say, I have access to all of your bitcoins and can sweep them (add them) to my own wallet, i.e. stealing your bitcoins. However, cold wallets are obviously the safest say to hold onto your bitcoins.
It’s naturally a pain — much longer process, having to QR multiple codes, etc. Either way, I use all three forms of these wallets for different reasons. I have a large sum of bitcoins on my cold storage wallet — I used piper.pw. Piper is an amazing device — it can print you a bitcoin wallet, just like every other wallet is built on. It will print out a little piece of paper for you, small enough to fit in your pocket and wallet etc. This is my most liked wallet, which I use daily. Again, remember, it’s the safest. Hard to get hacked when your money is on a piece of paper. I use a web wallet as well — I use blockchain.info. Blockchain.info isn’t just a wallet — it gives you pretty much all the information you need to know for bitcoins and shows your transactions, I feel safe with this site as a wallet because they put the coins into a bitcoin cold wallet. And lastly, I use the official bitcoin client, bitcoin-qt. I use thee three types of wallets daily; most people stick with one. It’s all your preferences.
To summarize this write-up, we can conclude that bitcoin has a lot of elements of micro-economics. It is a currency that is used peer-to-peer, defining what micro-economics truly is. You can purchase goods, you can store your bitcoin for investment, and you can trade bitcoin with other people for fiat money (a good place to visualize this is fiatleak.com).
That is the end of my basic part one write-up for what Bitcoin is. You can purchase goods and services with it, and it inherently is peer-to-peer, micro-economics at its finest. Hopefully after reading this simple write-up, you understand Bitcoin a little more clearly. This paper should teach someone a thing or two about this innovative digital currency.