Bitcoin Basics

Bitcoin Basics: A Summary of Essential Topics

Why was bitcoin made?

To revolutionize payment by eliminating the middle man and to replace centralized currencies.

How does the blockchain work?

Every transaction goes into a block, and each block holds many transactions.  Blocks are appended to the existing blockchain one at a time.  This "blockchain" holds every single bitcoin transaction, and it is stored by users on "nodes."  By having all nodes hold a copy of the blockchain, past transactions are publicly visible and cannot be modified.  This removes the need for trust in a central authority.

what is bitcoin mining?

Miners provide the computer power that performs "Proof of Work" (PoW) for the system.  When they find the next block, they receive the block reward.  Bitcoin automatically adjusts the difficulty of mining so a block is found every ten minutes on average.  The block reward is currently 12.5 BTC per block, and will occasionally be cut in half over the years. The block reward is the only way for new bitcoin to be created. This will lead to a hard total of 21 million bitcoin to ever be created.  The 21 million limit is one of the core tenants of bitcoin, as there can is no risk of inflation like there is with government printed money.

can i use a fraction of a bitcoin?

Yes! Some people have a fear that they can't afford a whole bitcoin.  The smallest unit of bitcoin is called a "satoshi" which is one one-hundred-millionth of a bitcoin. This is much less than one cent.  Some people also use mBTC (pronounced "milli-bitcoin") to express price, which is .001 bitcoin worth approximately 4 dollars at the time of writing. Most bitcoin transactions are fractions of a bitcoin.

What is a node?

Users can download the entire history of the bitcoin chain, and when new blocks are mined they can add them to that chain.  Users running nodes is a crucial part of the system, as it decentralizes the blockchain so it can not be erased or modified without thousands of other backups still existing.  Users running nodes also have some power in the system; if enough nodes signal for a certain change this can force miners the change to be implemented or blocks mined without it could be rejected and not added to the chain.

What is a fork?

The existing blockchain can be "forked" to start two separate chains, both building off the existing chain. The creation of Bitcoin Cash is one example of this, as some users and developers believed that larger block sizes would help Bitcoin.  After the fork, Bitcoin and Bitcoin Cash are separate chains with their own independent vision.  This means that new blocks on the Bitcoin chain will not be added to the Bitcoin Cash chain and vice versa.  While forks can cause some disruption, they also act as a way to avoid corruption or centralization in the system and let users and market incentives decide which of the paths will win out.  In addition, they can be a useful and non-controversial tool to add new features or fix issues in the code.  While many technical things can be ignored in Bitcoin by basic users, it is important for all holders to know when a fork is coming.  Those who ignored the Bitcoin Cash fork lost up to 20% of their potential investment.

Isn't bitcoin just for drug dealers and the black market?

Bitcoin was the primary currency of the Silkroad, which was infamous for black market trades.  It does not rely on the the government or institutions regulated by the government.  While this is one use case, there are also many uses around the globe that are fully legal.  Bitcoin is definitely not just for those who are trying to buy or sell illegal goods, and these uses are far from the reason for the high price of Bitcoin today.

How do i Send bitcoin?

Sending and receiving Bitcoin is easy. Each wallet or exchange will have a slightly different layout but the basics are the same.  Log in to the sending wallet, copy and paste an address from the receiving wallet, type in the amount to send, and then click "send".  That's it! Just double check that your sending address and sending amount are correct before hitting send, as Bitcoin transactions cannot be reversed.  

Most places will offer an easier method, which is scanning a QR code.  This makes sending bitcoin from a mobile phone even easier.  Scanning the code from your bitcoin wallet app will automatically input the receiving address, and sometimes the send amount as well.  All you have to do is confirm the transaction and the money will be sent.