What is Bitcoin? (the beginners' guide)

Since starting this blog and dabbling in Bitcoin and Ethereum, friends of mine have asked me to hold off with the dollar cost averaging stuff, and go back to the very beginning.

Questions they’ve asked:

What is Bitcoin?
Why is it trending now?
Why should I buy one now?
How do I get one?
How should it be viewed in your portfolio i.e. is it an asset?
How is it different from normal currency?

In this post, I’m going to answer the first question:

What is Bitcoin?

Bitcoin was created by a Satoshi Nakamoto. Nobody knows who he or she is.

The idea was to create a new currency, one that was fully online and digital and that was fully decentralised.

Problems with normal currency

The problems with normal currencies stem from their dependence on third parties.

Normal currencies are controlled by that country’s government and central bank.

So Pound Sterling is controlled by the UK Government and The Bank of England.

Third parties can devalue a currency

The UK Government can print money. Since 2008, they’ve pumped shitloads of new money into the system. This over supply devalues the currency. It buys less now than it did then.

Third parties charge you unnecessary fees

You have to pay fees to move money into other currencies and to move money across borders. Why should you pay £25 to move money to The Philippines in addition to the money you lose on exchanging one currency for another?

Bitcoin aims to solve all these problems. How does it do this?

Well Bitcoins run on something called a Blockchain.

Blockchain is a system or network of ledgers. A ledger is like a register.

The network has the effect of decentralising how the currency operates.

These ledgers record every single valid transaction in Bitcoin that is made. So if I send you a Bitcoin, this transaction is first verified by other ledgers in the system, then the ledgers get synced with the verified transaction. This is truly peer to peer.

We don’t need a bank or institution to tell us that the transaction was made. Other users verify that the transaction happened and then this transaction is recorded on all the ledgers in the blockchain.

There is no need for a bank to verify a transaction. There is no need to use a bank to send or receive money.

I can send money to you in The Philippines peer to peer. I send you a Bitcoin and you receive it. All in minutes or even less. For me to send you money that you could use, you would have to open up a Western Union account, send GBP to be converted to Pesos, then you would have to open up a Western Union account too to receive it. Not so with Bitcoin.