Whether you're looking to start trading, mining, or simply want to try your hand at buying a few bitcoins in order to see how it all works, it's easy to get started and even easier to begin learning with this bitcoin cheatsheet.
What is Bitcoin?
Bitcoin allows transactions to take place peer-to-peer without a third party such as a bank or government. The "coins" themselves exist only in digital form - they have no physical form and are not printed or minted like traditional currency. In essence, they represent a unit of account for trading goods and services, much like conventional currencies. The coins are made - or mined - by solving complex mathematical problems.
Who Controls Bitcoin?
Bitcoin was created by a still-mysterious figure going by the name Satoshi Nakamoto back in 2009. Satoshi Nakamoto was a secretive person or a group whose true identity has never been confirmed. Because no one owns or controls bitcoin, it is considered a decentralized digital currency.
Bitcoin has been described as "cash for the Internet." What separates it from other currencies is that bitcoin isn't subject to any one country's rules, regulations or policies. As a result, it can be used by anyone who knows how to access the Bitcoin network - typically through a wallet application downloaded on a PC or mobile phone or online via a web wallet.
How Do I buy Bitcoin?
Because it's not centralized, bitcoin can't be bought from a central organization like a bank. Instead, you typically need to use an exchange to buy or sell bitcoin. Before you open an account and purchase your first coins, you need to think about what type of exchange you want to use; the most flexible option is a P2P marketplace like LocalCoinSwap.
What is a Bitcoin Wallet?
The wallet can be seen as your personal interface to the Bitcoin network. It allows you to receive bitcoins, store them and then send them to others. A wallet is like a bank account; however, it is more decentralized and under your control. Therefore, you are not required to submit any identification or other sensitive information when creating a bitcoin wallet.
On a fundamental level, Bitcoin wallets consist of two cryptographic keys (one public and one private key) - the public key being your wallet address, which people can use to send money to, and the private key is for signing transactions (moving your funds).
Keeping your bitcoins safe is of utmost importance, as this digital currency has a lot of value attached to it. There are three main types of wallets available for you to use: online wallets, offline wallets, and hardware wallets - each with their advantages and disadvantages.
What is the Bitcoin Blockchain?
The blockchain is the technology behind bitcoin. It's a data structure that stores blocks of items in a linear, chronological order. The 'chain' represents the entire history of all transactions made since the network began. Every transaction is stored in blocks and mathematically encrypted to create an irreversible record - hence the term blockchain.
What is Bitcoin Mining?
Miners keep the blockchain consistent, complete, and immutable by repeatedly verifying and collecting newly broadcast transactions by using large amounts of computer processing power (energy). Each block contains a cryptographic hash of the previous block (unique signature), using the SHA-256 hashing algorithm, which links it to the previous block, thus giving the blockchain its name.
How do I accept bitcoins as payment?
For companies wishing to accept bitcoin, many different types of software, services, and platforms can be used - or even none at all. For example, some smaller merchants may accept direct bitcoin payments to their wallets, while others may opt for third-party services designed specifically for businesses.
What is the Future of Bitcoin?
Since bitcoin's inception in 2009, it has witnessed rapid growth and appreciation in its value. In this relatively short period, people have come to see it as a haven for their wealth due to it being entirely digital, not influenced by any central bank or authority. However, many naysayers still stubbornly believe that bitcoin is built on unproven technology and isn't ready to be used in the real world just yet. Yet, over a decade later, the network is still producing blocks and processing transactions.
What Can I do with Bitcoin?
Even though it's not quite mainstream yet, you can still use your bitcoins to purchase products or services from vendors across the world. You could buy anything from web hosting, plane tickets, furniture, tech, or even book a hotel room thanks to the growing number of companies accepting bitcoin.
What is SegWit?
SegWit stands for segregated witness. If you've ever used (or at least heard of) a wallet that supports SegWit, then you've likely seen it in action already. However, not all wallets support SegWit just yet - but it's a step towards the future capacity upgrade for bitcoin as it enables blocks to contain more information without directly increasing the 1 Megabyte block size.
Who Controls Bitcoin?
The bitcoin network is completely decentralized, so there's no need for any central authority to oversee its operations. This means that anyone can participate in the network by simply downloading the software required.
What Are the Benefits of Bitcoin as an Investment?
Many people who have purchased bitcoins as an investment are seeing significant returns on their initial investments. In December 2017, a single bitcoin was valued at over $19,000 USD, and in 2021, Bitcoin has traded for over $50,000 USD. As bitcoin is speculative and at times highly volatile, whether it is a good investment is something you should research yourself and assess against your risk tolerance.
What is the Supply of Bitcoin?
Bitcoin's supply is capped at 21 million coins. That means that there can be no inflation in the network, which is one of the ways it differs from fiat currencies.
What if I Lose my Wallet?
If you somehow lose access to your wallet or it gets stolen, you should consider these funds irretrievably lost in most cases. That means it's important to secure any wallet you own, safely store your private key or seed phrase, and ideally use a quality hardware wallet.
What is the difference between Public and Private Keys?
Every single bitcoin transaction that ever takes place requires a public address and a private key - which work together to authorize the transaction. A public address is enough information for you to be able to send funds to another bitcoin user. The private key is what someone needs to have so they can spend money from their wallet. However, if they lose the key, they will never regain access to the bitcoin inside of it again.
What are Bitcoin Faucets?
Bitcoins faucets are websites that dispense a small amount of bitcoin for free of performing a task (often a captcha) that were quite common in the early days of bitcoin. While these have become far less popular in recent years and pay out a lot less, they still exist.
What is the Average Block Time?
The average block time refers to how long it takes for a block to be confirmed on the blockchain. It's usually around 10 minutes per block, but it can take more or less time. However, the bitcoin network is programmed to add a new block every 10 minutes, so each block is expected to take an average of 10 minutes.
What is the Lightning Network?
The lightning network is a second layer protocol built on top of bitcoin that allows for super-fast and inexpensive transactions. These are especially useful for smaller-scale payments where transaction fees would be larger than the cost of the product or service you're purchasing, but they can also make most bitcoin transactions instant. This technology is still in its early stages, but it's already supported in some wallet software and is growing more popular as adoption is starting to increase more rapidly.
What is the Price of Bitcoin?
The price of bitcoin constantly varies since it's traded on various exchanges all over the world. It can go up or down depending on what people are willing to pay for it, but that value has been trending upwards for years now when looked at on a longer time frame.
What is a Satoshi?
A satoshi is the smallest fraction of a bitcoin and represents 0.00000001 BTC (one hundred millionths of one bitcoin). Since bitcoin can be divided down to 8 decimal points, you could always buy a fraction of a bitcoin if you didn't want a complete one.
What are the Transaction Fees?
Bitcoin transaction fees vary based on several factors. When there is more competition to get a transaction into a block, you will pay a higher fee if you want your transaction to be processed quickly. Additionally, the size of any given transaction also determines how much it will cost to send or receive bitcoins. While you can send a fraction of a bitcoin or thousands of bitcoins for the same price, specific transaction types can cost more than others based on numerous factors (such as the type of wallet address used).
What is a Halving?
A halving is when the rate at which new bitcoins are created halves. This happens once every 210,000 blocks or roughly every four years. When that happens, the block reward per block is cut in half until it eventually reaches zero.
Bitcoin is seen as a deflationary currency because there's a finite amount of bitcoin that can be mined. In all, there will only ever be 21 million bitcoins produced which makes for an interesting economic experiment that all bitcoin users are participating in, and only time will tell where it goes.
There is so much to learn about bitcoin and other cryptocurrencies. If you want to learn more be sure to check out the LocalCoinSwap Academy where there is a large amount of free bitcoin guides and tutorials that is growing all the time.