Bitcoin 101 [Everything You Wanted To Know About The Cryptocurrency]
What? You’re not familiar with Bitcoin!?
That’s fine!
Not a lot of people are aware of its existence. Others know that one can buy stuff using Bitcoin, but nothing more. If you wanted to know more about the cryptocurrency but don’t know where to start, you are on the right page!
CONTENTS
How Bitcoin Works
To simplify our discussion of how Bitcoin works, let’s start with how a physical exchange goes.
Let’s say I have a dollar in my hand. I can hold, feel, and see it.
Now, I gave the dollar to you. The money left my hand, and it’s now yours and yours alone. You can spend the dollar, add it to your savings, or give it to someone else. And I can’t spend it because the dollar is no longer in my possession.
The transaction was as easy as it could get. We didn’t need a 3rd party to prove that I gave you my dollar. But when you transact online, things aren’t as easy and clear-cut.
Double spending is a real problem when giving or receiving money digitally.
Double spending happens when someone conceals or misrepresents information about the recipient of digital cash. This loophole allows the culprit to spend the same money twice, and the chances of getting caught are low. And when a currency is spent twice or more times, it loses value.
What if the dollar sent to you online was copied?
What if it was sent to someone else first?
To solve the double spending problem, we have banks and payment processors in place.
The problem with this approach, however, is that it doesn’t bring us any closer to the ease and seamlessness of physical transactions.
Yes, banks and payment processors can verify transactions on your behalf.
But they’re also in control of your money. If you want to send or receive money from sanctioned countries, banks can refuse your transaction. The same goes if you want to buy goods and services that are frowned upon.
And lastly:
Banks and payment processors are 3rd parties. They’re not the recipient nor the receiver, but the middlemen who verify transactions and charge fees for it.
So how can we transact digitally, eliminate the risk of double spending, and do away with 3rd party verification?
Bitcoin (BTC) is the answer, or the proposed answer of digital currency enthusiasts at least.
Bitcoin is a virtual currency with real-world value, and it even reached an exchange rate of over $1,300 at one point. Transacting with BTC is similar to using online funds in, say, a PayPal account. You input how much you want to send, add the recipient’s details, and that’s it.
However, the way BTC works is better in more ways than one.
For starters:
You don’t need a 3rd party to verify transactions. Instead, Bitcoin has an open-source code and ledger to keep track of everything. The digital ledger is maintained, secured, and improved by smart people around the world.
And the best part:
Everyone can download the ledger in its latest version.
The open-source setup brings many advantages. First, it eliminates the need for 3rd party verification transactions. And just as important, all transactions within the system are provable, solving the double-spending problem.
Yes, Bitcoin behaves like a physical currency while staying digital!
And if that sounds like a fun introduction, the following sections will teach you more about Bitcoin – the fun things you can do with it, the currency’s thriller-like history, and how you can get BTC on your own.
5 Fun And Outrageous Things You Can Do With Bitcoin
You’ve seen how Bitcoin works. But you’re probably wondering: “What can I do with BTC?”
A lot actually! In 2015 alone, over 100,000 merchants around the globe started accepting Bitcoin as payment. And the list is full of brand names that sound familiar – Overstock, Dell, Twitch, NewEgg, and even WIkipedia!
You can rest easy knowing you can use BTC to transact – whether you’re looking to order pizza and beer, upgrade to the latest gaming laptop, or subscribe to a streaming service.
In the list below, however, we look at some of the most fun and outrageous things you can do with the digital currency.
1. Get All Your Furry Friend’s Needs At Keystone Pet Place
Keystone Pet Place, based in Mount Joy, PA, has everything your dog or cat needs.
Grooming and nail trimming services? Check!
Vaccine to keep your pet disease-free? Check!
Tasty and healthy treats? Check!
The pet store has received raving reviews from many of its customers – and why not!? The staff are helpful and passionate about pet care. The supplies sold are from reputable brands. Plus, their grooming facilities and DIY pet wash station are A-grade.
And yes, Keystone Pet Place accepts BTC!
2. Gamble And Bet Online
To get things started:
You can split BTC into any amount.
Players can jump into the funwagon with as little or as big of an amount as they want. But the benefits of Bitcoin don’t stop there. Even more attractive are the following 4 advantages of betting and gambling with Bitcoin.
Better Winning Odds
You see, gambling sites have to pay a small transaction fee every time you top up your online betting wallet, withdraw winnings, or place bets. Yes, the individual amounts are miniscule. But when taken collectively, transaction fees take a huge chunk of money.
Well, the online casino isn’t going to handle the fees all by themselves – or they’ll go out of business. So who do they share the burden with? The player, of course!
With Bitcoin, however, gambling websites don’t have to deal with banks and payment services like PayPal, eliminating transaction fees and reducing operating costs. The benefits and savings are then passed on to the players in the form of better odds.
Anonymity
The anonymity and global reach of Bitcoin are other perks also worth nothing. Not all countries are in favor of internet gambling. And if you live in a place where betting on your favorite teams or backing up your poker skills with real money is illegal, Bitcoin can give you the anonymity you need to play and stay out of harm’s way.
More Secure Transactions
You won’t have to give private financial details over the internet. Sure, reputable online casinos have robust security measures in place. But Bitcoin lets you take online security further. Simply link a digital wallet to the casino’s payment system, and that’s it! No need to give your account number, bank name, address, and other sensitive information.
Faster Processing
Fiat currencies make you wait for 3 to 5 days before your winnings make their way to your bank account. BTC winnings, on the other hand, are transferred to your wallet in an instant! If you want to give BTC online betting a try checkout our Bitcoin Betting Guide and some of the top sportsbooks that accept Bitcoin.
BetDSI has to be one of the most reliable online sportsbook with clients across 140+ countries while supporting over $100 million of transactions every month. It’s a sportsbook, racebook, online casino, and poker room in a neat package. And betting is ABC-easy whether you’re using your laptop, phone, or mobile device.
BookMaker has been delivering a stellar service to online bettors for over 2 decades and counting. It’s a popular site for seasoned betting vets and newcomers alike. And why not? BookMaker covers just about any sport – from basketball, MMA, rugby, tennis, to politics. And if you’re new, you can get a 50% welcome bonus!
5Dimes came to existence in 1998, and it has surpassed other betting websites since then. The Costa Rican sportsbook boasts a massive selection of lines, excellent odds, secure and reliable transactions, and ‘round-the-clock customer support. Skill games are par for the course. But 5Dimes also has a lottery section, offering Pick-3, Pick-4, Lotto 900, and Powerball.
WagerWeb is one of the most established online sportsbook around, with 20 years of operation under its belt. The website was founded in 1997, and it was one of the first offshore sportsbook which used the internet for betting. To date, WagerWeb has accepted over $100 million (and counting) in bets.
BetAnySports.com is an easy-to-use, one-stop online sportsbook. It’s been in the business since 2010 alongside industry names like 5Dimes and Vietbet. The betting site owe its stability to the experienced people running it. BetAnySports doesn’t have a lot of distracting bells and whistles, so players can go in and out of the site with ease.
3. Get Awesome Coffee From The Roast Station Coffee
The Roast Station Project is a project led by JB “The Java Nomad” Allen.
And his offer is simple:
Caffeine lovers get 250 grams of freshly roasted and locally sourced coffee in exchange for Bitcoins!
Allen got into the digital currency game a long time ago, back when Second Life’s Linden Dollars and e-gold were still popular. But when Bitcoin and its perks became known, he saw how the new virtual currency can make for a better coffee trade.
Allen knows that middlemen can be a frustrating wall between final consumers and coffee growers. Worse, the loans by middlemen force coffee farmers to sell their produce at high quantities and rock-bottom prices.
The result:
Sold coffee beans have low quality, leaving consumers dissatisfied while farmers are regretful because they know they can do better!
But eliminating middlemen is Bitcoin’s specialty! The Roast Station Project sources its premium Indonesian coffee beans from a farm and at a premium price. And the transactions are carried out without the middleman in the way.
“Bitcoin has opened the door to a whole new level of person to person exchange and individual freedom, which is one reason why I wanted to be involved,” said the Roast Station founder.
4. Travel Around The World
Yes! If you have enough Bitcoins, globe-trotting is definitely a possibility!
You see, the Universal Air Travel Plan (or UATP) is a payment network serves over 260 airlines. The list includes US Airways, JetBlue, Qantas, and United Airlines. And the good news? The network has partnered with Bitnet to accept payments in BTC!
And if you’re wondering if you can book hotels using BTC, the answer is yes!
In 2014, Expedia integrated BTC into their list of payment options at checkout, just alongside PayPal and Visa. Simply pick Bitcoin as your favorite method, follow the secure steps, and you’re all set.
Between UATP’s partnership with Bitnet and Expedia’s move, traveling the world using Bitcoins exclusively is on the menu!
5. Fly Into Outer Space With Virgin Galactic
“Only 558 people have been to space. Virgin Galactic is opening space to the rest of us,” reads one of Virgin Galactic’s pages.
Virgin Galactic is Virgin Group’s spaceflight company. And their mission of making space more accessible to people just got easier when they started accepting Bitcoins in 2013.
Celebrities have signed up for a tour out in space including Justin Bieber, Lady Gaga, and many more.
And on November 22, 2013, a flight attendant out of Hawaii paid for her flight using BTC. Now, a seat on one of Virgin Galactic’s private flights cost quite a fortune, about $250,000. So if you want to go into space, make sure you have a few hundred BTC around.
The Interesting History Of Bitcoin
Grabbing the attention of over 100,000 international businesses is no mean feat. And Bitcoin’s design has a lot to do with the growing popularity. If you’re wondering how the currency started, this section of the guide will walk you through the interesting history of Bitcoin.
Bitcoin: A timeline
| 2007 | Satoshi Nakamoto starts working on the Bitcoin project. |
| 15/08/2008 | Application for a patent, followed by the registration of bitcoin.org. |
| 03/01/2009 | The genesis block was created. |
| 12/01/2009 | First Bitcoin transaction placed. |
| 12/09/2009 | First trade of BTC for fiat currency took place, Sirius (the second bitcoin developer) sold 5050 BTC to user for $5.02 via paypal. |
| 22/05/2010 | A programmer paid 10,000 BTC for 2 Papa Johns pizzas. |
| 09/02/2011 | Bitcoin reached market parity with the US dollar for the first time. |
| 21/03/2011 | A user named TheRealPlato travelled from Hartford with only 200 BTC, no physical currency. |
| 06/2011 | Bitcoin reached a value of $31 apiece, translating to a market capital of $206 million. |
| 06/2011 | First virtual heist, 25,000 bitcoins were stolen from a digital wallet valued at $500,000. |
| 2011 | Nakamoto ceased all forum and email activity. |
| 2013 | The online currency started trading at $13.50 each. |
| 08/2013 | An insider reports that Bloomberg was testing a bitcoin ticker. |
| 18/11/2013 | The US senate held its first hearing about bitcoin and the Washington post described the affair as a lovefest. |
| 2013 | Another crash. Taking the price of bitcoin from $1230 to $750 in mere days. |
| 01/2014 | Bitcoin trading was at around $900, it seemed the tremors had stopped. |
| 02/2014 | The exchange rate filed for bankruptcy protection, sending BTC’s exchange rate down to $260. |
| 05/2016 | Australian entrepreneur Craig Wright claims he created Bitcoin, some believe him but some are not so sure. |
| Early 2017 | A good spell for Bitcoin, it topped the price of a troy ounce of gold for the first time. |
The Creation Of Bitcoin
Satoshi Nakamoto started working on the project in 2007, and the following year saw Bitcoin’s birth through a series of events.
First, Neal King, Vladimir Oksman, and Charles Bry filed a patent application for a technology that updates and distributes encryption keys securely. The encryption technology is related to Bitcoin, but all 3 denied any links to Satoshi Nakamoto.
The patent application on August 15,2008 was soon followed by the registration of Bitcoin.org. The currency’s online home was registered at AnonymousSpeech.com, a website that provides anonymous emails, domains, and hosting. In other words, a perfect match for the secretive creator of Bitcoin.
With the related technology and anonymous website in place, Nakamoto published a 9-page white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” In the paper’s abstract, he said:
“We propose a solution to the double-spending problem using a peer-to-peer network.”
And looking at the growing acceptance of Bitcoin and the enormous value the currency has gained, the project seems to have truly fixed the double-spending problem.
The Enigmatic Satoshi Nakamoto
We’ve mentioned Nakamoto throughout this guide.
But who is he?
Yes, we know he founded Bitcoin. He was also one of the first creators of the original Bitcoin client, known as the Satoshi Code. Nakamoto’s profile in a P2P foundation indicated he’s from Japan. But Benjamin Wallace of Wired.com doubts his claim of Asian origin, thanks to his flawless English.
Aside from these breadcrumbs, not much is known about the famous cryptocurrency’s creator.
Nakamoto keeps discussion technical, careful not to give out any personal information.
The man is like the leading actor in a thriller. He’s a genius living under the radar who developed an earth-shattering technology. His feats earned him a cult following and grew rich in the process.
In case you’re wondering:
Satoshi Nakamoto owns about 1 million Bitcoins. And with a Bitcoin valued over $1,000, he’s sitting on a fortune worth more than a billion dollars.
You’re not alone if Nakamoto sounds like a person you’d like to know. Many have tried to uncover his identity. Bitcoin community members even time stamped his posts, and they came to the conclusion that Nakamoto resides in a region with a UTC−05:00 or UTC−06:00 time offset.
Names were dropped and linked to virtual coin’s creator, including physicist and systems engineer Dorian Nakamoto, cryptocurrency pioneer Hal Finney, and decentralized currency enthusiast Nick Szabo.
In May 2016, Australian entrepreneur Craig Wright stepped up and claimed that he’s Bitcoin’s creator. Backed with technical proof, some experts supported Wright. But many took the announcement with strong skepticism.
Nakamoto has ceased all forum and email activity since 2011, and his real identity is yet to be uncovered. But does it matter?
Ultimately, no.
Bitcoin is built in such a way that its creator is only relevant if studying the technology’s history..
“Identity and authority are distractions from a system of mathematical proof that does not require trust,” Bitcoin entrepreneur Andreas Antonopoulos said. “This is not a telenovela. Bitcoin is a neutral framework of trust that can bring financial empowerment to billions of people. It works because it doesn’t depend on any authority. Not even Satoshi’s.”
Why Did Nakamoto Create Bitcoin?
We don’t – and probably never will – know the true identity of Satoshi Nakamoto. But perhaps you’re more concerned with the “why.” Why did he create Bitcoin? For the LOLs? Or maybe he has foreseen the the massive fortune the digital currency will bring?
Conclusive answers are nowhere to be found, yet again.
However, the Genesis Block (more on this later) contained the following text, hinting that Satoshi is a maverick. A rebel. A bad boy!
“Yes, we will not find a solution to political problems in cryptography but we can win a major battle in the arms race and gain a new territory of freedom for several years.
Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”
The Genesis Block Is Generated
On January 3, 2009 at 18:15:05 GMT, the Genesis Block, or Block 0, was created. And the hex of the block contained normal data, plus the following text:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”
Some speculate that Nakamoto included the bit above as proof that the block was made on the said date. Others note that it may be a comment on fractional-reserve banking and the economic instability it causes.
But more than anything:
The snippet suggests that Nakamoto may have lived in the UK. It was taken from a headline in The Times UK. And since then, the original newspaper which contained the headline has become a collector’s item. One was even auctioned for 11 BTC, or more than $13,000!
The Many And Colorful Bitcoin “Firsts”
Only 9 days after the first block was made, the first Bitcoin transaction took place between Satoshi and Hal Finney in Block 170, with the former sending 10 BTC as a test. And after reading Finney’s account of the experience, receiving BTCs from the creator himself made Finney warm and fuzzy!
Now, that’s just one of the “firsts” in the digital currency’s history.
On October 12, 2009, the first trade of BTC for fiat currency took place. Martin Malmi – the second Bitcoin developer who also goes by the forum name Sirius – sold 5,050 BTC to user NewLibertyStandard for $5.02 via PayPal.
On the 22nd of May 2010, programmer Laszlo Hanyecz paid 10,000 BTC in exchange for 2 Papa John’s pizzas. The pizzas originally cost $25. But with today’s exchange rate, they are now valued at over $12 million!
But what about using Bitcoin exclusively to travel and survive?
Well, someone has thought of that, too!
On March 21, 2011, Bitcointalk.org user TheRealPlato traveled from Hartford without any money.
His plan? Survive with 200 BTC (plus donations from patrons) and document his journey with his laptop and 3G-tethered cellphone. According to one of his forum updates, TheRealPlato met up with other Bitcoin users in Vegas, San Diego, and Orange County.
If you want to read more about Bitcoin’s historic firsts, check out this page from the official Wiki of the community.
The Roller Coaster Journey So Far
Bitcoin’s value today is massive, crossing the $4,300-mark. However, the cryptocurrency’s journey since its adoption in 2009 is anything but linear. Instead, it looks more like a roller coaster, full of ‘highs’ as it is rife with ‘lows.’
Bitcoins were valued at next to nothing in its earliest days. But the year 2011 marked a milestone for the online-only money.
Reaching Parity With The US Dollar
On February 9, 2011, Bitcoin reached market parity with the US dollar for the first time. On the other hand, it’s economy reached a value of $5.5 million based on the existing number of virtual coins in circulation.
But things were just getting started!
June of the same year saw Bitcoin reach a value of $31 apiece, translating to a market cap of $206 million.
The increase in value resulted to a spurt in popularity. The preceding years saw more retailers join the Bitcoin movement, but vulnerabilities came back to bite the currency.
Theft Brings The Currency To Its Knees
The first major virtual heist rocked the world of Bitcoin in June 2011. Bitcoin Forum founder allinvain reported having 25,000 stolen from his digital wallet, valued at $500,000 during the incident.
The heist coupled with other major security breaches saw Bitcoin’s value cratered from $17.51 to $0.01 apiece.
The currency is back to where it started. But cryptocurrency enthusiasts and Bitcoin believers were not deterred, and life went on as usual.
The Year Bitcoin Took Off…
In 2013, the online-only currency started trading at around $13.50 each. April saw its value peak at over $200, only to drop back to roughly $70 midway through the month. Yes, the spike didn’t last for long. But Bitcoin has clearly recovered from the fiascos of the yesteryears.
August 2013 turned out to be a good month for Bitcoin when an insider reported that Bloomberg was testing a Bitcoin ticker.
The news was confirmed by Vera Newhouse, spokesperson for Bloomberg, who said:
“Bloomberg is testing Bitcoin data, but this is only accessible to internal users and not Bloomberg Professional service subscribers.”
At the time, many tickers for Bitcoin exist (and still do). However, having a financial software, data, and media giant such as Bloomberg test the currency gave it greater legitimacy.
But while August was a great month for Bitcoin, things got even better on November 18, 2013.
The US Senate held its first hearing about the digital currency, and the Washington Post described the affair as a lovefest!
“We are attuned to the criminal use,” said Justice Department’s Mythili Raman of Bitcoin. “But there are many legitimate uses. These virtual currencies are not in and of themselves illegal.”
Moreover, Ben Bernanke, chairman of the Federal Reserve at the time, g