Getting started with Bitcoin and cryptocurrency can be confusing. There is so much to learn that it can paralyze you from taking action. Below is a quick beginner’s guide to Bitcoin so you can start using it today.
What Is Bitcoin?
In short, Bitcoin is a digital payment network with its own native currency. The bitcoin currency has a limited amount of units (21M) making it the first example of digital scarcity ever. Bitcoin’s payment network is unique because it enables peer-to-peer transactions without a middleman and its infrastructure is open source and distributed. As a result, it is available for anyone to use without permission and there is no single point of failure. Bitcoin is secured by the most powerful computing network in the world.
Why Is Bitcoin Valuable?
It’s important for Bitcoin beginners to know what makes it valuable.
Bitcoin is valuable because it:
- has a limited supply without the ability to create more. So when demand increases, so does the price.
- enables you to transfer any amount of value to anyone, anywhere in the world, without a bank.
- is a permanent public ledger that can’t be changed. It has been called a “truth machine” because it is a timestamped database of an immutable record.
- is a distributed network with no central control or single point of failure.
- is secured by powerful computers burning electricity (impossibly expensive to manipulate).
- enables programmable payments with the potential to disrupt the entire financial industry.
What Is Cryptocurrency?
Bitcoin was the first cryptocurrency. Now there are many other networks similar to Bitcoin. Cryptocurrency is a term for the broader ecosystem of blockchain projects. They compete on different features and function, and their “coins” can be traded at exchanges like other speculative assets.
Governments and others insist on calling them virtual currencies. So when you hear Bitcoin, cryptocurrency, crypto, digital assets, or virtual currency, it’s usually a reference to the same general industry.
What Is Blockchain Technology?
At the center of Bitcoin and other cryptocurrencies is a “blockchain.” Simply put, the blockchain is the ledger maintained by the computer network. Just as VISA or banks have separate ledgers, each cryptocurrency has its own blockchain ledger with its own native currency and payment network.
Think of blockchain technology as an interactive database in the cloud. Anyone can make changes to the database if they have the keys (see wallet section below). These changes are permanent and timestamped. And since the units being moved on the blockchain are provably unique, they can represent any value we assign to them in the physical world. In Bitcoin’s case, value is determined by the market – buying and selling at exchanges all over the world.
Besides replacing the need to trust governments or banks for money and payments, this technology has many other uses including IDs, gaming assets, event tickets, voting, supply chains, sensitive records, borrowing and lending, and so on. That is why so many people are excited about cryptocurrency.
Different Types Of Digital Assets
Many Bitcoin beginners get confused by the different types of digital assets that have emerged since Bitcoin was invented. Some are the native coins used to process transactions on its blockchain. Others can be “tokens” built on top of the same blockchain. These tokens can represent the US dollar, equity in or access to a platform, art, digital IDs and more.
Here is a brief description to help differentiate them:
Cryptocurrencies – Cryptocurrencies are native coins that power a blockchain. A small fee in this coin is required to transact on their networks. These are sometimes called protocol layer assets. Popular examples include Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Bitcoin Cash (BCH), etc.
Tokens – Tokens are created on top of existing blockchains. They can be programmed in any amount and where each token represents a specific value or performs a specific purpose. Tokens can be transacted peer-to-peer on the blockchain like any cryptocurrency.
- Stablecoins – Stablecoins are tokens that are pegged to common units of account like the US dollar, euros, or gold. Stablecoins are backed by real-world assets or cryptocurrency in reserve to maintain a consistent value.
- Utility Tokens – Utility tokens are tokens for accessing and using certain platforms or services.
- NFTs – NFTs are unique digital tokens that represent a single item. NFT stands for “non-fungible token” meaning its value is unique to all other tokens. They can represent unique weapons in a video game, digital art, characters, or trading cards, etc.
- Security Tokens – Security Tokens represent equity ownership in a project or business.
What Is A Wallet?
A wallet is a payment app to send, receive and hold your cryptocurrencies. It functions like a banking app but it doesn’t require you to open an account. Just download a cryptocurrency wallet app, back up your recovery details, and you are ready to use cryptocurrency.
Technically, wallets don’t hold the assets. It is a piece of software that holds the secret key to access your coins or tokens on the blockchain. Wallets provide you with a public address – a long string of characters – to receive funds to your wallet. Each different cryptocurrency supported in wallets has a different public address.
To send funds to other people’s wallets, you must know their public address for the asset you intend to send. Addresses can be copy-and-pasted or scanned via QR code to ensure they’re correct. Once you input the destination address, enter the exact amount of cryptocurrency or dollar value and click send. Most wallets will display the fee for your transaction and ask for final confirmation to send. The wallet uses your secret key to sign the transaction and broadcast it to the network. The funds will land in the recipient’s wallet nearly instantly.
Don’t worry, wallets will prevent you from sending to addresses on the wrong blockchain networks. In other words, it won’t let you send Bitcoin (BTC) to Ethereum (ETH) addresses.
Wallets are available for your smartphone, desktop computer, browser, web page access, or at exchanges. See the best multi-coin cryptocurrency wallet apps for your phone.
How To Get Your First Bitcoin
As mentioned above, you can get your first bitcoin by sharing your Bitcoin (BTC) wallet address and asking people to send you bitcoin. You may use that address to sell something or to accept payment for your services.
Most people buy their first bitcoin or other cryptocurrency from exchanges like Coinbase. You do not have to buy a whole bitcoin. You can buy as much or as little as you want since bitcoins can be broken into 8 decimal places (0.00000001 BTC). Coinbase gives you $10 free bitcoin when you buy your first $100 worth of bitcoin.
Exchanges require your personal information to set up an account and connect your bank to make purchases. The cryptocurrency you buy at exchanges is kept in a wallet hosted for you by the exchange, but you may withdraw/send that cryptocurrency to outside addresses at any time.
If you already have a wallet, you can buy cryptocurrency with a debit/credit card without an exchange account using services like Changelly.
Read this article for a more in-depth review of the best places to buy your first bitcoin.
What Can You Do With Bitcoin?
Everyone new to Bitcoin always asks “what can I do with it?” Bitcoin can be…
- Held as a long-term speculative investment.
- Traded for other cryptocurrencies on exchanges like Binance to speculate on the future value of those networks.
- Sent to friends or family in foreign countries faster, easier and cheaper than international wires.
- Used to buy goods and services wherever it is accepted; at large retailers like Overstock.com, small independent vendors, or by purchasing gift cards for a host of well-known outlets.
- Used to buy almost anything on Amazon using Purse.io.
- Used to gamble at online casinos, sportsbooks, or poker sites.
How Do You Convert Bitcoin To Money In Your Bank Account?
There are easy services to convert Bitcoin or other cryptocurrencies back into money in your bank account. Payment app Cash App allows you to receive bitcoin and withdraw it to dollars in your bank account. Exchanges like Coinbase, Uphold, and Gemini offer direct transfers to US bank accounts and wires to international accounts. Peer-to-peer exchanges like Paxful enable you to sell your bitcoin to a buyer who transfer funds to your bank account anywhere in the world. See full review of these services here.
Final Tips For Bitcoin Beginners
If you’re planning to invest in bitcoin or cryptocurrency for the first time, here are some final Bitcoin tips for beginners:
- Start with a small amount until you understand it better.
- Practice sending a bit back and forth between wallets to get used to how it works.
- Maybe buy something to experience spending it.
- Read as much as you can about the industry and different projects.
- Learn to secure your assets safely before acquiring large amounts.
- Don’t invest more than you can afford to lose.
Yes, this is exciting technology with huge upside, but it has only been around for a decade and it is not without risks.