Bitcoin Beginner Basics
Explain Bitcoin in a Nutshell
To explain Bitcoin simply is something those familiar with the technology are often asked and many of us know the agony of trying to give a short, understandable, yet concise explanation. One of the very things that makes Bitcoin so special is its uniqueness – therein lies the difficulty of giving that short answer so many are asked to give. Even analogies are difficult to find because Bitcoin is not just one simple new invention, it is a combination of breakthroughs in encryption, public key cryptography, and distributed networks combined for one great creation.
The fact is, understanding Bitcoin fundamentally is not as important as understanding how or why to use it. Just as the Internet was misunderstood when first created, once people learned how to use it – things changed, rapidly, without the need for understanding data structures, fiber optics, internet protocol, HTTP routing, and the like. So, why do people get so hung up on understanding the underlying tech behind bitcoin? Because it has to do with money, and people do not want to risk their money, which makes it hard to trust an unknown entity with their money.
To explain bitcoin, in a nutshell, is not easy. Trusting bitcoin requires that people can at least explain it to themselves, and rationalize their trust. To gain that trust, a person must either study it, learn it and form a belief personally, or trust another person’s testimony. People are, despite negative testimony by many, trusting Bitcoin with their money – and that in itself makes it even more complicated.
Explain Bitcoin: What is it?
Anything digital can be copied over and over again – like sending an email multiple times. The difficulty that had to be resolved to implement a digital payment system was always to find a way to ensure nobody could spend the same money more than once. With PayPal, Visa, or MasterCard for example, a central authority verifies all of the transactions. However, the core innovative element that makes Bitcoin so special is that it does not depend on any “central authority”. Instead, a consensus in a massive, peer-to-peer network is used to verify transactions. As a result, payments are non-reversible, transaction fees are lower, and accounts cannot be frozen by any entity. And the digital funds cannot be spent more than once.
With no central computer hub processing Bitcoin transactions, it is impervious to government or central authority meddling, free of regulation (so far), or monitoring. In other words, your funds are non-confiscatable. The blockchain provides a trustworthy and redundant ledger of the number of bitcoins in circulation which is shared in a decentralized network. The software is open-source and free for anyone to operate, but it is not the code that protects transactions – it is the shared blockchain ledger that verifies the legitimacy of each transfer.
Who Controls it?
There is no central person, authority, or government in charge of Bitcoin. Multiple programmers donate their time and expertise to develop and update the open-source Bitcoin software. Changes are subject to the approval of lead developers, but individual bitcoin miners choose whether to install any new version release or stick with the previous release. Miners essentially “vote” with their processing power and it is in their best interest to accept changes only if they are beneficial to the Bitcoin currency. This level of “checks and balances” are what make it difficult for Bitcoin to be manipulated by anyone. To accurately explain Bitcoin, one should be comfortable with this concept.
How to Get Started?
There are basically four steps to start using Bitcoin. The most common misconception newcomers to bitcoin have is that one must buy a whole bitcoin. Bitcoin is divisible by 8 decimal points and you can buy as little as you want – $5, $10, $500 – whatever. It is recommended that newcomers learn to use bitcoin by buying a small amount and experimenting. Set up a wallet on an exchange, and a wallet on a device (laptop, computer, phone) to send small amounts back and forth to yourself and learn how easy it is to transmit funds.