What is Bitcoin? — A Simple Guide for Non-Technical People.
What is Bitcoin? — It isn’t just money.
This may seem like a simple question with a very obvious answer but the truth is that Bitcoin is actually a network composed of multiple key features (sometimes referred to as a blockchain).
1. A system of digital money.
2. A distributed ledger (a secured list of transactions).
3. A means of reaching consensus (agreement).
4. Decentralised and allows anyone to participate.
5. Incredibly secure due to the way the operations on the network are carried out.
This combination of features can be used in multiple ways.
One of the most obvious ones being that it allows for a system of exchanging value (money) which puts people in full control without the need for trusting a middleman (like a bank).
As long as you have control of the private keys (these are like passwords that secure your bitcoins) then you have full control of your bitcoins.
Is Bitcoin Hack Proof?
Nothing is completely hack proof. There are areas of the bitcoin protocol that can potentially be exploited — just like any other type of technology.
The way that bitcoins are produced involves solving very complex mathematical problems.
These do a number of things that involve protecting transactions on the network from falsification, double spending and the like.
Millions of computers around the world compete to solve these complex problems and in return they enter a kind of competition where the winner gets a certain number of bitcoins (currently 12.5 bitcoins) for their trouble.
Due to the vast number of computers involved, the most obvious form of attack to the network (something called a 51% attack) would require an immense amount of computing power.
As the network grows and more people mine bitcoins this computing power grows and that makes it harder for bitcoin to be attacked and hacked in this way making it more and more secure.
There could be defects or bugs in the bitcoin code that could allow other types of exploits. Thankfully Bitcoin is open source software and anyone can check the code.
This means that people around the world are constantly checking it for problems and it keeps being improved. The moment someone alerts the community to a problem, it can start being fixed.
So in summary, we can’t say for sure that bitcoin cannot be hacked but as time passes it becomes more and more secure.
Why is Bitcoin Better Than Regular Money?
Unlike regular forms of “fiat” money there is no central authority in control of bitcoin. This means that there is no central government or bank that can block transactions or freeze your money on a whim.
It is also cheaper to make transactions compared to other means of transferring money.
One of the biggest advantages is that the total supply of bitcoins that will ever be mined is fixed at 21 million.
This is baked into the system and there will never be any more than this.
This makes it quite different to fiat money where governments have a tendency to print money as and when they feel like it — something which creates inflation and devalues the money you already hold.
The end result is a currency that is better protected against inflation and government manipulation.
What Gives Bitcoin Value?
This is a question I often hear and there are a number of different ways of answering this.
The most basic answer is that Bitcoin has value because people believe it has value.
This may seem like a strange concept but if you think about it, this is exactly what gives “fiat” money like US dollars or Euros value.
There is no longer anything backing them (like gold), they simply have value because people believe in them and the system backing them.
Similarly people believe in Bitcoin and the Bitcoin network (with it’s ability to securely transmit value) and hence they have value.
Another way of looking at it is to consider the costs required in mining bitcoins.
In the same way that certain minerals are expensive due to the costs of extraction, as bitcoins become harder to mine, so the valuation of them goes up.
One further source of value is the ability to use the security of the network to carry out other “accessory” operations.
There are a number of projects working on using the bitcoin ledger to secure other information (including creating other tokens) — these also bring utility value to the network.
So Bitcoin is Perfect Then?
No that isn’t what I said. No human created system is perfect.
As with any technology there are risks.
It can be misused and exploited — e.g. for crime — but that is a risk that has existed with virtually all technologies since the dawn of humanity.
If you don’t look after your private keys (which are like your bank details and passwords) properly you could lose all your bitcoins.
Technology does not change human nature or how people behave. It just gives people more options.
Bitcoin does not stop people being irresponsible or acting immorally.
Fire could be used to keep you warm, or used improperly it could burn down an entire forest.
There are a number of issues with Bitcoin that still need to be solved.
The most prominent one you will hear about is something called “scaling” — the number of transactions that Bitcoin can make in a certain period.
This is a matter of heated debate in the community and beyond the scope of this article — use Google to get the latest information on this.
How can I get Bitcoin(s)?
The most obvious way to do it is to mine it, however, this is now beyond the means of most people due to the expensive hardware (and cheap electricity) required.
For most people there are 2 options:
1. Mine another cryptocurrency (see below) and convert it to bitcoins.
2. Buy bitcoins — i.e. convert fiat money to bitcoins.
When it comes to either of these options Google is your friend.
Personally in my opinion the easiest currency to “mine” is Steem as you don’t need any technical know how. You earn this cryptocurrency by sharing original content (like this blog post).
For buying Bitcoins you will need to check what resources are available and legal in your area (due to legal requirements in different countries the options will vary).
Use Google to get the latest information.
How can I Spend Bitcoins?
These are the main ways you can spend Bitcoins:
- Some businesses have started accepting Bitcoin payments directly — there is a list of them here and they are growing all the time.
- There is also a company called Gyft that allows you to buy gift cards (e.g. Amazon etc) using Bitcoins directly. That way even if a business does not accept bitcoins directly this is a way to get round it.
- There are various Bitcoin/cryptocurrency credit/debit cards that allow you to do something similar e.g. Bitpay, Xapo, Shift.
- The final option is to use a service like LocalBitcoins or Bittylicious to sell your bitcoins for fiat money.
N.B. Some exchanges may also allow direct conversion to fiat money.
What Are Altcoins?
Altcoins or alternative cryptocurrencies are other currencies that use principles similar to Bitcoin such as a distributed ledger to operate.
To use an analogy, just like we have Coke we also have a host of other soft drinks.
Some do the same kind of thing (e.g. Pepsi, or RC Cola), others have slightly different flavours like Mountain Dew or Dr Pepper.
Just like Coke doesn’t necessarily cater to every specific taste or need, the theory behind many altcoins is to serve a specific purpose.
Here are some examples of the altcoins I am most familiar with:
- Ethereum, Stratis and Lisk — these are distributed “app” platforms that are slightly different in their approach but allow people to create their own blockchain apps.
- DASH, Monero and ZCASH — these all allow anonymous transactions using a variety of different methods.
- Bitshares, HeatLedger, Komodo, WAVES — these make up something called decentralised exchanges (DEXs). WAVES is also a crowd funding platform.
- STEEM — this is a cryptocurrency that is optimised for monetising content sharing — think blogs, photographs, links — everything you share for free on other sites (or monetise through advertising). Steemit is one of the sites that runs on STEEM and the easiest way to start earning STEEM (make an account here).
- LTC/Litecoin — this is very similar to Bitcoin only it is a bit faster. Many people describe this as the “silver” to Bitcoin’s “gold”. It has also become somewhat of a testbed for new technology before it is implemented on Bitcoin.
- XRP/Ripple — very big right now Ripple is a closed system that is working closely with international banks. Most people do not consider it to be in the spirit of Bitcoin because it was created to make life easier for the banks and not the ordinary person on the street.
- There are many, many more — as Bitcoin rises in popularity many new companies are coming up with their own versions of blockchain technologies and their own tokens.
How Can I Find Out More?
There are a huge amount of useful resources online. The Wikipedia page on Bitcoin is a fantastic resource and a good starting point for more in depth information.
If you prefer learning in book form, I would highly recommend Andreas Antonopoulos’ book “Mastering Bitcoin: Unlocking Digital Cryptocurrencies”.
This is really easy to read and goes into quite a lot of depth about the underlying details of Bitcoin. I also think a new updated version is coming out soon.
There are also resources (including Bitcoin wallet links) on the main Bitcoin website.
I hope you have found this guide useful. My intention was to create something that is simple and easy to understand for people who are not familiar with cryptocurrencies and I hope I have succeeded.
This can be a tricky balance to achieve so please let me know if you feel anything is incorrect or too far off the mark.
Thank you for reading
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