The Beginner's Guide To Bitcoin Part 1

What Is Bitcoin?

what is bitcoin
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Bitcoin Is A Digital Currency Controlled By The People Who Use It

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Bitcoin Is A Digital Currency Controlled By The People Who Use It

You’ve probably started to hear some buzz around Bitcoin, as it’s gaining a lot of popularity.

It’s in the news.

Investors are talking about it.

There’s an explosion of Bitcoin related businesses and information.

But what exactly is it? Why is there so much hype around it? How is it worth so much money now?

And more importantly, is this something YOU can make money from?

This Beginner’s Guide To Bitcoin will teach you everything you need to know about Bitcoin in a simple and easy-to-understand way, and show you the money making potential that this revolutionary currency can have for you.

But first, what is Bitcoin?

Bitcoin Is A Digital Currency Controlled By The People Who Use It

In 2008 during the depths of the housing market crash, people were in desperate need of a currency that no longer relied on third party institutions that held all of the power.

In other words, people wanted to have more control over their money, and not be forced to trust those currently in power, who could easily corrupt the market for their benefit (which is exactly what happened in the housing crash).

They wanted to get rid of the old system that has caused so many problems and has allowed those with power to manipulate the market for their gain (at the expense of the little guy).

And with that, an unknown man named Satoshi Nakamoto, created a currency that solved so many of the problems of the current system of currency, if not all of them.

This new currency was decentralized, peer-to-peer, accurate, transparent, and yet still private.

He called it “Bitcoin”.

Bitcoin, in actuality, is simply streams of data stored on the blockchain network. There is no physical component to Bitcoin, as it is all digital.

No one “owns” Bitcoin as a whole, which is its decentralized aspect. It is not “centralized” by one company or government, but rather “decentralized” amongst the people.

It’s simply a network that is controlled and changed by the people that use it, and anyone can be a part of the network simply by owning some Bitcoin, regardless of nation, geographical location, gender, race, etc.

Truly, there is no power structure involved with Bitcoin - it’s all based on the people who use it and it’s open to anyone who wants to be a part of it.

It’s this reason that we can see how it will win in the long-term, and why it’s about more than just money - it’s about freedom.

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How Does Bitcoin Work?

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How Does Bitcoin Work?

Because Bitcoin is a digital currency, you access it through the internet, and never actually “hold” the money yourself.

Instead, much like how you access photos on the cloud that are not stored on your phone or computer, you access bitcoin on the network that you have bought, without actually holding it yourself.

Whenever you buy, sell, or trade with bitcoin, that transaction gets verified by “nodes” within the network to legitimize the transaction, ensuring that the sender actually has the funds to send and that they actually get sent to the receiver.

These transactions are then recorded on a block within the blockchain, which is basically a big, unalterable, and public record.

Once a transaction is recorded here, it can never be undone, which is what gives bitcoin its accuracy and honesty aspects.

You can’t cheat this system or cover anything up, which banks currently can do, since they are the only ones that hold the ledger for any transaction. On the blockchain, multiple computers within the network (the “nodes”) verify the transaction, so the transaction is public and honest.

When these computers verify a transaction, they do so by solving a complex mathematical equation, which then creates or “mines” more bitcoin, which is the incentive for these computers to do the work of verifying the transactions.

However, only 21 million bitcoin can ever be mined. It’s capped at that number, and there will never be more bitcoin than that amount.

This set amount takes the “supply” out of the equation so that the price of bitcoin is only dependent on demand.

However, bitcoin can be fractioned down into pieces of bitcoin, the smallest of which is one hundred millionth of a single bitcoin (0.00000001 BTC, or 1x10-8 BTC), and is called a “Satoshi”, after its creator.

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How Does It Have Value? What Is Its Value Based On?

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How Does It Have Value? What Is Its Value Based On?

Bitcoin’s value is purely based on the free market - supply and demand.

The people using it decide how much value it has based on what they’re willing to pay for it. Because there’s a set amount of Bitcoin and there will never be more than 21 million, as more and more people start owning and using it, it’s value gets higher.

Because of this, bitcoin is also deflationary, rather than inflationary like most currencies.

What this means is that instead of governments printing more money and causing the value of each unit to decrease, the value of each unit of bitcoin will actually increase in time as demand rises.

This prevents situations like those in Zimbabwe, where the government screwed its people over by printing so much money and devaluing the currency to the point where a loaf of bread cost over 1 trillion dollars.

Some people are weary of the fact that the value of bitcoin is not based on anything “real”, but if you take a step back and ask yourself why gold has value, you’ll realize that it’s based on the exact same thing:

There’s a set amount of it and the people who own and use it regulate how much value it has based on the demand for it.

There’s nothing inherently valuable about gold (after all, there’s not much you can actually DO with it, outside of complex scientific experiments that the majority of people who own it are not using it for).

Therefore, the price of gold goes up and down based on the value people place on it. That’s all any currency is at its core.

What’s more, the US dollar bill is no longer backed by gold, and there actually isn’t even enough actual, physical money to cover our total amount of currency in circulation (in The Ascent Of Money, Andreas Antonopoulos talks about how the Federal Reserve only has 70% of our money available as hard cash, so we’re essentially already using a form of digital currency now through online banking).

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What’s So Special About Bitcoin?

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What’s So Special About Bitcoin?

Bitcoin is no different than any previous form of currency in the way it holds value, but it’s far different - and better - than previous versions of currency in the ways it works and its potential applications.

If we look at the way “money” evolved throughout human history, we can easily see that each new version had benefits over the previous one.

From the simple trading of goods long ago, we went to “storing value” in gold, allowing us to rank certain goods and services based on the amount of gold it was worth. 

This also solved many problems we had with simple trading - things like having a standard price for things and improving convenience in carrying and spending it. Rather than having to carry your pig, a bushel of apples, and a barrel of hay with you into the market when you wanted to trade, you could bring your bag of gold which signified the value those goods held when you sold them.

From gold we went to coins and bills (which evolved in itself over time), which basically made money even more convenient to carry, and allowed more precise divisions in amount. Now you knew exactly how much you were paying, rather than a close estimate.

But once the internet was created and online shopping began, digital currency started taking hold.

We often don’t think of digital currency in our current system, but when you transfer funds online from your bank and spend money with your credit card, you’re basically just changing numbers on a screen that denote a certain amount of value you are trading.

The reason it’s not thought of as “digital currency” is because we believe that every dollar on your computer screen is connected to a physical dollar that the bank is holding onto (and while it doesn’t logically make sense, this “physicality” conveyed more trust than the simple value of the number).

But like we mentioned earlier, only 70% of the money now is actually connected to physical money. We’ve already essentially been using digital currency, except it’s based only on the trust in our banks and their agreed upon value of a dollar on your screen.

However, just like all previous forms of money, there are problems with this - problems that became incredibly apparent in the 2008 stock market crash when many people lost trust in these “third party institutions” that were the ones dictating the value of the dollar.

The dollar we’ve been using, and the centralized currency system it’s based on, is subject to corruption and control.

To be clear, we think that, for the most part, these third party institutions are made up of earnest, hard-working, good people - but even well-meaning people operating in a corrupt system and “just doing their job” are still participating in something that supports an imbalance of power and the suppression of true freedom.

The people aren’t so much the problem - it’s truly the system that needs to be changed (having said that, there are also certainly plenty of corrupt people operating within the system as well).

This is precisely where Bitcoin and other cryptocurrencies step in as the next stage in the evolution of money, just as simple trading moved to gold, then to the current Fiat system.

Why should we trust an institution in power to not massage the system for their own gain, when we can easily just remove the need for trust by relying only on the collective masses of people?

This is the exact same philosophy that Democracy was originally founded on - the PEOPLE being the ones in control, and as a group deciding what happens, with each person having their say.

This is what decentralized cryptocurrencies offer - they aren’t “centered” around one institution or group in power, but instead are “decentered” and only dependent on people. No one person or small group of people can control it - they have their say just as much as you do.

In addition, they solve many other problems with currency, including issues surrounding borders and boundaries.

Bitcoin doesn’t have artificially created borders that current nations created in order to separate governments and the ability to spend around the world freely.

Bitcoin is global, and money can just as easily be sent to someone in Africa as it can to your nextdoor neighbor.

The further implications of this are huge, especially when considering that more than half the world does not have access to banks and are currently being left out of the major money systems of the world.

These countries can now participate in the global economy, which can rapidly improve the living conditions in many third world countries.

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How Do I Make Money With Bitcoin?

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How Do I Make Money With Bitcoin?

While the benefits of moving to this type of currency are immense (and likely inevitable), even the most altruistic of us would have a hard time pushing it forward without some sort of incentive for us.

In order for anything to catch on, there has to be an incentive for people - it has to be attractive to them for some reason, or else it won’t succeed.

This is like what Elon Musk is doing with Tesla Motors - he recognized that electric cars would never catch on unless he made them “cool."

Saving the environment is great, but that’s not enough incentive for people. Having a cool car that is a status symbol and also saves the environment… Now that will work (as we’ve seen in recent years).

Bitcoin is no different, and the incentives to use it are built in.

Changing the face of currency, preventing corruption, and changing the world are all great, and are all incredibly important reasons to get into Bitcoin, but the more immediate incentive and value comes from your ability to invest in it and make a lot of money.

For example, back when it was first created, one Bitcoin cost less than a cent. No one knew about it, and since its value is purely dependent on the people who use it, it was essentially worthless.

But it quickly grew, since it had so much potential and incentive to use it (again, especially coming off of the 2008 crash and loss in trust of the institutions).

It caught on with certain groups of people - the early adopters - and within 3 years, around the middle of 2011, it was worth $18.

And while that still sounds low, recognize that only a year prior it cost $0.07, meaning one Bitcoin rose in value 257 times. If you invested $1000 in 2010, you would’ve had $257,000.

$1k to $257k in one year, for doing nothing other than holding onto this seemingly worthless currency.

By the middle of 2013 (two years later) it reached a new high of around $180.

By the beginning of 2014 it almost hit $1000, before dropping down and maintaining sub-$1000 until January of 2017.

In late 2017, we saw it spike up to around $20,000. If you had bought Bitcoin in 2010, the gain you would’ve received in less than a decade for doing nothing other than holding onto your Bitcoin would be astronomical.

$0.07 to $20,000 is almost a 286,000 times increase. $1000 would’ve turned into $286 million. That’s absurd.

But what does this have to do with you now?

Bitcoin is far from done growing, and while it’s very volatile (meaning it will jump up and down a lot in the coming months and years), it will continue to grow based on its prospects of changing the way we use money.

It may seem expensive now, but some estimates put it at hitting $40k by summer 2018, and even $1 million by 2020.

It all depends on how it gets adopted by the mainstream and what regulations the government puts on it (although it’s worth noting that no one can actually control Bitcoin itself - certain countries can put regulations on its use within their borders, but globally Bitcoin will remain unaffected).

And while we can’t guarantee anything, it’s very likely that Bitcoin still increases massively in value, which is part of why we’re so excited about it.

In addition, because you’re not investing in a company, but rather a new form of currency with actual utility, you don’t have risk of a “bubble” (which we’ll discuss in the next part of this beginner’s guide), and you solve the dilemma of liquidity in funds.

Normally, you have to decide how much of your money to keep in an investment and how much to pull out as liquid (aka useable) cash.

But as Bitcoin becomes more and more accepted by businesses (which is happening rapidly - Amazon will even start accepting it soon), you’ll be able to use it directly, making your entire “investment” liquid.

You can spend any amount of it at any time, and still profit on your investment fully, because the currency itself is what is gaining value.

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Bitcoin Is The Currency Of The Future

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Bitcoin Is The Currency Of The Future

Regardless of whether it’s Bitcoin or another form of cryptocurrency, the tide is most certainly changing from our current way of using money to this new way, and the price will go up on all the good coins (this is why we recommend investing across several coins, and not just in one).

By getting into it now, you stand to make a lot of money while safeguarding yourself against third party institutions that may or may not be trustworthy, while also supporting the movement towards this next evolutionary stage of money that will make the world a better and fairer place.

You can think of this as earning value by putting faith into this movement and predicting the evolution of money. Those that understand it’s inevitable success and ability to change the world will be rewarded with an extremely large increase in their investment down the road.

We recommend buying Bitcoin and other revolutionary cryptocurrencies now. If you need help buying your first Bitcoin, you can download our free guide by connecting with us on Facebook Messenger here.

READY FOR PART 2?

So Bitcoin is the next stage in the evolution of money, and there’s so much potential for it to grow and make you money…

But what about the dangers of it? Are cryptocurrencies just a bubble that is about to pop? Is this all just a Ponzi or pyramid scheme? Are Bitcoins just used to buy illegal drugs on the internet?

We’ll address all of these dangers in Part 2 of this Beginner’s Guide to Bitcoin - Click here to read Part 2