in

Bitcoin for beginners. The ultimate guide to cryptocurrency

Everything you need to get started in Bitcoin and cryptocurrency.

Bitcoin is the biggest thing to happen since the internet.

Bitcoin will make you a millionaire.

Bitcoin is the future of money.

Bitcoin is a bubble.

Bitcoin is a ponzi scheme.

Bitcoin is dead.

If you’re interested in Bitcoin or cryptocurrencies in general you will have no doubt heard at least one of the above.

Bitcoin is one of the most divisive topics in tech and finance circles today.

Some people believe it to be nothing more than a scam perpetrated by con artists and get-rich-quick schemers.

Others believe Bitcoin, and cryptocurrency in general, is the future of money and will fundamentally change the way we trade with one another and purchase goods.

Bitcoin has been a mainstay in the news cycle over the last few years for a variety of reasons but mainly for its valuation.

In January 2012 one Bitcoin would have cost you around $6. Today, as I write this in January 2019, one Bitcoin is worth around $3,800.

This huge increase in valuation illustrates why the media have been infatuated with Bitcoin and why they have written about it so much in the past.

Before you rush out and buy some on the basis that it always go up, be aware that there is a caveat.

In January 2018, exactly twelve months ago, one Bitcoin was valued at $15,000. Today it is worth around one quarter.

Those who are infatuated with the value of cryptocurrencies are usually in it to make a quick buck when actually there is something deeper at play.

Below the surface level of what the media covers, Bitcoin is about a new kind of philosophy and way of viewing what money is.

The cryptocurrency celebrated its tenth anniversary in January 2019 and while its value is not what it was twelve months ago, it’s still worth billions and is traded across the world each day.

As each year passes and as more people invest in Bitcoin it becomes stronger in both its network and reputation.

This is called the Lindy Effect, the concept which says the longer a technology is in use the more likely it will remain in use.

This is a beginner guide on everything you need to know about Bitcoin and the wider cryptocurrency industry.

What it is, how it started, where it’s currently at, the people involved, how to buy it, where to store it and more.

First off, a couple of disclosures.

Disclosure 1.

This is a guide predominantly about Bitcoin. Despite there being many other cryptocurrencies, Bitcoin is the original and still the largest by market capitalization.

You’ll notice in this piece I reference either ‘Bitcoin’ and ‘cryptocurrency’ as switching between the two helps to provide more context for the specific elements I’m discussing.

When I talk about Bitcoin it could apply to other cryptocurrencies and likewise when I talk about cryptocurrency in general it could apply to Bitcoin.

Disclosure 2.

I myself own cryptocurrencies including Bitcoin, Ethereum, Litecoin and BAT. Bear in mind everything written here is through the lens of someone who believes in the future of cryptocurrency.

Disclosure 3.

This is not investment advice and I am not an investment advisor. Never invest in anything you can’t afford to lose.

What is cryptocurrency?

Quite simply, cryptocurrency is money.

Cryptocurrency is first and foremost a new form of money. It’s a new form of thinking about money, storing money, transferring money and dealing with and organising money.

It’s a medium of exchange, like the US dollar or the British pound, but it’s digital and uses encryption techniques to control its creation of monetary units (usually called ‘coins’ or ‘tokens’) and to verify the transfer of funds.

Cryptocurrency is combination of two words: Crypto and currency.

Crypto is short for cryptography which is a software technology used for securing and hiding information. Currency just means a system of money used.

Put crypto and currency together and what you have is electronic money which has a way of controlling how many units of it can be made which is also securely protected to prevent hacking and duplication.

Instead of trusting a bank as the middleman, you can send money directly to others while both parties simultaneously recording the transaction.

Cryptocurrency provides liberty to control your own funds without the need for an institutional middleman like a bank.

bitcoin meme
Mindset shift

The history of cryptocurrency starts with Bitcoin

Nobody knows – publicly at least – the identity of who created Bitcoin and it remains a mystery to this day.

We know that Bitcoin was created by someone with the pseudonym Satoshi Nakamoto, but opinions are divided on who that actually is (or whether Satoshi is actually a group of people).

Nakamoto is reported to own 980,000 Bitcoins making him/her/they likely to be a billionaire and one of the world’s richest people today.

Bitcoin is built on blockchain technology and embedded in the first software block created is a quote saying “03/Jan/2009 Chancellor on brink of second bailout for banks”.

This was a headline from a London Times article that was published around the same time as when Bitcoin was launched.

Could the person or people behind Bitcoin be British or did they just include it to show the current state of the financial world and the intention of Bitcoin’s creation?

Maybe we’ll never find out.

When a cryptocurrency is launched it usually comes with a whitepaper. This is a document lays out what the cryptocurrency does, its advantages and the philosophy behind it.

Being the first cryptocurrency, the Bitcoin whitepaper, titled “Bitcoin: A Peer to Peer Electronic Cash System” is first place you should start when researching the cryptocurrency industry.

More than a year after its launch, one Bitcoin was still only valued at just $0.04. At the time it was used mainly among tech geeks and as an underground payment system for criminals.

Ten years on Bitcoin is worth billions and has a vast network of investors and developers focussed on bringing it to the masses.

Bitcoin facts and notable events

Renowned economist Milton Friedman predicted the rise of a digital currency during the dotcom boom. A decade later Bitcoin was launched.

3 January 2009 the Bitcoin whitepaper released. The catalyst of cryptocurrency when Satoshi Nakamoto released the Bitcoin whitepaper.

There will never be more than 21,000,000 Bitcoins. This was purposely written in the code to ensure it can’t be inflated like regular currency. Why only 21 million? No one knows as it has never been explained.

A fraction of Bitcoin is called a “Satoshi”. The unit of measurement is named after Bitcoin creator Nakamoto and is equivalent to one hundred millionth (0.00000001 BTC) of one Bitcoin.

15 August 2010 Bitcoin’s only major vulnerability was found. This was subsequently fixed and there have been no major vulnerabilities since.

Bitcoin is notoriously energy intensive. A study found that a single transaction of Bitcoin took around 4,000 times more energy to execute as a credit card transaction.

The FBI has its own crypto wallet. It’s used for storing seized Bitcoins, and at last count, stored more than 144,000 of them.

As of August 2018, there were more than 22 million cryptocurrency wallets in existence. However, this does not mean there are 22 million individual investors as many hold more than one wallet.

In 2014, the EU published its first investigative report on “virtual currencies”. For the first time regulation in the space was recommended.

The majority of Bitcoin users are male European or American 25 – 34-year-olds. Half are married and a third consider themselves libertarian.

The first recorded Bitcoin transaction was a pizza purchase. In 2010, 100,000 Bitcoins were traded for two pizzas making them worth somewhere in the region of $15 million each by today’s value.

Bitcoin has a higher transaction value than Paypal. According to a cryptocurrency analyst, Bitcoin surpassed the Paypal payment network in 2017 in transaction value (not volume).

The benefits of using Bitcoin

You might ask why anybody would want to use Bitcoin in the first place? Isn’t the money that we have today good enough?

Actually, there are a lot of benefits to using a cryptocurrency like Bitcoin which you don’t have with a regular ‘fiat currency’ like the US dollar.

Note: In crypto circles, they tend to use the term ‘fiat’ when talking about a country’s currency. There are many buzzwords and jargon to learn covered in the ‘Crypto terminoly‘ section of this article.

Bitcoin is provably scarce.

There are only 21 million Bitcoin and there only ever will. There can never be more. Money can be inflated to increase its volume but decrease its value.

While scarce, it is easily divisible.

One Bitcoin can be cut into 100 million pieces and recombined at will. In terms of divisibility, Bitcoin wins hands down over both fiat and gold.

Bitcoin is durable.

A Bitcoin exists as a ledger entry, backed up on thousands of computers around the world. In ten years it’s never been hacked and it can never be fraudulently duplicated.

Bitcoin has no single point of failure.

There’s no single piece of hardware or infrastructure or no building you can destroy that bitcoin depends on. There’s no single individual or organisation that Bitcoin depends on to function.

Bitcoin does not depend on any banks, governments or countries to function.

Bitcoin is fungible.

Each bitcoin is worth the same as every other and always will be.

Bitcoin is recognisable.

Every Bitcoin wallet can quickly attest whether a Bitcoin is legitimate or not.

Bitcoin cannot be counterfeited.

Unlike with gold it cannot be filled with tungsten. Unlike with cash it cannot be fraudulently imitated.

Bitcoin is highly portable.

You can send it anywhere on earth at very little cost.

Bitcoin moves across borders with ease and has no weight, smell or physical body.

It is the only form of money today that can moved at distance without trusting a third party.

It is the only money that doesn’t require permission from an overseer therefore it is the only money appropriate for free people.

Bitcoin is programmable.

It possesses an important attribute that will one day be seen as critical for good money: programmability. Bitcoin can be programmed to all kinds of economic activity often without a middle man, escrow agent or human arbitrage of any kind

Using Bitcoin to pay for your coffee

bitcoin
Image via kryptomoney.com

For the moment, Bitcoin is considered a store of value by long term investors much like gold is today.

This is because in its current form it simply can’t compete with Mastercard, Visa and Paypal when it comes to processing transactions.

When it comes to paying for your morning coffee at your local coffee shop you are currently better off using your debit or credit card.

Visa and Mastercard use networks that can process 5,000 transactions per second. In comparison, Bitcoin currently takes 10 minutes to clear and settle a single transaction.

Other cryptocurrencies like XRP, Litecoin and Ethereum (referenced below) can process transactions much faster than Bitcoin. For example, XRP can process 1,500 transactions per second.

Plans are in place to speed up Bitcoin payments using what is being called the Lightning Network.

This is a payment system which is an additional layer on top of the Bitcoin blockchain to allow users to make fast payments to one another.

Until the Lightning Network is rolled out, Bitcoin is being used as a store of value by most investors who are in the cryptocurrency game for the long term.

How does it compare alongside ‘traditional’ stores of value like gold and fiat currencies?

Thankfully, cryptocurrency specialist Vijay Boyapati has put together a comparison of each and how they compare alongside key attributes that make them appealing as a store of value.

Bitcoin vs gold vs regular money

bitcoin vs gold vs fiat
Bitcoin vs gold vs fiat. Via Vijay Boyapati

In Boyapati’s original post, he details each of the key attributes that contribute to making it a good store of value. These being

Durability – how difficult it is for it to perish or be destroyed.

Portability – how easy it is to move and store.

Fungibility – how easy it is to change one specimen with another while still retaining the same value.

Verifiable – how easy the goods can be identified and verified as authentic.

Divisible – how easy the goods are to divide.

Scarcity – how abundant and easy to create it is.

Censorship restraint – how difficult it is for a corporation of government to prevent the owner from using it.

Boyapati’s table above shows the scores he’s market Bitcoin, gold and fiat against each key attribute.

And the winner?

Bitcoin.

It’s important to point out that Boyapati’s marking is based on the assumption each attribute has equal weighting but perhaps this is not the case.

For example, should gold having a more ‘established history’ be weighted the same as Bitcoin being less likely to be ‘censored’?

My thoughts are no.

Investors want a place to store value and, for now, gold has the best and longest reputation.

Nevertheless, Bitcoin is increasingly been used as a store of value and the longer it’s around the more it will be considered so.

Market size

The cryptocurrency market is constantly in a state of flux.

The market caps of most cryptocurrencies including Bitcoin are up and down like a yo-yo.

As I write this article the whole industry is in a bear market with most cryptocurrencies down on what they were six months ago.

Nevertheless, as I’ve pointed out more than once already, if you bought early on you would be still up on your investment by ten orders of magnitude.

This volatility is to be expected in a growing market. Remember, this whole industry is only ten years old and is very much in its infancy.

If cryptocurrency is to replace money, or at least function alongside it, then it’s a long-term play.

The best site to keep on top of the makret caps of the top cryptocurrencies is CoinMarketCap.

Here you’ll find the top 100 cryptocurrencies by market capitalization, their current price, trading volume and circulation supply.

bitcoin
CoinMarketCap

Bitcoin has the largest market cap by far and is worth around half the entire cryptocurrency market.

That’s not to say that may not change as the industry develops. Ethereum was a long time runner in second place and only recently has been surpassed by XRP.

It’s so early in the game that you never know what might happen.

This in part is what makes cryptocurrency exciting. The market today will in no way reflect the market in five years time.

Maybe some other cryptocurrency will surpass Bitcoin to become the dominant coin? Maybe Bitcoin will become bigger than the dollar? Or maybe this whole thing will just collapse.

Buy the ticket and take the ride.

Altcoins

Altcoins are ‘alternative’ cryptocurrencies to Bitcoin which launched after it.

There are thousands of altcoins on the market (investing.com is currently tracking over 2,500 of them) which claim to have different features to Bitcoin and promise to target the perceived limitations the original has.

These new altcoins promise competitive advantages like different economic models or different programming language to build other things like apps on top of.

The sheer number of them signifies the current hype and hysteria in the cryptocurrency market and you could say it’s currently in its Wild West phase due to the types of scams that are taking place.

Most altcoins are rip-offs of established cryptocurrencies like Bitcoin and Ethereum and saying they are risky investments is an understatement.

This is why 86 percent of cryptocurrencies that have launched over the years are worth less than they were when they were listed.

The ones that are truly different are the most popular and generally have different governance models, philosophies, intended use-cases and communities.

Some of them promise faster processing speed, more security, more privacy than the original and are growing in market capitilization.

The top five altcoins as of writing are below.

Note: This information is not investment advice or an endorsement of any altcoin.

XRP

bitcoin

Released in 2012, XRP is a cryptocurrency based on top of the Ripple payment system.

Backed by Google, Ripple does real time payments using XRP and according to its website it “lowers the total cost of settlement by enabling banks to transact directly, instantly and with certainty of settlement.”

XRP has gained momentum in the market in the last year and is now the second largest cryptocurrency by market cap.

Ethereum

bitcoin

For a long while Ethereum held the second spot to Bitcoin as the largest cryptocurrency by market cap until XRP took the coveted space.

Ethereum was founded in 2015 and was the original idea of the then-young (and still young) Vitalik Buterin.

Ethereum is not just a cryptocurrency but a blockchain which is considered more flexible than Bitcoin but less secure also.

Bitcoin Cash

bitcoin

Bitcoin Cash was set up in 2017 as a result of different viewpoints between some of the Bitcoin community who wanted a faster payment processing speeds from the network.

There was a lot of debate about how to solve this problem, so some of the Bitcoin community did a ‘hard fork’ (which loosely means splitting off from the original blockchain) to create Bitcoin Cash.

EOS

eos

EOS is an operating system type platform which offers tools and services for the creation and hosting of dapps (decentralised apps).

It sits on the blockchain eos.io and was launched in 2017 on the Ethereum platform.

EOS is designed to not only ensure the quick and easy deployment of dapps, but also to potentially scale to millions of transactions per second and eliminate user fees.

Litecoin

bitcoin

Released in 2011 by former Google employees, Litecoin is often considered the silver to Bitcoin’s gold.

Litcoin is similar to Bitcoin in many ways but has introduced a number of features to help speed up the payment process.

Litecoin says its is more secure than Bitcoin, has a higher coin limit (it has 84 million, Bitcoin 21 million) and has a higher volume of transactions.

Notable pro and anti crypto people

Cryptocurrency and the wider industry are technically complex and difficult to understand from an economics and investment perspective.

The industry is still rife with scammers and charlatans looking for ways to make a quick buck out of people.

While the industry is becoming more professional each year, it’s still in some ways in its ‘Wild West’ days.

Before I invested, I reseached the industry to understand what key people in tech, finance and business had to say about cryptocurrency and if they’d put their money where the mouth is.

As it happens there are many well-known names who have been vocal about Bitcoin and the wider cryptocurrency industry.

Some are heavily invested whereas others think it’s one massive scam illustrating how polarising the industry is.

Here are a selection of pro and anti cryptocurrency industry names.

Pro cryptocurrency

Naval Ravikant – The CEO and co-founder of AngelList is a crypto investor and has been public about his thoughts on the cryptocurrency industry and where it’s heading. This interview with Tim Ferriss provides some interesting insights.

Edward Snowden – The former CIA employee who leaked classified information says he ‘may have’ used Bitcoin to buy server space and finds cryptocurrency “interesting”. This video of him covers him talking about the value of cryptocurrency.

Ben Horowitz – The co-founder of venture firm Andreessen Horowitz along with Marc Andreessen, is a big proponent of cryptocurrency. Below is a video of him spelling out his vision of cryptocurrency.


Sundar Pichai – Google CEO, Pichai says his 11-year-old son is an Ethereum miner and he had to explain to the youngster how paper money works.

Eric Schmidt – Billionaire and former Google chairman, Schmidt “is a budding Bitcoin and blockchain enthusiast who said Ethereum could be a “powerful platform” whose untapped potential is off-the-charts.”

Anti cryptocurrency

Bill Harris – Former CEO of Intuit and founding CEO of PayPal and Personal Capital, says Bitcoin is “colossal pump-and-dump scheme, the likes of which the world has never seen.”

Nouriel Roubini – The economist Roubini, also known as “Dr Doom” because he predicted the financial crash of 07, has spoken out against Bitcoin for years. “It’s just bulls*the says.

Paul Krugman – Economist and New York Times pundit, Krugman said in 2013 that Bitcoin is evil and in 2018 confirmed his ‘crypto skeptic‘ status.

Carl Icahn – Billionaire investor, Carl Icahn, said Bitcoin and other cryptocurrencies are “ridiculous” and “maybe I’m too old but I wouldn’t touch the stuff.”

Jamie Dimon – CEO of JP Morgan, Dimon, has been critical of Bitcoin and cryptocurrencies over the years. In a Bloomberg interview, he said that he has “no interest” in them and that they are a “scam.”

As you can see, the tech-focussed Silicon Valley entrepreneurs, investors and billionaires see cryptocurrency as the future whereas the more institutional type of businessmen do not.

The views may change on either side of the argument as the industry develops because nobody knows for certain and only time will tell.

Anti-Bitcoiner, Paul Krugman did say in 1998 the internet would have no more impact on the economy than the fax machine, proving even economists and New York time pundits can’t predict the future.

Buying Bitcoin

For cryptocurrency to really take off, buying and storing needs to be made easier.

Many people equate today’s cryptocurrency industry like the internet of the 90s. It was available but it was hard to obtain and not many people were using it.

Same as cryptocurrency today and that’s because of the current technical barriers to entry.

Buying and storing cryptocurrency gets easier each year and requires less geeky know-how as providers make it easier.

For now however, there’s a process involved that many average consumers are not prepared to go through.

When buying cryptocurrency you don’t have to buy one full coin. Buying a Bitcoin today is expensive but it’s divisible so instead, you can purchase all the way down to one-hundred-millionth.

To buy Bitcoin you need five things:

Bitcoin key – This is your personal unique string of numbers that allows you to receive Bitcoin into your wallet.

Cryptocurrency wallet – A secure place to store Bitcoin and other cryptocurrencies. Wallets can be a software program that runs online, on your computer or on a hardware key.

Cryptocurrency exchange – A site where you can buy Bitcoin and other cryptocurrencies using regular money.

Credit or debit card – To pay for your purchase.

Form of identity – You’ll need a driver’s license or passport for ID purposes.

For an in-depth step-by-step guide on how to buy Bitcoin check out this article on savethestudent.org.

Storing Bitcoin

When it comes to storing it you have to take care of your own. It can’t be stored with a bank to allow them to take care of it though that may change in the future.

This is what can happen if you neglect how you store your Bitcoin.

bitcoin

This is not the only incident of someone losing their Bitcoin but it certainly is the most well-known one.

One UK man left 7,500 Bitcoins on an old laptop which he threw away in the rubbish and which was subsequently dumped in a landfill site.

At its highest peak so far, the Bitcoin he lost would have been worth over $148 million.

Storage is very important.

Some tips on how to secure your cryptocurrency.

Use a hardware wallet. To be as safe as possible, use a hardware wallet instead of a software wallet. A Trezor or Ledger hardware wallet is much safer because your Bitcoin is saved offline so it’s much harder to be stolen.

Keep your information secure. One of the more recent types of attacks is hackers moving your phone number to their device so hacking into your email and stealing your phone number they can get your online identity and your crypto. Don’t shout across social media about your cryptocurrency.

Use a new secure email. Use Protonmail specifically for your cryptocurrency accounts as it is encrypted so no one can interfere with your emails.

Use strong passwords. Use 21 characters or more.

Use LastPass to store complex passwords. LastPass uses the same cryptographic technology Bitcoin uses and is very secure.

Use two-factor authentication. It adds an extra layer of security and you should use it with everything these days.

Avoid fake websites and emails. Phishing websites and emails that pretend to be legit.

Spread out all your cryptocurrency. If you have a substantial amount don’t save all of your cryptocurrency on one key.

Tell a trusted family member about your crypto. Show them where it is and how to access it in case something happens to you.

Cryptocurrency terminology

With an entirely new industry comes an entirely new terminology you have to learn.

The cryptocurrency industry is full of industry jargon and acronyms and it’s a learning process in itself to understand them all.

Below is some of the words and terminology you should learn if you intend to get involved in the cryptocurrency space.

I intend to update this list as the industry develops.

ATH – All Time High – when a crypto is at its highest point

Altcoin – Alternative cryptocurrency to Bitcoin

Bearish – An expectation of decreasing prices

Blockchain – A data system that allows the creation of a digital ledger of transaction on a non centralized network

Bullish – An expectation of increasing prices

Block time – how long a transaction takes from one person to another 

Cold storage – Moving cryptocurrency offline to hardware wallet

Double spend – The risk that a digital currency can be spent twice

Fiat – Currency that is government issued legal tender. E.g. $USD

Fork – When an existing blockchain splits into two separate blockchains

FOMO – Fear Of Missing Out

FUD – Fear, Uncertainty and Doubt

FUDster – An entity that spreads FUD

Hashrate – The speed at which a block is discovered and the rate in which the maths rate is solved

HODL – Hold On for Dear Life (hold on to your coins – don’t sell)

ICO – Initial Coin Offering. A type of crowdfunding

Immutable – When the past record can’t be altered.

Maximalist – Belief that you should maximise your efforts into one coin

Market cap – The market cap = total supply x current price

Mining – The term used for discovering and solving blocks on the blockchain

Mooning – Crypto prices going up extremely high

Privacy coin – Implement functionality to hide your identity when making transactions

Proof of stake – When a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has

P&D – Pump and dump schemes that attempt to boost the price of a coin

Satoshi – 0.00000001 Bitcoins (1 billionth of a Bitcoin)

Smart contracts – a digital contract/agreement that doesn’t require a middleman like a lawyer

Stablecoin – A crypto with extremely low volatility sometimes pegged to a fiat like the dollar

Token – Two meanings: a crypto unit or something built onto the Ethereum network

Wallet – Software or hardware – storage for cryptocurrencies

Whales – Big money Bitcoin players with a lot of Bitcoin

What to do now

Now that you have an understanding of Bitcoin and the wider cryptocurrency industry and you if want to pursue it further, your next steps are simple.

Research.

Research.

Research.

There’s no other way.

Learn about the different cryptocurrencies, read the white papers, read the blogs, listen to the podcasts, follow the communities on Twitter, Reddit, Slack and elsewhere.

Buy a hardware wallet, download a software wallet, practice buying small amounts of cryptocurrency and become personally invested if you so wish.

The industry is moving at a rapid pace. Sites like ccn.com are updated 40+ times per day with new developments in the space. I struggle to keep up with it all and I gave up a while ago.

The naysayers and skeptics believe it’s a scam but the sheer hive of activity that is taking place in cryptocurrency around the world proves to me at least it’s a burgeoning industry.

And as I said earlier in this article there’s no other way to get involved other than to buy the ticket and take the ride.

Comments

Leave a Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Loading…

0
sleep

“Sleep when you’re dead” is wrong

travel the world

Why I’m travelling the world