Bitcoin for Beginners
Nico Lim
While some aspects of Bitcoin might seem a little complex from the outside, at its core, it’s actually pretty simple – and you don’t have to be an expert to make the most of this exciting new resource.
In this beginner’s guide, we explain everything you need to know about Bitcoin – without getting bogged down in the unnecessary technical details.
Curious about Bitcoin? We’ll break it down so you can walk away knowing what it is, how it works and how you can get involved today.
In this guide, we’ll cover:
- What is Bitcoin?
- What is the Blockchain?
- What is Bitcoin Mining?
- How to get Bitcoin?
- Investing in Bitcoin
- Why invest in Bitcoin?
- Altcoins & Bitcoin forks
- Bitcoin & the future
While Bitcoin is most commonly known as an electronic currency, the term “Bitcoin” actually refers to two separate things:
More on the fascinating technology of the blockchain in a minute. First, let’s run through what Bitcoin is and how it began.
Bitcoin emerged onto the world stage in 2009. The housing market had just crashed and Occupy Wall Street was accusing big banks of rigging the system, charging exorbitant fees, tricking innocent people and misusing borrowers’ money. From the get-go, it took the world by storm, and to this day, it continues to grow in popularity. In just over a decade, Bitcoin’s value has gone from virtually nothing to $13,000 AUD per coin in 2020, with its peak value reaching $25,000 in 2018.
Bitcoin is based on the ideas and technology set out by the mysterious “Satoshi Nakamoto”, whose identity remains unknown (and may well be a collection of people). It offers us a better way to transact and do business. Bitcoin was created to give the power back to the everyday person by eliminating our dependency on banks, governments and third parties. Early Bitcoin pioneers envisioned a system that was faster, more secure and not controlled by any bank or government. In many ways, they succeeded.
Bitcoin (BTC) is the largest and most popular cryptocurrency in the world. It is the world’s first non-physical, electronic form of currency whose balances are securely kept on a public ledger that everyone has access to (unlike banks who use private ledgers). All of Bitcoin’s transactions are permanently stored and verified by a huge network of computing power and the Bitcoin network allows users to send, store and receive money securely – without the need for a bank. It’s faster, safer and cheaper than the current banking system, and over a decade after its inception, its popularity and widespread use are still on the rise.
Bitcoin holds a value that is, in many ways, similar to gold (as there is a finite amount of it). But unlike gold, it is also spendable and you can also use it day-to-day as if it was cash. While much of the hype surrounding Bitcoin is over people getting rich by investing and trading it (which has and does happen), it can also be used for everyday purchases, such as booking hotels, buying stuff online and paying your bills. Every day, more and more businesses are accepting Bitcoin instead of fiat currency (normal money, eg. dollars, Euro). With Digital Surge’s secure platform, you can now pay pretty much any Australian bill with Bitcoin.
A few key takeaways:
The blockchain is the incredible technology that powers the Bitcoin network. It is essentially the record-keeping system behind Bitcoin, though it does a lot more than that! (Bitcoin is just one implementation of blockchain technology).
While it can be a little hard to wrap your head around the blockchain at first, grasping the basics of how it works will help you to understand why it has already begun to revolutionise the way we interact and do business.
Although blockchain’s uses extend far beyond the world of finance, it was originally created and released to be used with Bitcoin. In simple terms, the blockchain consists of groups of transactions (called “blocks”) that are chained together and managed by computers all around the world (but not owned by any single entity).
At its core, it is an incorruptible digital record of transactions that can store not just financial transactions, but virtually everything of value. Using cryptography (very difficult math puzzles) to keep its data and transactions secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that can be verified and seen by everyone on the network (unlike the private, non-transparent ledgers used by banks). The blockchain forms an ever-growing chain of transactions and information that essentially belongs to everyone, and its benefits are significant and have already begun to change the world. But let’s see an example.
If you have ever sent money overseas, you know your payment generally needs to pass through a “trusted” third party of some kind (usually a bank). This means the transaction will not be instantaneous, taking up to 3 days or longer (and sometimes never). It also means the bank will charge a commission through an exchange rate conversion or some other transaction fee. Or both.
Blockchain technology does away with this clunky and unnecessarily expensive system, still managing to keep the Bitcoin network and all its transactions verified and secure. This is done through an ingenious process called “Bitcoin mining”. But first, here are some of the many advantages of using blockchain technology compared to the traditional banking system:
Before we get into the role of “Bitcoin mining” in the blockchain, a quick note:
Blockchain technology is still in its early stages. Every day we are seeing more and more applications of blockchain technology for things such as online voting, supply chain management, digital IDs, food safety, medical record-keeping, weapons tracking and tax regulation, just to name a few. With all its features and applications, the full potential of blockchain remains an open and exciting question. It is hard to imagine a future where blockchain will not play a pivotal role in creating a better way to do business and interact with one another.
Bitcoin mining is the process by which the blockchain and Bitcoin network are kept safe and secure. It is also how Bitcoin (the cryptocurrency) is created and distributed.
In many ways, Bitcoin mining is like digging for gold online (hence the term “mining”). However, while Bitcoin mining is one (rather difficult) way to get Bitcoin, the main function of mining is to maintain the digital ledger and verify Bitcoin transactions in a secure and decentralised way.
Bitcoin miners validate and encrypt transactions on the blockchain by solving complex math problems which help keep the network secure through cryptography (a widely used method of protecting information).
Miner’s are in perpetual competition. Whoever finds the answer to the math problem first is able to add a new block to the chain and is rewarded with some Bitcoin as payment for their time and contribution to keeping the network secure. This is where new Bitcoins come from. Thanks to cryptography, everyone who uses blockchain can be sure that their identities are protected and that all the information recorded on the blockchain is legitimate, secure and constantly validated by miners all over the world (making it virtually incorruptible).
Theoretically, anyone with any kind of computer (or even a pen and paper) can solve these maths problems and mine Bitcoin. However, things move fast in the world of cryptocurrency and mining is no longer so straightforward. Knowing the technical details of mining isn’t really essential to understanding and trading Bitcoin effectively, but if you’re interested, this is a quick overview of how it works. Skip ahead if you want to know how to get Bitcoin today.
Once upon a time you could mine Bitcoin off any old laptop, but given the popularity of Bitcoin and the fact that it is a race to be the first to solve the problem, Bitcoin mining has become a painstaking and resource-intensive endeavour. Specialised Bitcoin mining machines (which use huge amounts of power) are now used to solve these math problems as quickly as possible. There are entire “mining farms” full of these machines and they can be very expensive to operate due to the amount of electricity they consume.
Very cleverly, the Bitcoin network automatically adapts to the amount of energy that goes into solving these maths problems and then gradually increases the difficulty of the problems so that it will always take an average of 10 minutes to find each new block, no matter how much energy is put into it. This system controls the inflation of Bitcoin and is designed in a way that makes it difficult for any one miner (or group of miners) to consistently be the first to solve the problem. This ensures the distribution of Bitcoin is fair and spread out amongst many people. Unlike most forms of money, Bitcoin cares about fairness.
In reality, Bitcoin mining is gruelling, costly and only sporadically rewarding. However, despite the increasing difficulty and the Bitcoin reward actually decreasing (the amount of Bitcoin received per problem solved is halved every 4 years), many of the technologically inclined continue to mine Bitcoin – perhaps as it can be seen as creating money out of nothing.
The Bitcoin reward that miners receive is a strong incentive (given Bitcoin’s monetary value) which motivates people to assist in the primary purpose of mining: to secure, legitimize and monitor the Bitcoin network and its blockchain. Another cool thing worth nothing is that as the maths problems become more and more difficult, the tougher it becomes to hack and interfere with the Bitcoin network.
Thankfully, Bitcoin mining is just one of the many ways to obtain Bitcoin (and far from the most common). If you are looking to get your hands on some Bitcoin ASAP, here are your options:
Buy Bitcoin through an online cryptocurrency exchange
The easiest, most popular and most effective way to get Bitcoin is by purchasing it through an online cryptocurrency exchange. These exchanges are essentially digital marketplaces where you can buy, sell, swap and store Bitcoin and other cryptocurrencies. But proceed with caution – not all crypto exchanges are the same.
Choosing a crypto exchange with transparent fees, personalised customer support and a secure wallet to store your crypto is crucial. Especially if you are a beginner. Unfortunately, many of the larger crypto exchanges do not offer a simple, easy-to-understand experience and often hit you with a bunch of added fees (that they don’t mention when you sign up)! Given the size of some of Australia's exchanges, customer support can be far from ideal for someone just starting out and in need of some initial guidance.
At Digital Surge, we pride ourselves on offering everyday Australians a safe, inexpensive and uniquely user-friendly way to buy Bitcoin. Our fees are transparent and we provide all our customers with personalised support and a personal wallet to store their crypto in. Sign up today and get trading with us in minutes!
Earn Bitcoin
While buying Bitcoin directly from an online exchange is the fastest and most effective way to obtain Bitcoin, there are a variety of ways you can work for, or earn Bitcoin online:
Buy Bitcoin locally
You can also buy Bitcoin in the real world. Visit LocalBitcoins.com to find people in your hometown who want to sell Bitcoin. Alternatively, you can use the Coin ATM radar to see if there is a Bitcoin ATM near you.
We’ve all heard stories about people becoming overnight millionaires from Bitcoin, and to a lesser extent, stories about people losing their savings trying to make a quick buck. When it comes to Bitcoin, like all investments, there is risk involved.
At Digital Surge, we advocate a safe way to invest and trade Bitcoin. Put in some solid time, research and thought before making decisions and only invest what you can afford to. We believe that Bitcoin and crypto is the finance of the future and disagree with the people who say it is “too late” to buy Bitcoin. On the contrary. Cryptocurrency is still in its infancy and it’s still not too late to be an early adopter. You don't have to understand the technical details to realize that many banks, businesses and believers are cashing in on Bitcoin and other cryptocurrencies as we speak.
Historically, investing in Bitcoin has been a difficult thing to do. But not anymore. We’ve created a safe and uniquely easy way to buy, sell and store Bitcoin. Without the hassle. However, we encourage everyone to do their own research before beginning their crypto journeys – the crypto market can be volatile. If you're new to the industry, here are a few things to know before investing in Bitcoin.
What you need to get started:
While there are never any guarantees when it comes to investments, the past few years has validated our belief that cryptocurrency will play a pivotal role in the future of business and money.
Here are a few indicators that Bitcoin’s future is bright:
While there is a reason that Bitcoin is the most popular cryptocurrency in the world, given its meteoric rise, it has become quite difficult for new investors to invest and own a significant amount of Bitcoin (although it is common to purchase just a fraction of one).
Additionally, the growing numbers of people using Bitcoin has put a strain on the network, revealing some of the cryptocurrency’s limitations. While Bitcoin’s developers are continuously working on improving these limitations, Bitcoin has given rise to many new cryptocurrencies, commonly known as “altcoins”.
Most altcoins have been built on the successes of Bitcoin. However, given Bitcoin's limitations (in scalability and transaction speed), altcoins tend to sell themselves as alternatives to Bitcoin, offering different functions and features that Bitcoin does not. For example, one of the early ‘forks’ or ‘splits’ from the original Bitcoin protocol was a cryptocurrency called Litecoin (LTC), which offered faster and cheaper transactions than Bitcoin and is now one of the most well-known altcoins on the market.
While it is common to purchase just a fraction of a Bitcoin, the price of BTC may still be too high for some beginner investors. Altcoins have become extremely popular for new traders getting into the market. There are now a wide variety of established altcoins that offer their own unique functions and properties. Some of the major players include: Ethereum (ETH), EOS (EOS), Ripple (XRP), Bitcoin Cash (BCH) and Monero (XMR).
As each altcoin attempts to bring its own special flavour to the market, it is important to think about the utility that each coin is bringing into the ecosystem before investing. This utility and its ability to solve a current problem in the market will likely determine its future market value.
(infographic on bitcoin price history??)
The last decade has validated many of our initial predictions about Bitcoin. While the future of Bitcoin remains an open question, it is hard to imagine a world where digital currencies and blockchain technology will not, in some way, be a part of our everyday lives.
Unsurprisingly, since Bitcoin emerged in 2009, there have been countless naysayers who have publicly warned against Bitcoin and cryptocurrencies in general, treating it as a passing fad, or just another scam to be avoided. Over a decade later, Bitcoin is still here, and they are still waiting. Every Bitcoin crash in its 11 year history has been followed by a recovery and cryptocurrency continues to grow in popularity and widespread adoption.
You can often judge something not by who supports it, but who attacks it. While there are a number of legitimate reasons why Bitcoin’s future remains uncertain, many of Bitcoin's biggest (and loudest) dissenters seem to have a lot to lose from the rise of a decentralised currency controlled by people instead of banks and governments. Bitcoin offers a radically new and more democratic way of doing things. And things take time. We shouldn’t forget, resisting change and condemning what is new is one of humanity’s oldest traditions.
At Digital Surge, we encourage everyone to do their own research and come to their own conclusions about the future of Bitcoin and whether or not to invest. Hopefully, after reading this guide, you have a better idea of what Bitcoin and the blockchain are, how they work, and what is the best way to get involved in this exciting and rapidly evolving world.
We are committed to making the world of Bitcoin and cryptocurrency safe, easy-to-understand and accessible for all Australians. To begin trading crypto the safe and easy way, sign up for a free account or get in touch if you have any questions at all!
Put simply, Bitcoin is a cryptocurrency and a new form of digital money. Think of it like digital gold that can also be used to make payments and buy things.
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