Bitcoin Beginner Basics
Part #1 Overview
There has been a lot of buzz and news around the globe to prompt the need for a bitcoin beginner basics guide. While there are several resources on this site that provide basic information, this particular guide is designed to remove the technical jargon and get down to the nitty-gritty of how bitcoin is used. Just as many of us have no clue how underlying technology behind MasterCard, Visa or PayPal works – neither do we really need to understand the tech behind Bitcoin. What we need to understand first is how it is used, and how we might participate.
What is Bitcoin?
Bitcoin beginner basics start with a little history. Bitcoin was the first established cryptocurrency, a digital asset that can be exchanged like money but is secured with cryptography. The thought behind its creation was to create a new electronic cash system – think PayPal or 2Checkout, for example. Just as there are no coins or bills involved when paying via PayPal, the same holds true for Bitcoin. You have funds deposited to a bank account or a credit card backing your transactions, which PayPal orchestrates between buyers and sellers.
Bitcoin uses blockchain technology and encryption keys to connect buyers and sellers. There is no “middleman” between individuals and their money, like with PayPal. Stories of high fees, delayed payments, chargebacks, and frozen accounts can be found online in great number detailing the actions of “middleman” organizations. To make it easy to understand how Bitcoin is used, let’s do a comparison of the two since most people are very familiar with how PayPal works. We will use Coinbase Pro in this comparison, given it is the world’s largest bitcoin platform.
Fundamental to bitcoin beginner basics is that one buys bitcoin using local currency. Depositing money to buy bitcoin is free via ACH transfer, or $10 for a wire transfer. Buying or selling bitcoin by placing a “limit” order is free, no fees. Withdrawing the cash to your bank account, no fees. Sending bitcoin to a recipient, no fees for either of you. You can also send USD directly to your PayPal account, with no fees. In other countries, there may be a small fee to withdraw money from Coinbase to a bank account. However, this fee is usually small — 0.15 euros, for example.
If you send bitcoin directly from your wallet to a recipient, there are no limits on the amount you can send. On Coinbase Pro, withdrawals of all fiat and cryptocurrencies are limited to $10,000/day initially but may be increased by request. Merchants accepting bitcoin pay no transaction fees unless they use a payment gateway, for which fees range from 0.5% to 1.0% of the total.
Confirmation fees to miners on the blockchain for verifying transactions is currently about $0.01 for 265 vbytes. Miner fees are not based on “total amount” but rather on “total bytes” so from their perspective, it isn’t the value of a transaction, but the size – learn more about bitcoin fees.
Note: you do need to have a regular Coinbase account in order to sign up for Coinbase Pro, but it is well worth the effort to avoid paying fees.
To send money, you fund your transfer with your PayPal balance, bank account, credit/debit card, or PayPal credit. You send to your recipient’s PayPal account, they receive the money and can either keep it in their account or withdraw it to their bank account.
There are fees for sending money to another PayPal Account, depending on the payment source used. If you have a PayPal balance or linked bank account, there is no fee between the US and Canada, $2.99 to $4.99 for other countries. If the source used is a credit or debit card, or PayPal credit, the fee is 2.9% plus a flat fee depending on the country, and a fixed fee based on the currency.
If you are a merchant receiving payment via PayPal, the fees for US are 2.9% of the total, plus $0.30 per transaction. International rate is 4.4% of the total plus a fixed fee based on the currency received. PayPal Here card reader is 2.7% for every card swipe, or 3.5% plus $0.15 for manually entered transactions.
All transfers are subject to review and could be delayed or stopped if PayPal identifies an issue. There are limits to how much you can transfer per transaction, per day, week, and month.
The procedures for buying, selling, sending bitcoin are very similar to those for using PayPal. However, to use PayPal you must be online and have a credit card or bank account. In contrast, bitcoin can be sent offline via email or even SMS. Obviously, this is a game-changer for people in developing countries, as they now have opportunities on an even greater scale than what the mobile phone offered when it first came to be.
Another significant difference is that a bitcoin transaction cannot be reversed or “charged back” – something that creates problems for merchants because unscrupulous customers often take advantage of this policy using PayPal or credit cards. When dealing with PayPal, the customer is almost always credited unless the merchant has been very diligent to clearly outline
Bitcoin lowers the barriers for global commerce participation and while this may seem trivial at first, there are almost 2.5 billion people on this planet without bank accounts. So PayPal is not an option for them, but bitcoin has the potential for the unbanked to finally be included in the global economy.
Learning bitcoin beginner basics will take some time, as the concept is new and constantly emerging. Just as with all things new, like PayPal once was, as more user-friendly services materialize it will become easier to understand and use bitcoin. Beginners can open a free Coinbase account and fund as little as $20, for example, to buy a small amount of bitcoin and learn the ropes. After all, bitcoin is divisible to 8 decimal points!