Getting Started with Bitcoin: Key Facts for Newcomers
- Irene Goetz
- May 31
- 3 min read
Updated: Jun 8
Some of us might think of those pixelated, gold coins that a certain mustached plumber collects as he travels through large green pipes when we hear the words bit and coin. While he never can spend his coins, you can save, spend, or trade Bitcoin just as easily as the money in your wallet.
Bitcoin Definition
Bitcoin (also known as the acronym BTC) is a cryptocurrency that is purely digital, decentralized, and built on blockchain technology. This means that any two people, anywhere in the world, can transfer this money form to one another without using a third-party vendor (a bank, for example). Every transaction is verified in the blockchain, making it secure and transparent.
Let’s think of Bitcoin in terms of gold that comes from the earth. Just as gold is found in mines, Bitcoin is created through a process called mining. This form of mining doesn’t use drills and pickaxes but instead uses powerful computers that solve complex puzzles that verify and record transactions.
How Does Bitcoin Work?
To get access to Bitcoin, you must buy it first. This can be done by visiting a cryptocurrency exchange. Buying a whole BTC is very expensive, but you are allowed to buy portions of one using your country’s currency. To understand how a simple BTC transaction works, we’ll focus on a transaction between two people (but it can be used from person-to-business transactions as well).
BTC transactions follow a series of steps that begin with creating the transaction and finish with confirming the transaction. When a transaction is created, a specific amount of the currency is marked to be sent to another individual’s wallet. The owner of the BTC uses their private key to digitally sign the transaction. This proves ownership of the BTC they’re trying to send.
Once signed, this transaction is broadcast to the BTC network, like giving a signed check to the bank to process. Once on the network, miners check the transaction to ensure that there is enough BTC in the owner’s account and that they started the transaction.
When this transaction is verified, it is put into a block. The mining machines then compete to solve a complicated cryptographic puzzle. The first machine that finishes the puzzle adds the block to the blockchain. Finally, the transaction is confirmed and completed.
Pros and Cons of Bitcoin
There are many reasons why someone would choose Bitcoin over traditional banking. Some of these reasons also bring risk, such as losing money from the purchase of BTC.
Advantages
Bitcoin’s largest advantage is that it’s decentralized, meaning it isn’t controlled by a third party (like a bank or government). This means there’s a lower risk of censorship, fraud, or interference from a third party. It stays very secure by using cryptography and has a high level of privacy by not attaching personal information to the transaction.
It holds value by having a limited supply, unlike traditional currencies that are printed by governments. The scarcity of BTC directly drives the value over time. It can be used globally and even in areas that don’t have traditional banking systems. You only need a cell phone to start making purchases with BTC.
Disadvantages
Like many cryptocurrencies, Bitcoin can be unstable. The value can quickly increase or decrease depending on many factors making it a risky investment. The technology used also has limitations. One well-known issue is the significant amount of energy it needs to complete a transaction (it needs a lot of electricity). While there’s not much regulation on BTC right now, there’s concern that it might happen in the future. This can affect the value of the currency and even where it can be used. Though the blockchain is very secure, there’s still potential risks such as theft, crypto scams, and loss of BTC because of hacking.
Conclusion
In summary, Bitcoin is a digital, banking-free form of cryptocurrency using blockchain technology. Every transaction is signed by the currency’s owner, verified on a network by powerful computers, and added to the blockchain once confirmed. A cell phone is all you need to buy, sell, and trade BTC without third party oversight. But there is still a large amount of risk tied to investment in BTC that could result in losses.
Written by: Mike Klase
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