Bitcoin for beginners

An introduction to digital currencies

(If you only want to have a play around with Bitcoin to see how it works, feel free to skip ahead to the Getting Started page. But if you want to use bitcoin for any serious transactions, it's best to read the site in depth to fully understand how it works and keep your money secure.)


If you're new to Bitcoin and the world of digital currencies, this site is here to help you make sense of it all.

This is for anyone who recognises that money is broken and needs to change. If you are tired of debt, austerity, quantitative easing, bank bailouts, market rigging, corruption and other methods of manipulation and control, you're in the right place. Welcome to a new economy beyond the control of banks and governments.

Forget most of the things you've heard about Bitcoin. Much of the media coverage has been poorly researched and most of the common myths out there are easily debunked. Here we aim to provide an unbiased summary of what Bitcoin is and what it can do. We'll also explain some of the common pitfalls that can arise as a result of the differences between Bitcoin and the kind of money you're used to dealing with.

The first thing to understand is that Bitcoin is not just a currency, or an alternative to using banks and credit cards. It has much greater potential. Bitcoin can effectively function in the same way as cash, gold, a certificate or bond, a clearing house, a settlement layer, a commercial bank, or even a central bank. It can do all of this at once and more. Everything in our current monetary system can be encompassed by Bitcoin, more efficiently, more transparently, more democratically and more securely.

Ultimately, Bitcoin can be defined as a global network to transfer tamper-proof ownership of digital data without needing a third party. That means you don't have to seek anyone's permission or approval to transact. Technically, it doesn't even have to be limited to money. This digital data can represent assets, voting rights or anything else that makes sense to send digitally in a more efficient, non-duplicable, transparent and decentralised manner. But, for now, we'll keep it simple and focus on money.

There is no owner or company in control of Bitcoin. It is the first decentralised peer-to-peer network that is powered by its users with no central authority or middlemen. Bitcoin gives us, for the first time, a way for one person to transfer money to another person anywhere in the world, so that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge or block the transfer. The consequences of this breakthrough are hard to overstate.

How it works

The basic concept behind Bitcoin is that there is one sender and one recipient. When you send a transaction, Bitcoin uses mathematical encryption, or cryptography, to securely send and publicly record that transaction. This means you don't have to know or trust the other users on the network who are processing the payments. Cryptography ensures that only the owner of the bitcoins has the authority to spend them. It's like if each banknote in your pocket had a 100-digit combination lock on it that couldn't be removed without destroying the note itself. Bitcoin is that secure.

But the second way of securing the system, called the blockchain, is the major innovation. The blockchain is a public ledger, or a record of confirmed transactions. The blockchain is shared and updated in real time between all users on the Bitcoin network. It is used to verify every single transaction and makes it impossible to spend the same coin twice, or make copies of coins. The blockchain also means that you don't have to be online to receive a payment. Your wallet software will simply update your balance next time you run it.

To use Bitcoin, you need a wallet. You can install wallet software on computers, laptops, smartphones or other mobile devices. A Bitcoin wallet allows you to transact with other users. It gives you ownership of a Bitcoin balance so that you can send and receive bitcoins. A wallet can contain multiple addresses, similar to account numbers. An address is the only information you need to provide for someone to pay you with bitcoin. Your address is your public key to allow you to receive bitcoins, but you also have a private key, which remains securely hidden, as it allows you to send bitcoins. Never give out your private key.

An example
of a Bitcoin
address in QR
code format

An address looks like this in text format:

It can also be represented as a QR Code to use on smartphones.

You won't have to remember your address as the wallet software does this for you. If you wanted, you could send some bitcoin to the above address, using either the text format or the QR code. If the private key for this address was also displayed here, it would be the equivalent of leaving a physical wallet outside on the floor. Anyone could then move funds from that address into their own address. But without the hidden private key, only the owner of that address can control the funds contained within it.

A wallet's appearance will vary depending on your choice of client, but will generally look something like this:

All clients will allow you to send and receive bitcoin, along with being able to view a history of all your previous transactions. Some clients will also offer additional features and functions.

Funds on the Bitcoin network can be represented as whole bitcoin units. These are commonly referred to as "BTC" and can be used in a similar way to how "USD" or "CAD" can be used for dollars instead of a dollar ($) sign. Bitcoins are divisible to 8 decimal places. The smallest of these decimal places is named a "satoshi", after Bitcoin's pseudonymous creator. For many people who are new to Bitcoin, 8 decimal places can take some getting used to, as people are generally accustomed to only having two decimal places for pennies in their existing currencies. To help with this, amounts can also be represented as "bits" or "satoshi" by moving the decimal place:

1 bit is equal to 0.00000100 BTC, so you need 1 million bits to make a whole bitcoin.

As an example, 0.00075045 BTC is the same as 750.45 bits, which is considerably easier to read.

It could also be displayed as 750 bits and 45 satoshis, or even 75045 satoshis. Satoshis are effectively the equivalent of pennies. 100 satoshis make a whole bit.

It's particularly helpful for new users to deal in bits and satoshi because bitcoins are a scarce resource. There will only ever be a maximum of 21 million bitcoins, so it stands to reason that not everyone will be able to own a whole bitcoin. It is estimated that over the course of the next decade, there could be as many as 5 billion internet users worldwide, so with only 21 million bitcoins in circulation, the average person is probably going to hold less than 0.00420000 BTC, or 4200 bits, or 420000 satoshi.

Bitcoin isn't the only digital currency out there. You may have heard of other cryptocurrencies, or "altcoins", but they all work in largely the same way. In fact, many of them are based on Bitcoin's open-source code. Once you understand Bitcoin, you'll understand all the others as well.

And even if you don't understand how it all works on a technical level yet, don't worry. Ultimately, it doesn't matter too much. Most people don't truly understand how the current global banking system works, but it doesn't stop them from using it. The only thing you really need to know is once you've installed your wallet software, you can receive bitcoins and be a part of this new, innovative system. And often, people find that once they dive in and actually start using it, things begin to make alot more sense.

(Again, if you want to dive in and see how Bitcoin works in practice, feel free to skip ahead to the Getting Started page. But if you want to use bitcoin for any serious transactions, it's best to read the site in depth to fully understand how it works and keep your money secure.)

Why should I be interested in Bitcoin?

People have a variety of reasons for getting into Bitcoin. Some people, probably too many, are just using Bitcoin as a commodity to speculate, buying it cheap in the hope that they can sell it later for a higher price. But that isn't the purpose of Bitcoin. While the mainstream media generally portray it as some magical get-rich-quick scheme, we assure you it isn't. It's possible you might get lucky and turn a profit in this fashion, but we'd suggest it's not the healthiest motivation to get involved, as it's equally possible to make a loss. It may sound strange, but many who feel they've gained a deep and thorough understanding of Bitcoin have no desire at all to sell their Bitcoin in exchange for national currencies. Instead, they see Bitcoin as a means of escaping a broken "traditional" economic system that is failing them.

Freedom is one of the primary reasons why people are enthralled by Bitcoin. Being able to transact with who you want, when you want, with no one to stop you is a large part of the appeal. Some people just enjoy the convenience of being able to send money anywhere, cheaply. Many appreciate the principles behind digital money, seeing it as a tool for social and political revolution in the sense that decentralised money can't be controlled by corrupt governments and banks. Others have moved to Bitcoin out of necessity as their nation's economies are failing and the value of their real-world money is diminishing rapidly.

Increasingly, people feel that failed banks shouldn't be bailed out at the public's expense. It's worth noting that the very first Bitcoin block ever mined contained a message with the following newspaper headline: 'The Times 03/Jan/2009 Chancellor on brink of second bailout for banks'. So it's likely that Bitcoin's creator intended this as a disparaging comment on the general instability and risks of fractional-reserve banking. Perhaps they felt that the banks could no longer be trusted and that we could do better. It may even be the very reason Bitcoin was invented.

The problem with using credit cards or direct debits is that once a company or person has access to your payment details, they can continue to take money from your account without your knowledge or consent. Also, when companies have security breaches and lose data, people can have their payment details and even personal contact information stolen, which leads to identity theft and fraudulent use of your money. In comparison, it doesn't matter how many people know your bitcoin address, because they can only use it to send money to you. No one can take money from your Bitcoin wallet using your address. Only you can release a payment from your wallet using your cryptographically secured signature.

In most countries around the world, the rate of inflation is much higher than the rate of interest people earn on their savings. In effect, you're getting poorer by the day as the money you have becomes worth less and less. Because of this, it doesn't make sense to keep all your savings in the bank, so people are diversifying some of their funds into other things like digital currencies, physical assets like property and precious metals like gold and silver. A few also believe that the fiat debt-based monetary system we currently use isn't sustainable and might eventually collapse at some point.

The problem with conventional currencies is that they require trust in various third parties to make it work. The central bank must be trusted not to debase the value of the currency. Banks must be trusted to hold our money, keep it secure and transfer it electronically. Governments must be trusted to maintain their own domestic economies and not to meddle in the affairs of other countries. The general public have to trust that the financial crisis won't worsen and banks won't need more bailouts. There are many occasions where this trust proves to be misplaced.

Bitcoin has no central bank or authority. It's guaranteed instead by the laws of mathematics. Unlike currencies that are "backed" by a central authority, Bitcoin cannot become insolvent. There's no one person who can abuse the system. It doesn't rely on a "trusted" third party to make it work. You are in direct control of your money. Nobody can print more, nobody can re-use the coins simply by making a copy, and nobody can use anyone else's coins without having direct access to their private keys or seed phrase.

What are the advantages of Bitcoin?

Payment freedom - It is possible to send and receive any amount of money almost instantly anywhere in the world at any time. No bank holidays. No borders. No imposed limits by banks or governments. Bitcoin allows its users to be in full control of their money.

Low fees - Bitcoin payments are processed with fairly small fees. Users may opt to include higher fees with their transactions to receive priority processing, which results in faster confirmation of transactions by the network. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.

Fewer risks for merchants - Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs.

Security and control - Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.

Transparent and neutral - All information concerning the Bitcoin money supply itself is readily available on the blockchain for anybody to verify and use in real-time. No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.

Depoliticised money - Regulation of money supply needs to be depoliticised. Governments persuing their own domestic interests have little to no effect on Bitcoin. This is beneficial in countries where inflation is having a damaging impact on the public's spending power. Money is often used by governments as a system of control, but Bitcoin allows people to protect themselves from the many corrupt regimes around the world.

What are the disadvantages of Bitcoin?

Degree of acceptance - Many people are still unaware of Bitcoin. Every day, more businesses accept bitcoins because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it, and the higher the incentive for the next user to start using the technology.

Lack of understanding - Unfortunately, many people have believed the unfounded claims they've read in the media, labelling Bitcoin as a tool for drug lords, money launderers and other illegal activites, but this is just indicative of a lack of understanding. It will take time to shed this unwarranted reputation. The internet itself was largely misunderstood at one point, but it's now used by almost everyone. In time, the same will likely apply to digital currencies.

Repeating past mistakes - Bitcoin works best when it is used as a peer-to-peer system with no middlemen. Sadly, human beings are creatures of habit and over the years have become accustomed to leaving their money in the hands of other people, namely banks. The outcome of using this same mentality with Bitcoin is usually a bad one. All of the thefts and hackings reported in the media happened because people left their bitcoins stored online in the hands of someone else, mistakenly believing they would look after them. With Bitcoin, you are responsible for looking after your own money. Storing bitcoins in your own wallet software is far more secure than storing them on a website online. It may take time for people to adjust to this new mindset.

Price volatility - The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. Consequently, keeping your entire savings with Bitcoin is not recommended at this point. The key to a stable financial portfolio is diversifying. Your investments could include a mix of physical assets, fiat savings, precious metals and digital currencies. Bitcoin should be seen like a high risk asset, and you should not store money that you cannot afford to lose with Bitcoin. In theory, this volatility will decrease as Bitcoin markets and the technology matures. Never before has the world seen a start-up currency, so it is both difficult and exciting to see how it will play out.

Ongoing development - Bitcoin software is still in beta with many features in active development. New tools, features, and services are being developed to make Bitcoin more secure and accessible to the masses. Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin is still in the process of maturing.

Some technical knowledge required - If you aren't comfortable with using computers or the internet, or if you often have issues with viruses affecting your computer, or if you have ever previously fallen victim to a phishing scam and accidentally gave out password or account details, Bitcoin may not be a suitable payment platform for you.

Learning curve - If cash was a brand new invention just made available to the public today, it's almost certain that people would be doing silly things with it and losing their money. The same can easily happen with Bitcoin if you are not careful. It can take a little bit of time to adjust to the differences between digital money and regular money, but we will outline the main things you should know after we've covered some of the basic vocabulary.

Next section ➜ Terminology

Key Points

Bitcoin is open-source
Its design is public, nobody owns or controls Bitcoin and everyone can take part.

Peer-to-peer transactions
Send money almost instantly without the need to use a bank account or credit card.

Worldwide payments
Bitcoin can be used anywhere with internet access, all over the globe.

No Middlemen
Transactions are completed directly between the sender and the receiver via the peer to peer network.

Impossible to counterfeit
The blockchain stores a copy of each transaction, so coins can't be duplicated.

Finite supply
There will only ever be 21 million bitcoins. No one can create more.

Highly divisible
Unlike cash or or precious metals, bitcoins can be divided into small pieces, up to 8 decimal places.

Mobile payments
Send and receive Bitcoin using an app on your smartphone. QR codes can be scanned to make payments.

Silly Myths

Didn't Bitcoin go bankrupt?
No. That was just one website that used bitcoins. Don't trust website owners to look after your money.

Wasn't the CEO arrested?
No. Bitcoin doesn't have a CEO. That was the owner of a different website. No one owns the bitcoin network.

Hasn't Bitcoin been hacked?
No. Only individual websites have been hacked. This is why we don't recommend storing your funds online.

Bitcoin Price

The average price of a bitcoin in US Dollars ($) is currently:

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