I first heard of bitcoin around 2012, but I didn’t pay much attention – it seemed pretty surreal and something for the boys to play with. Then in the summer of 2013 an article about a local bitcoin startup making it big caught my eye. I had been hearing  more and more about it and it slowly started to sink in that it was not your regular boys’ toy and that it was most probably not going away. It is now 2015 and I have recently become a part of a bitcoin startup. I am still in the process of learning and understanding (I have a gut feeling this will take a while) and I can confirm that the more you know about it, the more appealing it truly is.  

Is bitcoin money?

Yes. To be precise: it’s a technology, and currency is the first application. Currencies used to be based on gold, but the bitcoin is based on mathematics. It is the largest of the cryptocurrencies.   Three of its basic characteristics are:
  • there is no central authority, which means no one controls its existence, supply and distribution. It is completely decentralised.
  • Its supply is limited: there will never be more than 21 million bitcoins.
  • once you own it, you can send it to anybody, anywhere, in real time. 
  It has all the properties of:
  • good old money (easy to transport, transfer and divide into units)
  • gold (limited and exchangeable)
  So with it you can make savings or payments:
  • if you want to invest or save part of your money in bitcoin, it’s like buying stocks or other assets. It is not spending, it’s making savings in a different form. But keep in mind – bitcoin can still be very volatile and you should never tempt fate by putting all your eggs in one basket.
  • you can buy products or pay for services online or exchange it for different currencies. Pretty much the same as with euros, dollars or any other fiat money.
 

Who started it?

An unknown software programmer going by the name of Satoshi Nakamoto introduced the written concept in 2008. His main idea was to create a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction costs. A year later, January 3rd 2009, the bitcoin was released as an open-source code (meaning anyone can look at it to make sure that it does what it is supposed to) and that launched the network. As a technology, it is believed to be as important as the internet!  

No paper banknotes, no copper coins

You can never physically get a hold of a bitcoin because it only exists in a digital environment. What separates it from all other currencies is that it’s not printed by banks nor regulated by governments or any other third party. It is created and controlled by a community of people that anyone can join. This network, known as miners, is processing transactions made with the virtual currency, making bitcoin its own payment network.  

The birth of a single bitcoin

See how many of them are in circulation right now. Bitcoins are created each time a miner discovers a new block. Once created, the bitcoin can be used to send from one bitcoin address to another. All of the transactions are entered into the public ledger, also known as a blockchain. As mentioned at the beginning the number of bitcoins is limited – there will never be more than 21 million in circulation and the last one will be created in 2140 (all that thanks to the brilliant mind of Satoshi Nakamoto). The best form of money up till now was gold coin, because gold is really scarce and hard to mine. But we still mine 2% a year, meaning your gold is in theory worth a little less each year. With bitcoin there will never be more than 21 million bitcoins, which is good news from store of value perspective.  So far we have never experienced anything like this.  

Do miners wear helmets?

No.  

What do they actually do?

Miners themselves don’t actually do much, their computers do the job. They earn coins from transaction fees and new coins which are created with every new block.
“Mining is the process of adding transaction records to bitcoin’s public ledger of previous transactions. This ledger of past transactions is called the blockchain.” BitcoinWiki
Can you mine with your home computer? Technically yes. Would you gain any bitcoins? No. Why? Because your mining computer doesn’t add enough power to the network. It’s all about the powah! If you are interested in knowing more about this, click here to see why the little guy can’t mine bitcoin no more.  

What is a Blockchain?

Blockchain consists of blocks. Miners run computer systems to repeatedly calculate hashes in order to create a successful block. Each block stores details of the transactions made in a certain time frame. Blocks are put one on top of the other chronologically. In a blockchain you can see every bitcoin transaction ever made.   Let’s try and draw a parallel to the world we know better: imagine your 10 EUR note having written names of its past holders on the back. If you would check the holders all the way back to the beginning, the central bank should always be the first one listed. This way you would know your note is real. And that’s how it is with bitcoin – because of this no one can fake it. You can’t see names,  but you see their addresses. Everyone knows the bitcoin address, they just don’t know the name of each owner.  

What is a Wallet?

Everyone should store their bitcoins in a safe place. And this safe place is called a bitcoin wallet. In it you receive, send or trade them. Wallet consists of:
  • a bitcoin address (sort of like an email address) and
  • a private key (sort of like a password).
  Bitcoins are stored on a bitcoin address  (like emails in your email account). To get to them you have to know the password (= private key). Wallets come in different forms, since they are designed for different types of device: mobile, hardware, desktop, web. You can write it down on a piece of paper (and put it in a safe place) or store it in your memory to avoid having them on a computer at all. Cashila has so far joined forces with one of the most interesting wallets out there  – the Mycelium wallet. Due to this their users can now pay euro bills with bitcoins directly from their mobile.  

How can I get my first bitcoin?

There are a few ways you can join in.  

By mining

Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. This is called mining and is rewarded by transaction fees and newly created bitcoins. Mining has become quite a business, so it is probably not the best way for you to get them.  

Get someone to send it to you

This might be the simplest and quickest way to get your first bitcoin, once you find someone who is willing to send it to you. After that everything goes smoothly. All you need is a bitcoin wallet. Bottom line: you can receive bitcoins via computer or a mobile app into your bitcoin wallet.  

Buy it on Bitcoin ATM

Again, the first step is to get a wallet. Then find a Bitcoin ATM near you. Because there are quite a few manufacturers, procedures vary from ATM to ATM, but these are usually the regular steps:
  • Verification (optional)
  • Provide the bitcoin address for the deposit (scan the QR code from your wallet or on some ATMs it can be generated/printed/emailed)
  • Put cash into the ATM
  • Confirm the transaction (bitcoins are sent to the Bitcoin address)
 

Buy it on Exchange

There are quite a few marketplaces where one can now buy or sell bitcoins. You set up an account, transfer some money from your bank account to the selected exchange and you are good to go. It will most probably take around 3-4 days before you will own your first bitcoins. Keep in mind, this is all early stages of introducing bitcoin to the broader public, therefore the user experience isn’t  yet at its finest.   If you feel extra olympic today, you can do a little research on your own:
  • click here to see which exchanges are supported in your country
  • a full list of major bitcoin exchanges/wallets around the world, along with the payment options they allow
  • CoinbaseKrakenBitstampCoinsetter are some of the most known and reputable exchanges out there
  • Coinimal also provides an interesting service (they might be faster and you can choose among more payment options)
 

Bitcoin Dummies Club loves everyone equally

For a newcomer this is a lot to take in. As mentioned at the beginning, I can relate to the pain all too well, because I was a member of the “Bitcoin Dummies Club” not too long ago (I still have a membership card and get invited to the meetings regularly). If you have any comments, feel free to reach out. There is no stupid questions and I hope there were no stupid answers. If you find one, I’m right here.  Thanks for reading.   P. S. Go to About bitcoin, where you will find some more useful explanations of bitcoin basics.