What is Bitcoin?

<aside> 💡 Bitcoin is a unique form of trustless, digital money that allows users to directly and securely transact with each other over the internet.

In essence, the Bitcoin Network maintains a decentralised ledger that keep track of the movement of bitcoin.

To understand why it is important to have a trustless, digital, and decentralised monetary system, please review ‘Why Bitcoin?’.

</aside>

An easy but most holistic way to describe "Bitcoin" starts by looking at two concepts that most people are familiar with

  1. Money - Being a currency; something that participants agree is a ‘medium of exchange’.
  2. The Banking System - A network; a system that accounts for, and records the transactions of each participant.

We can briefly look at how Bitcoin is comprised of the two above concepts, how they are similar, and how they can differ:

The Bitcoin Currency

Bitcoin

Scarce

There is a known issuance schedule. Fixed supply of 21,000,000. - “Hard Money”

Divisible

Fractions of a bitcoin are called Satoshis. This is to 8 decimal places; eg. 0.00000001

Verifiable

Cannot be counterfeited.

Fiat Money

Not Scarce

There is an unknown supply of dollars. There is no maximum. - “Easy Money”

Divisible

Fractions of a Dollar are called Cents. This is to 2 Decimal Places; eg. $1.00 USD

Not Easily Verifiable

Can be counterfeited.

The Bitcoin Network

Bitcoin

Public Ledgers

Bitcoin's underpinning technology, referred to as "Blockchain", provides for a transparent monetary system - There is no fractional reserve banking on the Bitcoin Network.

Decentralised

The network is operated by volunteers and network participants. No permission is required, and you can not be excluded.

Portable

Fast and inexpensive settlements with everyone and anyone over a secure protocol.

Censorship Resistant

Can not be interfered with via a third party.

Fast Payment Finality

Transactions occur quickly and are easily verifiable. Can not be reversed.

Efficient

The Bitcoin Network results in payment finality in ~10 minutes, without the security and trust issues associated with third parties.

Fiat Money

Private Ledgers

Each bank maintains their own internal ledger of the funds they owe their members. There is no transparent account of how they lend out the money deposited with them.

Centralised

Managed by governments, bureaucracies, and companies. The rules they are always subject to change, and people can be excluded at will.

Not Easily Portable

Slow & expensive settlement between banks and merchants, and moved by secure trucks.

Not Censorship Resistant

Can be interfered with via a third party.

Delays in Payment Finality

Transactions are not easily verifiable. Transactions can be reversed without consent.

Inefficient

Each bank uses a lot of offices, datacenters, terminals, branches, people, and associated support services to maintain a complex internal ledger that still results in payment finality taking days.


So with Bitcoin and the Bitcoin Network being digital, let’s look at how to use Bitcoin.

Understanding Wallets, Seeds, & Keys

When starting out it may be OKAY for some people to leave their Bitcoin on an Exchange or with a Brokerage, as the risk of loss with a reputable exchange or brokerage is overall very, very, very low.

<aside> 💡 It is best practice to not to trust third parties, or services facilitating the buying and selling of bitcoin - such as a Brokerage or an Exchange, to hold your Bitcoin for extended periods.

</aside>

Self-custody is something that should be done when you are comfortable buying and transacting with Bitcoin, and/or you are accumulating long term - Referred to as "Hodling".

Overall, there is a lot of information about Wallets, Seeds, and Keys. This guide will try to stick to being as practicable as possible, without going into the technical aspects.

Understanding Bitcoin Wallets and Addresses

<aside> 🌐 A bitcoin wallet is software that allows you to interact with the network.

</aside>