What is Bitcoin? 4 Bitcoin Fundamentals for beginners

What is Bitcoin? 4 Bitcoin Fundamentals for beginners

Bitcoin has been a buzz word for over 10 years now and most people still have no idea what it is, apart from it is being used by criminals in the Silk Road. Here is the 4 basic Bitcoin Fundamentals that you need to know.

infrographic of bitcoin fundamentals showing how transaction is easier comparing bitcoin to cash

1. Bitcoin Fundamentals: What is Bitcoin?

Bitcoin is a cryptocurrency, a form of electronic payment and savings which was released to the public in January 2009.

The ideas behind the world’s most popular decentralized token were expressed in a white paper that was written by the mysterious developer Satoshi Nakamoto. There is no way to know if Nakamoto is a person or group, as their identity has never been confirmed.

Bitcoin is different from government-issued currencies since it is operated by a decentralized network. Bitcoin (BTC) can be used with a long line of encrypted security code with 16 distinct symbols. With this code, the blockchain that powers BTC is changed, and the registration of value can be changed.

Simple animated infographic to explain what is bitcoin fundamentals in a nutshell

To send cryptocurrency to someone, a buyer sends their BTC to an address on the BTC blockchain, and the seller then has the BTC credited to their address (which exists in a wallet, but more on that below).

In other words, cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services. The transaction is accomplished by a peer-to-peer computer network that exists all over the world.

Simple info graphic of how does bitcoin work showing the bitcoin fundamentals in four pillars

2. How Does Bitcoin Work?

As a new user, you would have to install a Bitcoin wallet on your computer or mobile phone. The wallet will generate your first Bitcoin address and you can create more whenever you need one (depending on the wallet you are using, this may or may not be simple).

There are three different wallet applications, including full client, lightweight client and web client. You can connect your addresses to your friends so that they can pay you or vice versa.

Bitcoin works on a public ledger, called a blockchain.
All confirmed transactions are included in the blocks. It allows Bitcoin wallets to calculate their spendable balance so that new transactions can be verified thereby ensuring they’re owned by the spender. The integrity and the chronological order of the blockchain are enforced with advanced cryptography.

A transaction is a transfer of value between Bitcoin wallets which is recorded on the Bitcoin blockchain forever. Bitcoin wallets keep a secret piece of data, which is a private key or ‘seed’. This ‘seed’ is used to approve transactions, providing a mathematical proof that they have come from the owner of the wallet.

The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast to the network and usually takes 10 to 20 minutes, although blockchains can slow down if they are very busy.

simple bitcoin fundamentals image showing what is bitcoin mining

3. Bitcoin Mining

Mining is how the blockchain processes all the transactions that keep the Bitcoin network operating by chronologically adding new transactions (or blocks) to the blockchain. It enforces a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system.

Transactions must be packed in a block to be confirmed, a block fits very strict cryptographic rules will and be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all the subsequent blocks.

Mining creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively to the blockchain. In this way, no group or individuals can control what is included in the blockchain or replace parts of the blockchain to roll back their spending.

cute cartoon drawing showing the bitcoin fundamentals of how bitcoin mining works

4. Bitcoin is Easy to Use Today

Back in the early days of Bitcoin, it wasn’t easy to use the system. Now, there are simple tools that allow anyone with a smartphone to buy and use cryptos. There are also many other blockchains that exist today, like Ethereum, Dash, and Ripple. Any blockchain can be used to make transactions, and most wallets support the use of hundreds of tokens.

simple flow chart of bitcoin fundamentals graphic teaching how to buy and sell bitcoin in one image

Still don’t fully understand the Bitcoin fundamentals? Don’t worry, I will explain more in the coming time. Right now you just need to know that the blockchain and bitcoin is not going away, it is the future. So stay tuned and learn more one buzz word at a time.

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