What is Bitcoin – for newbies.
It’s ok if you don’t really understand bitcoin, it is a bit complex – that said, this is like the internet in 1998. It is, in our view, the inevitable future. Email was complex in 1980 too for many, and eventually became the way of the world – as did SMS phone messaging, online music, and many other technical innovations that started complex and then became widely accepted.
Here’s a very basic overview of bitcoin:
- Bitcoin is both a payment network (like Visa or Mastercard or Paypal), AND a currency (like a U.S. dollar, Euro, or British Pound) rolled into one. It is both a currency, a method of storing value, and a way to pay people electronically or in person, usually using a smartphone and QR code.
- Bitcoin is one of many new “Crypto-graphic Currencies”, and the most well known. Like any currency, these are largely based on faith in the recipient has of the value – if I offer you $100 U.S. Dollars, you are probably confident that will allow you to buy, say, 25 loaves of bread or fill your tank with gasoline, so you place value on this paper and have faith in it’s usability to get you other things you need in life, and thus we agree on it as a trading instrument, so that we don’t have to directly-trade and hope we need each other’s goods or services. There are currently over 400 other currencies, however, most experts (myself included) believe most of these will be gone in a few years, leaving only the top few – which are currently Bitcoin (#1), Ethereum (#2), and Ripple (#3). Each has technical differences in how they work, but they’re all in the same basic category.
- Coins are just a number. There’s no physical “coin” per se, that was just a name to help humans understand. A “Satoshi” is like a penny one could say – it is one hundred-millionth of a bitcoin. TIP: You can start small – throw in even $1 to get started. Coinbase will even give you a free tiny amount of bitcoin to get started.
- There’s no central server. It is like the internet, in that it is decentralized, hosted on millions of connected servers around the world. There is no one person, government, or company that controls it. This presents both tremendous opportunity and new problems, but like it, hate it, fear it, or embrace it, BitCoin and other Crypto-Currencies are here to stay.
- Bitcoin is “Push Money”, not “pull money” – like hard cash. There’s no chargebacks, no intermediary company holding your money. What “The Blockchain” does is create a public record of what wallet (a number – BitCoin can be anonymous) owns what “coins”, which is really just a unique prime number. This means when you get paid, you are 100% paid – the other person cannot charge back, cannot re-spend the money, etc. Reputable merchants will continue to stay reputable, so if you buy something in BitCoin and have a problem, it’s exactly the same as if you paid cash – you’d deal with that vendor or store or seller to resolve a situation the same as if you paid cash. That said, if dealing with shady sellers that are not trusted, assume you are paying in cash, and so it’s “Buyer Beware”. Like cash, you as a seller request money (i.e. tell the buyer a total), and they hand you cash – pushing the money to you. A credit card or debit card is “pull money”: you tell the middleman, a 3rd party (a bank, running on Visa / Mastercard / Amex / Discover) that you’re authorizing that other party to take money from your account, a set amount or approximate set amount in the case of restaurants (i.e. with a tip), and it technically takes about six months to fully “settle” i.e. the buyer could issue a chargeback or dispute the charge.
- The “Blockchain” is a public ledger of which wallet owns what “coins”. The big technical innovation is that this system creates a “spend-once” value system, and each transaction links to the previous – so nobody can fake or spoof a transaction that happened. Furthermore, it is decentralized, so for anyone to steal / fake / defraud the system, they would have to own more than 51% of the world’s bitcoin mining servers, which is no longer practical for even a government with billions of dollars. The blockchain makes it public record that wallet 123 owns coin 983, as a crude example.
- A “Wallet” is how you spend and receive bitcoin, and it contains 2 keys: A public key, which is how others know where / how to send money to you (your “address”), and a private secret key, which is how you send money to others. It is very very important your private key stays secret, but not lost. If you lose it, you lose the money (bitcoin) in that wallet!
If you want to get started easily, we recommend Coinbase (We’ll both get $10 in BTC free if you use this link), simply because it is the easiest, least-technical skills required way to start – click https://swiftcloud.ai/support/coinbase to get set up [Full disclosure: we get paid a tiny amount if you click that link, however, we use them ourselves and are recommending them regardless of whether we get paid]. Other exchanges vary by country but there are many, though none other are as easy to use.
Hopefully that helps. This is a complex world with rapid innovation, but presents a massive opportunity to get involved now because it’s still very very early. Some experts believe a single BitCoin will go over $1,000,000 per coin – so getting involved now may be comparable to staking a claim on the internet in 1998.
Relevant to adoption cycles: Currently (2017) < 1% of americans use bitcoin – which means it is transitioning from the land of the techy bleeding-edge types to “visionaries” and then to “pragmatists” and so on.
UPDATE – Dec 2017:
- It’s a bubble – see https://blog.evercoin.com/comparing-the-bitcoin-bubble-to-the-dotcom-bubble-97d6e3b3f817
What could we do to improve this?