Are you still wondering what is Bitcoin? It’s mentioned everywhere, but let’s get to the bottom of it. Below is an honest and clear breakdown everything you need to know about the cryptocurrency that started it all.
Explore the sections below to get great tips on how to earn, how to store, where to spend, and much more. This guide is meant for the amateur investor buying in for the first time. Knowing what your buying is just as important as know how to buy it.
Table of Contents
- What is Bitcoin?
- How Does it Work?
- BTC Mining
- Who is Satoshi Nakamoto?
- Advantages & Disadvantages
- How to Get / Earn : 3 Ways to Get Started
- Where Can You Spend Your BTC?
- Bitcoin Price Chart: The Easiest Way to Find the Value & Price Today
- Where & How to Buy BTC
- Where to Store Your BTC
- Additional Resources for Learning More
From its humble beginnings in 2009, Bitcoin was known as a niche computer engineering experiment gone bad and found a home on the black market. Today, it has begun to shed the negative vibe and have begun join the upper ranks of investment opportunities as one of the best store of value for both the world’s wealthy but also average people.
Not to mention, Bitcoin has sparked worldwide adoption and a hunger for blockchain projects and companies; an industry that now employs hundreds of thousands and growing every day.
Indeed, one BTC was worth less than a dollar just 10 years ago, to this year in 2018, where it has fluctuated between $6000 and $17000. It has continued to remain the cryptocurrency on everyone’s lips.
So, why does Bitcoin command such unparalleled interest? There are a number of key reasons, of which include its:
- First mover status,
- Strong technological foundation,
- High-level of security, and
- Active and vocal community of developers and supporters
However, despite all of the talk, many people remain in the dark about what the currency is and how exactly it works.
That’s not to mention all of the questions about price, mining, its advantages and disadvantages, how to earn, where and how to buy it and use it, and how to safely store it. Oh, and let’s not forget about the crypto’s mysterious founder, Satoshi Nakamoto (all hail The Grandmaster!).
So instead of wading through a maelstrom of (mis?)information out there – we suggest you turn to our simple but comprehensive guide below. It will explain everything you want (and need) to know about it.
What is Bitcoin?
Bitcoin is the world’s first decentralized cryptocurrency.
It all started back in October 2008 when Satoshi Nakamoto published a whitepaper in an online cryptography mailing list called, Bitcoin: A Peer-to-Peer Electronic Cash System.
In the paper, Satoshi identified the need for an, “electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Satoshi presented the argument that the development of such a groundbreaking and advanced technology was necessary given that up until that point, financial institutions, “suffered from inherent weaknesses” which came with serving as trusted third parties to process electronic payments, such as:
- Reliance on mediation as a means of resolving financial disputes, leading to…
- High mediation costs which lead to higher transaction costs
- The requirement for customers to provide merchants with “more information than they would otherwise need” due to merchants’ need to exercise caution when processing transactions
- Unavoidable acceptance of fraud manifested as a “cat and mouse game” of counterfeit currency
All of which had led to “the broader cost in the loss of ability to make non-reversible payments for non-reversible services.”
Enter, Bitcoin – Satoshi’s proposal of a digital currency which would provide a solution to the problems with traditional financial institutions. As its transactions can’t be altered, transactions can be made directly from one party to another without the need for a middleman or trusted third party. It doesn’t need a central bank, government, or credit card company to approve a transaction.
This makes it a revolutionary peer-to-peer currency.
In effect, Bitcoin proposed an alternative to the long-held, and largely unquestioned, status quo of relying on trust-based financial institutions to make financial transactions.
While on paper, Satoshi’s vision may have seemed almost impossible, his proposal of a new digital currency was realized on January 3, 2009, when Satoshi mined the genesis block – block number 0 – thus marking the beginning of the Bitcoin network.
But how exactly is this system achieved? While we could go into a complex technical discussion of how the network operates, in the interests of educating even those completely new to cryptocurrency, we’ll now explain in layman’s terms all of the fundamentals you need to know.
How Does it Work?
When you buy your first BTC, you will be generate your very own address. This address is completely unique to you, and you can share it with other users or use it on cryptocurrency exchanges to buy, sell, or trade.
Your Bitcoin address isn’t any regular address. With it comes both a “public key” and a “private key.” As CoinJolt explains:
“A public key is used to send Bitcoins to your Bitcoin address, verify your signature in the transaction to ensure everything is in order, authenticate, and finalize the transaction. On the other hand, a private key is a secret string that allows individuals to unlock and spend your Bitcoins for purchases.”
As your private key is the only means by which you are able “sign” transactions and in turn, authorize that you are the owner of a particular BTC address, it is critical that you keep your private key safe and private.
Once you, or anyone else makes a transaction, it will be recorded on the blockchain – the platform on which the Bitcoin network operates on.
Think of the blockchain as a public ledger which acts as an ongoing record of each and every confirmed BTC transaction. In order to uphold the integrity of each transaction and to ensure that each block on the blockchain is recorded in a chronological order, cryptography is used, namely by a process known as proof-of-work mining.
Bitcoin mining is more like this:
Proof-of-work as diagrammatically represented in Satoshi’s whitepaper.
Bitcoin uses a proof-of-work (PoW) system as a way to confirm and produce BTC. Put simply, proof-of-work is an algorithm “used to confirm transactions and produce new blocks to the chain. With PoW, miners compete against each other to complete transactions on the network and get rewarded.”
So how does this process work?
Miners race against each other to quickly solve extremely difficult math problems (called “hash puzzles”) in order to confirm waiting transactions (which are packed into a “block”). Whoever is able to solve the problem first adds the block to the blockchain and wins a reward.
In order to win, miners must buy or access highly-advanced, but expensive mining hardware (which we explain in greater detail below).
Miners therefore work not only to produce new Bitcoins in accordance to demand, but also to verify transactions on the blockchain to guard against fraud. Mining therein “enforces a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system.”
In other words, mining ensures that:
- New blocks added to the blockchain are recorded in the correct order,
- The Bitcoin network is not controlled by one single actor, and
- There is a consensus between miners about the state of the blockchain system
While we won’t delve into every complex component of PoW that Satoshi details in his white paper, we will touch on one fundamental component: that due to the fact that “proof-of-work is essentially one-CPU-one-vote,” PoW solves the issue of determining representation in majority decision making.
That is, with PoW, the longest chain in the blockchain has the greatest proof-of-work effort invested in it, so it logical for the majority decision to be represented by the longest chain.
But why does determining which chain should be represented even matter?
Well, it has major implications for the way in which the Bitcoin blockchain can operate. To use Satoshi’s words:
“If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes.”
Simply put, in an effort to ensure that consensus rules continue to be followed on the Bitcoin network, it is necessary to have built-in mechanisms that support honest nodes to triumph over dishonest nodes. A Bitcoin node is a term which describes “Any computer that connects to the Bitcoin network” and works to make the network more stable and efficient. For more information about nodes and what they can do, read the article, “6 Reasons to Run a Bitcoin Node.”
The SHA-256 hashing algorithm functions relatively well because it is an effective means of implementing a distributed, peer-to-peer timestamp server.
What is a timestamp server, you ask? To use Satoshi’s explanation, a timestamp server works by “taking a hash of a block of items to be timestamped and widely publishing the hash.”
By proving that the data must have existed at the time in order to get into the hash, the network’s timestamp server effectively provides a solution to the issue of double spending. Furthermore, by making the timestamp server operate on a peer-to-peer basis, anyone can easily confirm the presence or absence of a given transaction.
Features of Bitcoin
In order to understand Bitcoin, it’s important to have at least a general understanding of its major features. The following list outlines Bitcoin’s most fundamental features in a simple and understandable way:
- Decentralized: The Bitcoin network does not rely on a central authority, such as a bank or other financial institution, to verify transactions. Instead, it operates on a decentralized and distributed network which anyone can contribute and have access to. The decentralized nature of it allows for the network to continue operating even if one part of it goes down.
- Transparent: Transparency is an inherent feature of the Bitcoin network, as it operates on a public ledger which records each and every BTC transaction. Anyone at any time can see the same copy of the blockchain – no one has greater access to it than anyone else.
- Permissionless: Anyone, anywhere can create a BTC address and begin trading or mining BTC. You do not have to ask for permission from anyone to start. Compare this to a “permissioned” system e.g. you would need to ask the bank for approval if you wanted to open a bank account.
- Irreversible & Non-repudiable: Payments made on the Bitcoin network are irreversible, so once a payment is made, it cannot be taken back. The non-repudiable nature of payments on the blockchain therein acts as a safeguard against false claims that a BTC payment was not made or received.
- Fraud protection: As BTC transactions are computationally impractical to reverse (due to their non-repudiable nature), sellers are offered a level of protection against fraud.
- Elimination of double-spending: The use of a peer-to-peer distributed timestamp server which serves as an immutable, chronological record of all transactions on the Bitcoin blockchain eliminates the problem of double-spending.
- Security: Only you have control of your BTC holdings, as transactions can only be made with your approval. You are able to secure your holdings by backing up or encrypting your holdings. Security also comes in terms of the SHA-256 hashing algorithm’s built-in security measures, which discourage dishonest nodes from attacking the network.
- Pseudonymous: When you buy, trade, or sell BTC, your real world identity (your name, address, etc.) is not tied to your BTC address, which is represented as a unique combination of 26-35 alphanumeric characters, known as a hexadecimal cryptocurrency address.
- Fast: Relative to traditional financial institutions, which may take days to clear a transaction, Bitcoin transactions are fast – with an average confirmation time of around ten minutes.
- Location-boundless: Anyone, anywhere can buy, sell, send, receive, and trade BTC, so long as they have a BTC address. While an increasing number of countries are cracking down on Bitcoin, BTC transactions nor mining is bound by location.
Beyond these features, there are a number of other notable facets of Bitcoin which should be taken into account in any assessment of the cryptocurrency, such as the total supply of coins, block time, transaction fees, and current price and market cap.
Total Supply of Coins
Graph showing the total number of Bitcoins mined in the year to date. (Image credit: Blockchain.info)
The total supply of Bitcoins is capped at 21 million BTC.
At the time of writing (May 14, 2018), there are 17,032,925 BTC in circulating supply, which means that 81.1% of the total supply of BTC have already been mined. Put in other words, there are less than 4 million BTC to be mined until the supply cap has been reached.
As the above graph shows, the total supply of mined BTC has continually increased at a steady rate over the past year.
Based on the current rate – and accounting for the fixed halving every four years of the block reward that miners receive – it is largely estimated that the last BTC will be mined sometime in 2040.
Bitcoin’s block times are notoriously unpredictable. Although the average block time is around ten minutes, it can be as high as fifteen minutes at its slowest points.
As we explore further below, Bitcoin’s lagging transaction times have continually been one of the biggest criticisms it faces as a cryptocurrency.
A historical chart of Bitcoin’s transaction fees. (Source: BitInfoCharts)
As the above historical chart of BTC’s average transaction fees shows, Bitcoin’s transaction fees have been very unsteady, with particular volatility evident from from December 2017 to early January 2018. At its peak, Bitcoin’s average transaction fees reached $55.
However, since early January 2018, transaction fees have continued to fall. In fact, since February 2018, fees have remained under $10.
The reason Bitcoin’s transaction fees tend to fluctuate is because they are dependent on blockchain load. Consequently, the cryptocurrency has received much criticism about its high transaction fees, relative to other comparable cryptocurrencies such as Litecoin.
Current Market Cap & Price
Bitcoin currently sits at #1 position in terms of market cap. (Image credit: CoinMarketCap)
As of May 14, Bitcoin’s market cap sits at $144,313,712,829 – making it the leading cryptocurrency in terms of market cap. In fact, the current total market cap of BTC is still more than the total combined market cap of the five coins following it in terms of market cap volume (i.e. Ethereum, Ripple, Bitcoin Cash, EOS, and Litecoin respectively)
Bitcoins’s historical price chart (Image credit: CoinMarketCap)
As the above chart shows, the price of one Bitcoin as of May 14 is approximately US$8252.80.
Who is Satoshi Nakamoto?
Remember how we mentioned that the identity of Bitcoin’s creator has remained a mystery? If you’re intrigued to find out more, we’re sorry to say that to this day, nobody knows – or at least is willing to share conclusive evidence that would close the case.
There have, of course, been countless attempts to expose the identity of Satoshi Nakamoto – such as when Newsweek claimed to have identified him as Californian man Dorian Prentice Satoshi Nakamoto. While their case at first seemed promising – especially considering Dorian himself said he was the Satoshi the world had been looking for, in the end, Dorian went on record retracting his statement.
Perhaps the most elaborate attempt to expose Satoshi Nakamoto goes to when Wired pointed the finger at Australian academic Craig Steven Wright. His house was raided by the Australian Federal Police, and although likewise to Dorian, he claimed to be the real Satoshi Nakamoto, he was unable to produce conclusive evidence he is. Now, he is being sued for $10 billion for allegedly hoarding more than 1.1 million Bitcoins.
There’s also a theory that Satoshi Nakamoto is not just one person – but a collective of people.
The continued mystery over Satoshi Nakamoto’s identity has only heightened both the crypto community and media’s curiosity to remove the cloak of anonymity Satoshi has so tightly worn.
Bitcoin Advantages & Disadvantages
Every cryptocurrency offers both advantages and disadvantages, so Bitcoin is no different. Here are some of the most common advantages and disadvantages associated with Bitcoin:
A viable alternative to traditional currency and financial institutions (advantage)
With Bitcoin, Satoshi envisioned creating a means of payment that could be sent directly from one party to another, without the need for an intermediary institution. That is exactly what has eventuated with Bitcoin.
Needless to say, it still has a long way to go in terms of widespread adoption, and there are a number of kinks to iron out, it nevertheless offers a functional alternative means of payment than traditional currency (fiat).
As we outline below in the section, “Where can you spend your BTC?” (LINK TO SECTION BELOW), Bitcoin is already accepted in variety of online and brick and mortar stores, with the number of businesses that accept BTC as a form of payment increasing by the day.
Moreover, although the general public and media have remained cautious of cryptocurrencies at large, there is a slow, but steadily increasing rumbling of discontent about the behavior of financial institutions and in turn, traditional currency.
There is perhaps no clearer example of this than Occupy Wall Street, a large-scale movement which began in 2011 to protest economic inequality worldwide. From that movement, and movements similar to it, has come a slow, but steady push from some quarters to revolutionize the world order and shake up traditional ways of operating.
This discontent has been quite fruitful for Bitcoin, as it is often held up by its proponents as a one means of subverting traditional financial institutions and long-accepted modes of financial transaction. It is, after all, the antithesis to the way in which traditional currency and financial institutions operate. Even Wikileaks’ founder Julian Assange lended his voice to the idea by tweeting in December 2017 that “Bitcoin is the real Occupy Wall Street”.
Julian Assange’s tweet expressing his view that “Bitcoin is the real Occupy Wall Street.”
While the world at large continues to operate using traditional financial institutions and currencies, even Bitcoin’s detractors cannot deny that it has already succeeded in its goal of providing another workable option for financial transactions.
First mover status (advantage)
Bitcoin’s first mover status is often cited as one of the greatest advantages it has over its direct competitors – not to mention over all other cryptocurrencies.
As the world’s very first cryptocurrency, Bitcoin possesses what is referred to as “first mover advantage” – a term which describes the advantages which come with being the pioneer in a given industry. Such advantages include Bitcoin’s:
- Greater overall media exposure: Generally speaking, Bitcoin is the “go-to” cryptocurrency media outlets refer to in discussions about cryptocurrency, as well as in blockchain technology.
- Greater level of public awareness: The general public’s knowledge of cryptocurrency is still highly limited, so Bitcoin is the one of the only – if not the only – cryptocurrency or blockchain asset many members of the public are aware of or have some cursory knowledge of.
- Early adoption from merchants: Bitcoin has had both more time, and therefore more opportunity to form relationships with merchants. A clear example of this is the far greater number of merchants who accept BTC in comparison to LTC.
- Ability to establish loyal investors early on: As the first cryptocurrency of most cryptocurrency users, many BTC holders feel a certain sense of loyalty towards it and are invested in its long-term success. In a practical sense, early adopters may be dissuaded to trade their BTC given the fees they would incur, so remain loyal to holding it.
That all being said, there are drawbacks to being first cryptocurrency.
For example, although Bitcoin was able to set a number of precedents as the first cryptocurrency, a number of cryptocurrencies created after it took the opportunity to address some of its downfalls in their designs.
A prime example is the fact that Bitcoin Cash was created as a hard fork of Bitcoin in response to Bitcoin’s substantial scalability problems. Litecoin is another example of a cryptocurrency which capitalized on Bitcoin’s first mover status. By identifying and directly responding to Bitcoin’s pitfalls in his design of Litecoin creator Charlie Lee was able to create a cryptocurrency which is in many ways far more advanced than Bitcoin.
Core trading pair (advantage)
Bitcoin is a core trading pair on every major cryptocurrency exchange. A trading pair is a pair of cryptocurrencies that can be traded for one another.
While all cryptocurrencies can be traded, they may not be able to be directly traded with all other cryptocurrencies. Bitcoin, on the other hand, is one of the few cryptocurrencies that is offered on exchanges as a core, or “base” trading pair – a cryptocurrency that can be traded for all other cryptocurrencies offered on a given exchange (other common core trading pairs are Litecoin, Ethereum, and Tether).
For instance, say you only hold Factom (FCT), and you wanted to buy Ripple (XRP). As FCT is not a core trading pair, you would not be able to use your FCT to buy XRP. On the other hand, you would be able to buy XRP with BTC as it is a core trading pair.
Why is it notable that Bitcoin is offered as a core trading pair? Because being one of the few widely-offered trading pairs gives it an additional level of utility. This is important because in order for any cryptocurrency to become widely adopted and functional, it needs people to actually use it. And with greater usage, comes greater value.
Scalability problems (disadvantage)
Read any discussion of Bitcoin’s disadvantages, and its lack of scalability will almost certainly be right there at the top of the list. It is one of the first points its detractors bring up, and scalability is a feature that an increasing number of cryptocurrencies offer (not to mention a feature that savvy investors look for in a cryptocurrency).
But what does it even mean for a cryptocurrency to be scalable or not?
Scalability refers to the ability for a cryptocurrency to be able to adapt in order to support the growing demands which come with an increasing amount of users and processes on a given cryptocurrency network.
Bitcoin has long been afflicted by scaling issues – namely caused by the 1 MB limit Satoshi placed on blockchain block size. The issue with such a small limit on block size is that it severely restricts the number of transactions that can be confirmed, and subsequently processed on the Bitcoin network in a given amount of time.
Consequently, it has suffered from significant network congestion, with this no more apparent than in early 2017, when transactions took up to nearly four days to complete. Long transaction times consequently led to extremely high fees – around $28 per transaction, and at their peak, $55 per transaction.
In order to implement a solution to such problems, Segregated Witness (SegWit) was activated on August 24, 2017. SegWit can be described as “the process by which the block size limit on a blockchain is increased by removing signature data from Bitcoin transactions.” As digital signature data represents 65% of the space in a given transaction, removing the signature data made blocks much lighter, and therein allowed for a greater number of transactions within each block. (If you’re interested, you can read more about Bitcoin’s block weight here).
However, SegWit was not a complete solution as many Bitcoin developers were vehemently opposed to it – so much so that it was a contributing factor to the creation of Bitcoin Cash (LINK TO OWEN’S ARTICLE). Moreover, many wallets and exchanges have still not integrated SegWit, meaning that widespread SegWit support, and therein, its benefits, have yet to be fully realized.
There is another possible solution that many developers stand behind: the Lightning Network. The Lightning Network is a second layer on top of a blockchain (in this case, Bitcoin’s) that enables faster transactions and reduced transaction costs. It has, in fact, already been implemented on Bitcoin’s blockchain and has shown to be very promising, but as it is only in its beta version, we will have to wait and see if it can truly solve its scalability problems.
Other problems with SHA-256 (disadvantage)
Accessibility to mine BTC is an issue which plagues the Bitcoin mining process. You may have heard of ASIC miners, who, in an effort to mine BTC more efficiently, make use of “application-specific integrated circuits” (ASICs). ASICs are special chips designed with the sole purpose of solving the extremely complicated algorithmic calculations necessary to find the specific and unique number which will allow for a single BTC to be mined.
ASICs are incredibly expensive, so it was not long until people realized that if they could pool their financial and mining resources, they could use parallel processing to work collectively to complete BTC mining tasks. Hence, the term “mining pool” was brought to life.
As a consequence, ASICs quickly dominated the Bitcoin mining scene, and the number of “everyday” miners fell. When you think about it, how could one lone miner with limited computing power and financial resources realistically compete against countless ASIC miners with the latest and greatest mining hardware?
SHA-256 has thus faced criticism due to its “undemocratic” nature. It was, after all, Satoshi’s vision for mining to be a completely democratic means for anyone and everyone to have the capacity to mine, and subsequently earn BTC for their efforts.
In order to better understand some of the issues and criticisms levelled at SHA-256, it is useful to compare it to another type of blockchain protocol. For example, Litecoin – a cryptocurrency which was created as an open source fork of Bitcoin – uses Scrypt Proof of Work.
As we explain in the “Litecoin vs. Bitcoin: How do they compare?” section of our Ultimate Litecoin Guide, Scrypt has a number of notable advantages over SHA-256. For instance, Scrypt enables Litecoin to have much faster confirmation times than SHA-256 does for Bitcoin, as it is substantially less complex to compute.
The reason it is less difficult to compute is because it is a “memory hard problem” dependent on substantial amounts of memory, as opposed to SHA-256, which relies on intensive raw processing power to operate.
Another notable difference is that Scrypt is a more democratic means of mining in the sense that anyone can start mining LTC by purchasing relatively cost-effective memory cards. Further to this, unlike SHA-256’s calculations which are able to be paralyzed, Scrypt’s calculations work in a serial manner. That means that to date, Litecoin has yet to experience the issue of ASIC miners on a large-scale.
Faceless leadership (neutral)
Satoshi’s anonymity can be viewed from two perspectives – both as an advantage and disadvantage.
Those who support Satoshi’s anonymity argue that Bitcoin is fundamentally meant to be a leaderless project. The very essence of Satoshi’s vision, after all, is to provide an alternative to the norm of centralizing operations, access, and power.
People should instead “trust the code” – not an institution, not Satoshi, not anyone. Satoshi’s absence as a leader forces people to instead focus on the Bitcoin blockchain – which is exactly what he wanted. Satoshi’s success in maintaining his hidden identity also reflects one of the central tenets of Bitcoin – its offering of pseudo-anonymity to all users.
As Jean-Jacques Cabou, a partner at one of the world’s first law firms focused on cryptocurrency and blockchain, Perkins Coie, puts it, “It’s peer to peer. It’s open source. It’s consensus-driven. And I think the idea that there’s any one person that’s a leader or a controller is antithetical to the nature of Bitcoin.”
However, detractors of the Bitcoin creator’s faceless leadership note a number of issues it presents, such as lack of transparency and accountability.
Perhaps the best way to illustrate this is to compare Satoshi Nakamoto to the active leadership of Litecoin’s creator, Charlie Lee. Lee’s strong leadership is viewed at large as one of the major advantages Litecoin has over many cryptocurrencies, particularly Bitcoin.
To exemplify this point, think about when there is a major update, news, controversy, or even gossip about Litecoin. Lee is both willing and able to respond directly to it. He can clear up any unfounded rumors, clarify any misreported matters, and rouse up excitement for new developments or partnerships. Furthermore, he is able to contribute to the sense of community behind the Litecoin project.
In the case of Bitcoin, all of these opportunities are nullified by the absence of a leader of some kind. While it’s true that the Bitcoin advocacy organization Bitcoin Foundation, a BTC developer, or even the cryptocurrency’s supporters could step in – all of these stakeholders still arguably lack the authority and command that only the creator of Bitcoin, Satoshi Nakamoto, could provide.
How to Get / Earn Bitcoins: 3 Ways to Get Started
With the current reward for mining a block set at a whooping 12.5 Bitcoins, mining Bitcoin is a very lucrative business for successful miners.
However, as mentioned above, earning BTC is now a very difficult operation with high barriers to entry. Incredibly cost-prohibitive and time-consuming, most people’s opportunity to cash in on Bitcoin mining is highly limited.
If you’re not dissuaded and are interested in entering the pursuit to earn Bitcoin, here is a quick run through of two methods for mining BTC. For those curious about others means of earning Bitcoin, we’ve included another non-mining method to consider as well.
Set Up Your Own Mining Rig
One of the primary methods of mining BTC is to purchase your own Bitcoin mining hardware. This sounds simple enough, but keep in mind that mining hardware is incredibly expensive.
It is not just a one-off purchase either. As competition grows, the need to upgrade or purchase additional hardware will be unavoidable. Further to this, you must account for the very high electricity costs of running your mining operation.
Needless to say, setting up all of the hardware and maintaining your mining operation also requires you to have a certain degree of technical knowledge. We won’t go into the details of setting up your mining rig here as there are many other resources, such as the video below, which do a great job of explaining the process.
Join a Mining Pool
If you don’t want to enter into mining alone, you can join a Bitcoin mining pool.
As explained above, in simple terms, a Bitcoin mining pool is a collective of Bitcoin miners who bring together, or “pool” their mining resources. This involves sharing processing power over a network so that mining tasks can be completed more efficiently.
(If you want to participate in a mining pool but buying your own mining hardware or managing it by yourself is out of the question, you can rent out mining hardware in a process called “cloud mining.”)
A screenshot of CoinGecko’s BTC mining calculator – which you can use to calculate how fruitful mining will be for you.
In theory, it would make sense for the reward of mining a block to be distributed relative to the amount of work contributed by each miner. However, how BTC rewards are distributed is dependent on how your chosen mining pool operates.
There are over ten types of reward types that mining pools may follow, including:
- Equalized Shared Maximum Pay Per Share (ESMPPS): A system which equalizes payments fairly among all miners who are owed.
- Pay On Target (POT): A high variance pay per share variant that pays out according to the difficulty of work returned to the pool instead of the difficulty of work served by pool.
- Score based system: A system which provides a reward proportional to the time submitted.
- Pay Per Share (PPS): Each submitted share is worth a particular amount of BTC dependent on the current difficulty level.
- Full Pay Per Share (FPPS): Although FPPS shares similarities to PPS, both the regular block reward is divided, as well as some of the transaction fees.
COOLWALLET TIP: Be aware that every 210,000 blocks the BTC reward is halved. So as time goes on, it will become less and less lucrative to mine BTC.
Earn Bitcoin by Completing Tasks on Earn.com
One rather new alternative to mining Bitcoin is to sign up to a site which rewards you with BTC to complete simple tasks. Perhaps the most well-known is Earn.com, a site which provides users with a number of opportunities to earn small amounts of BTC in return for completing tasks for cryptocurrency companies such as:
- Following their Twitter
- Liking their Facebook page
- Joining their Telegram group
- Signing up to their mailing list
- Visiting their homepage
You can also earn BTC by referring your friends to Earn.com and linking your personal email to the site.
One other way to make the most of the site (and thus earn more Bitcoin) is to apply to be a member of as many professional or interest groups (known as “Lists”) as you can. For example, to complete the tasks above, you will have to be part of the “Airdrop” list. Other lists you can apply to include: particular professional industries, holders of particular types of cryptocurrency, or those part of particular social media platforms.
Once you sign up, you’ll have to wait until you receive a task from one of your lists. Once you receive the task, you have the option to complete it or not. If you do complete it, you will be instantly rewarded with the amount of BTC fixed to that task (tasks start at $1 USD of BTC).
Where Can You Spend Your BTC?
So now you’ve where you can actually spend your Bitcoins? There are a growing number of both online and brick and mortar businesses that accept Bitcoin as a payment option. Bitcoin.org recommends checking out this list of companies, stores, and shops that accept BTC.
To find local businesses that accept BTC, CoinMap provides a map of BTC-friendly restaurants, shops, bars, and other businesses.
Bitcoin Price Chart: The Easiest Way to Find the Value & Price of Bitcoin Today
CoinMarketCap’s Bitcoin Chart is one of the best resources to use if you’re after a Bitcoin price chart. It shows the Bitcoin price today, as well as its price history. For those new to tracking Bitcoin’s price, here’s an easy breakdown of how to easily use and understand CoinMarketCap’s Bitcoin Price Chart:
The Charts tab will show you a chart of Bitcoin’s price in terms of $USD, market cap, and 24-hour volume. As you can see from the key, each color on the chart corresponds with a different pricing metric.
Simply hover your mouse over the chart to find the date and the corresponding Bitcoin price recorded on that date.
You will see that the chart is automatically set to “ALL,” meaning that you will see the price chart in the total length of time Bitcoin has been in existence. However, you can narrow or “zoom” into the period of time shown by either clicking the suggested times periods below the graph heading on the left-hand side e.g. 1 day, 7 days, 1 month, 3 months, 1 year, YTD (year to date).
Alternatively, you can manually set a specific date range using the date range tool on the right-hand side.
Or, you can drag the white toggles on either side of the very bottom chart to expand or reduce the date range.
The Markets tab will show you a continually updated list of:
- The cryptocurrency exchanges where BTC was traded
- The trading pairings (what other cryptocurrency or fiat currency BTC was being traded with)
- Volume (the amount of BTC in $USD traded in that market recording)
- The percentage volume that trade represents
- The Historical Data tab will show you each day’s:
- Opening price (the price of BTC at the start of the day)
- Highest and lowest price
- Closing price (the price of BTC at the end of the day)
- Volume (the amount of BTC in $USD traded in total on that day)
- Market cap (the total market cap of BTC at the close of that day)
Bitcoin Calculator / Converter
Working out how much your BTC is worth in fiat value (e.g. 1 Bitcoin to USD) is easy with a Bitcoin calculator/converter. It’s also a handy tool if you want to work out how much you’ll need to spend in you chosen currency to get a certain amount of BTC.
We suggest using CoinGecko’s Bitcoin-USD calculator, which allows you to convert any amount to and from Bitcoin (up to six decimal places) and the US dollar.
It’s very simple to use, simply input the amount of BTC you want converted to your chosen currency (or vice versa), and the respective amount will be instantly shown.
CoinGecko’s Bitcoin Calculator is a handy resource for finding out the fiat value of BTC. (Image credit: CoinGecko)
Bitcoin Mining Calculator
Another type of Bitcoin calculator which you may be after is a Bitcoin mining calculator. If you’re interested in mining BTC, working out how many BTC you could potentially earn based on your particular output is a critical preliminary step you should take before diving in.
As aforementioned, CoinGecko offers a Bitcoin Mining Calculator, which will provide a general overview of how many BTC you can earn based on the following metrics:
- Hashing power
- Power consumption
- Cost per KWh
Where & How to Buy BTC
So, you’ve done your research, and are ready to make your first BTC purchase. Luckily for you, BTC is available on every major cryptocurrency exchange. So the problem won’t be finding a cryptocurrency exchange to make your trade on, but rather, deciding which one best matches what you’re looking for.
Here is a list of some major, reputable exchanges you can buy BTC on:
- Gemini: Gemini exchange is the the first US exchange to be officially licensed for BTC trading. To buy BTC, you can choose to make a wire transfer, or if you’re a US citizen, you will also have the option to make ACH deposits. The advantage of ACH deposits is that they’re instant, meaning you can trade straight away.
- Coinbase: A straightforward exchange which allows users to purchase BTC using a debit-card or linking their credit card. Just make sure that Coinbase is available for use in your country before you launch in.
- Cobinhood: The advantage of Cobinhood is that it is the world’s first zero trading fees cryptocurrency exchange. At the time of writing, in order to buy BTC, you will have to use Tether (USDT), although there are plans to add support for fiat currencies.
- Changelly: If you’re wanting to buy BTC with your credit card – Changelly is a reliable exchange which accepts both Mastercard and Visa.
- CEX.io: Another option for those wanting to buy BTC with a Visa or Mastercard credit card. Unlike Coinbase, CEX.io is open for trading in a wide variety of countries – in fact it provides services for 99% of countries, as well as 24 states in the U.S.
- Binance: Although Binance is highly-regarded as a cryptocurrency exchange among traders, you cannot actually purchase Bitcoin – or any other cryptocurrency for that matter – directly on the platform. You must first buy it elsewhere, and then transfer it over to your Binance account.
- ShapeShift: Similar to Binance, you cannot directly purchase BTC on ShapeShift, so leave these two exchanges for when you want to purchase other cryptocurrency using your BTC.
If you’re wondering, “Where is a Bitcoin ATM near me?” you can easily source one using the website Coin ATM Radar. At the time of writing, Coin ATM Radar reports that there are 2939 Bitcoin ATMs located all around the world!
Just search your location, and the map will identify any BTC ATMs located nearby.
It’s important to note that you may need to pay a premium for the convenience of using an ATM to buy BTC, so don’t be surprised if the price is steeper than the current market price.
Buy Bitcoin with PayPal
Unfortunately, at the time of writing, no major cryptocurrency exchanges accept PayPal as a payment option. So, we recommend that use particular vigilance when buying BTC with PayPal as it’s still a rather roundabout process.
If you’d still like to try your hand at buying BTC with PayPal, refer to this helpful guide to learn about the different methods you can do so.
One of the methods listed is selecting PayPal as a payment option on LocalBitcoins, which we provide an overview of directly below.
Buy Bitcoin “In Person”
It is possible to buy Bitcoin “in person” namely using the popular service, LocalBitcoins. LocalBitcoins allows for what is known as “over-the-counter trading” by allowing users search their database for people located nearby who want to trade their BTC for a traditional currency or PayPal payment.
Some people prefer using such a service over cryptocurrency exchanges because trading peer-to-peer may allow for quicker transactions. That being said, there is usually quite a markup on the selling price, so make sure to work out if it is a fair trade before committing to it.
Where to Store Your BTC
After you bite the bullet and buy your first Bitcoin (congratulations, by the way!), it is critical that you take the necessary steps to store your Bitcoins safely.
Just like you wouldn’t dare store all of your fiat under your mattress, you similarly shouldn’t rely on a cryptocurrency exchange as your primary means of storing your cryptocurrency.
There’s no skirting around the fact that there is not a single exchange that is immune from being hacked – even the reputable exchanges we listed above are still vulnerable to attack. And as we’ve seen time and time again – many exchanges won’t repay losses to affected users after they get hacked. Even in cases where an exchange does offer some recourse, the recovery process is often slow and littered with obstacles.
Not all cases of cryptocurrency loss are due to large hacks, however. It can also happen because of human error, such as forgetting to log out of your account on a public computer, losing your private PIN, or storing your private keys in any online capacity.
Therefore, as an investor, it’s your responsibility to educate yourself about the do’s and don’ts of storing your cryptocurrency assets. Storing your BTC safely on a trusted device is no doubt one of the best ways to prevent against loss. Here’s an overview of the major options for storing your BTC:
Desktop wallets involve using your computer as a storage vault for your Bitcoins. Bitcoin offers a desktop wallet called “Bitcoin Core” that BTC holders can download for free onto their computer. While considered a highly-secure cryptocurrency storage option which also offers greater privacy, Bitcoin Core requires users to download the entire Bitcoin blockchain. Yes, since that very first genesis block Satoshi Nakamoto himself mined.
So, what does that look like in terms of gigabytes? Refer to the image below from the provider of Bitcoin Core, Bitcoin.org, which highlights the minimum recommended storage space you’ll need to get Bitcoin Core up and running. To start off, you will require a spare 140 GB just download Bitcoin Core in the first place. That’s not to mention the minimum recommended disk space of 145 GB, as well as around 15 GB a month for downloads, 150 GB a month for uploads… you get the picture. It’s a storage-intensive operation to say the least.
The minimum recommended storage required for downloading and using Bitcoin Core. (Source: Bitcoin.org)
And if you’re wondering, “What happens if I lose or irreversibly damage my computer, or my computer gets hacked?” Good question! Well, if you haven’t stored your private keys elsewhere, your BTC will unfortunately be unrecoverable.
While hardware wallets will set you back the most in terms of price, in the grand scheme of your cryptocurrency investment, it’s a small price to pay for the high-level of security they offer. Moreover, they are, in general, far easier for the average cryptocurrency holder to use. This is notable because when it comes to securing hundreds to thousands of dollars’ worth of Bitcoin, the last thing you want to worry about is trying to wrap your head around cumbersome set-up and access processes.
If you’re after a highly-secure, reliable, and user-friendly hardware storage solution for your BTC holdings, look no further than the CoolWallet S. As the world’s first mobile Bitcoin hardware wallet, CoolWallet S stands out from other hardware wallets by not only offering water-tight security for your Bitcoins, but also an unparalleled level of functionality.
Providing an isolated, offline environment for your cryptocurrency holdings via Common Criteria EAL5+ certified security technology, you can rest assured that your BTC is safe from online vulnerabilities. Features like wireless access to your cryptocurrency holdings via its encrypted Bluetooth, and the fact that it’s only the size and weight of a credit card, the CoolWallet S is an excellent choice for anyone looking for a hardware wallet that combines advanced technology, usability, and design all in the one device.
COOLWALLET TIP: the CoolWallet S won’t only just protect your BTC, it also supports storage for your Litecoin (LTC), Ripple (XRP), Ethereum (ETH), Bitcoin Cash (BCH), ERC20 Tokens, with support for a number of other coins in the pipeline.
On the other end of the financial spectrum is the paper wallet – which is, you guessed it – a cryptocurrency storage option which calls on the services of a humble piece of paper. Anyone can make a paper wallet by using a service like Bitcoin Paper Wallet to generate and then print off their private keys or QR code onto a piece of paper.
Some people choose to use a paper wallet due to the low cost of setting one up. Others prefer a paper wallet because they want their holdings completely in their own hands, without the need for an intermediary service. However, the tradeoff is that if you lose or damage that precious piece of paper, that’s it. It’s a rather daunting if you ask us!
Additional Resources for Learning More About Bitcoin:
Caught the Bitcoin bug and want to have instant access to Bitcoin news, developments, and tips, as well as engage with others in the Bitcoin community?
The good news is that there is no shortage of resources, tools, community groups for you to peruse. In fact, the sheer number of options may make trying to find where to turn a bit overwhelming. That’s why we’ve listed our recommendations of Bitcoin-related resources for you to look into.
- bitcoin.org: Originally registered and owned by Satoshi Nakamoto and Martti Malmi, the website today is an independent open source project aimed at providing Bitcoin information, alerts, and visibility. It is also the site where the Bitcoin white paper is hosted.
- bitcoinfoundation.org: To take the words from the Bitcoin Foundation themselves, “The Bitcoin Foundation coordinates the benefits of the members of the Bitcoin community, helping to create awareness of the benefits of Bitcoin, how to use it and its related technology requirements, for technologists, regulators, the media and everyone else globally.”
- bitcoin.com: A commercial website which claims to be the “premier source for everything Bitcoin related.” From general information and news, to a public forum and download access to Bitcoin.com’s desktop and mobile wallet, it’s a useful resource to turn to.
You should also check out Bitcoin’s:
- Bitcoin Wiki: A Bitcoin encyclopedia resource, much like Wikipedia, which is maintained by the Bitcoin community.
- Developer Documentation: “Useful resources, guides and reference material for [Bitcoin] developers.”
- Reddit (/r/Bitcoin): Reddit is a public, anonymous forum which is broken up into “subreddits,” which are specific forums dedicated to just about every topic under the sun. On the Bitcoin subreddit, you’ll find all assortment of discussions about BTC.
- Bitcointalk: Similar to Reddit, Bitcointalk is a forum, but it is focused only cryptocurrency talk. Most of the discussions are about Bitcoin (hence the name), with Bitcoin discussion, development & technical discussion, and project development three of the most popular threads.
- GitHub: A distributed code management platform for BTC developers and miners.
- Twitter: The Twitter of Bitcoin.com, which focuses on “Bitcoin News, Information, and Price Tweets.”
- CoinMarketCap page: A useful tool for tracking BTC’s value, as explained above.
- Bitcoin Telegram groups: Telegram, if you aren’t familiar, is a cloud-based instant messaging service that has become one of the preferred platforms of communication for cryptocurrency enthusiasts. While there is no official Bitcoin Telegram group, there are many user-made Telegram groups ranging from general BTC talk to mining tips and tricks. For an overview of what groups you can choose from, have a read of this roundup of Bitcoin Telegram Groups.
If you have any more useful resources, or if you’d like to add your two cents about Bitcoin, feel free to let us know in the comments below!