Bitcoin Explained for Beginners: What Is It and How Does it Work?

November 14, 2019, by Andreea C.
Table of Contents What is Bitcoin, exactly?Who created Bitcoin? And when?What is the Bitcoin blockchain?What is Bitcoin mining?What is the Bitcoin halving?How many Bitcoins are there?What is the purpose of Bitcoin?How does Bitcoin have value?What is Bitcoin backed by?What does
Man explaining Bitcoin to a crypto beginner

What is Bitcoin, exactly?

Bitcoin is a cryptocurrency, meaning that it is a type of money that uses cryptography as the basis of its ledger of transactions. This ledger is known as a blockchain.

Bitcoin is also considered a peer-to-peer currency, meaning that it has no central authority. Instead, Bitcoin is created and issued by a distributed network, which also processes transactions.

Who created Bitcoin? And when?

Satoshi Nakamoto, an anonymous computer scientist, created Bitcoin. Nakamoto published Bitcoin’s white paper in 2008 and launched Bitcoin’s network in 2009.

What is the Bitcoin blockchain?

Bitcoin’s blockchain is an immutable ledger that records every Bitcoin transaction that has taken place. Each block is linked to another by cryptographic hashes, which ensures the integrity of the entire chain.

What is Bitcoin mining?

Bitcoin mining is the process that produces new Bitcoin. You can mine Bitcoin by putting your computer power toward difficult cryptographic problems. If you solve a problem fast enough, you can earn Bitcoin, although mining has become less profitable and more competitive.

Bitcoin mining illustration

What is the Bitcoin halving?

Bitcoin halvings reduce miner rewards and make mining less profitable. This is designed to slow down the creation of new Bitcoin and reduce inflation. The next halving will take place in May 2020.

How many Bitcoins are there?

There will only ever be 21 million Bitcoin in existence. Right now, about 18 million Bitcoin have been mined and put into circulation. However, this is subject to change: for real time data, check this page.

What is the purpose of Bitcoin?

Bitcoin has several purposes, including:

  • Trustlessness: Bitcoin eliminates the need for users to trust a bank or financial institution. Since no central authority has control over Bitcoin, there is little risk of corruption or wrongdoing.
  • Global availability: Bitcoin facilitates worldwide transactions. Government regulations and geographic boundaries cannot restrict basic Bitcoin transactions.
  • Financial inclusion:  Individuals who would normally be denied access to banks, loans, credit cards, or other financial services can make use of Bitcoin-based financial services.
  • Price stability: Bitcoin provides a refuge from financial instability and hyperinflation. Residents of countries such as Venezuela and Zimbabwe have turned to Bitcoin for its relatively stable price.
  • Direct payments: Bitcoin eliminates the need for middlemen and intermediaries. Bitcoin transactions go directly to their intended destination, and those transactions are irreversible.
  • Secure storage: Bitcoin gives users a way to store their own funds securely. By managing your own Bitcoin keys, you can ensure that nobody else gains access to your money.
  • Privacy: Bitcoin offers privacy. Although anyone can view Bitcoin’s ledger of transactions, the ledger does not include anyone’s personally identifying information.
  • Efficiency: Bitcoin offers efficient transactions. When paired with systems like the Lightning Network, it can offer transfer speeds that rival credit cards and PayPal.
  • Integrity: Bitcoin gives incentives to its underlying network. The miners and nodes who power Bitcoin receive Bitcoin as a reward, which ensures that the network works toward one consensus.

How does Bitcoin have value?

Bitcoin has value because it is scarce. It is more practical to buy or receive existing Bitcoin than it is to create it, which means that many people are willing to accept Bitcoin as currency. Bitcoin’s precise “dollar value” is determined by the actions of buyers and sellers on exchanges.

What is Bitcoin backed by?

Bitcoin isn’t backed by a central bank or organization, and it doesn’t need to be. Instead, Bitcoin is backed by cryptographic security and a peer network that has incentives to cooperate. Together, these rules ensure that nobody can exploit Bitcoin or use it to their own ends.

What does a Bitcoin look like and what is it made of?

Bitcoin is not an object. It is merely a ledger of transactions stored as information. You can buy novelty Bitcoins made to look like real coins or banknotes, but it isn’t necessary to do so.

Is Bitcoin a scam?

Bitcoin is not a scam. Many governments, regulators, and banks recognize Bitcoin as a legitimate financial asset. Of course, Bitcoin can be used to commit fraud. If a deal sounds too good to be true, it probably is―don’t send Bitcoin to anybody you don’t trust.

What price did Bitcoin start at and how much is a Bitcoin worth now?

Originally, Bitcoin had no value, but its price has grown rapidly. In 2010, someone bought a pizza for 10,000 BTC or $30. If the same amount was spent today, that pizza would be worth $90 billion! As of October 2019, one Bitcoin is worth $9000. Fortunately, it isn’t necessary to buy an entire Bitcoin; you can buy any fraction you like. On Jubiter, you’ll need to buy at least $50 worth of Bitcoin at once.

Is it too late to invest in Bitcoin?

It’s never too late to invest in Bitcoin, and it’s still possible to buy Bitcoin before a price surge. However, since price surges are hard to predict, many people hold Bitcoin as a long-term investment.

From another angle, it is too late to profit on the initial speculation that made early Bitcoin holders into millionaires. Speculative investors often buy new cryptocurrencies called “altcoins” instead.

How can I purchase Bitcoin?

You can purchase Bitcoin through Jubiter and other exchanges. You can also buy Bitcoin from ATMs and kiosks if you live in a major city. Follow these steps if you want to buy Bitcoin from Jubiter.

What is Bitcoin used for?

Bitcoin can be used to buy almost any product or service. You can order items from retailers, pay for vacations, or subscribe to apps. You can also top up your phone, buy a gift card, or donate to charity.

Not every business accepts Bitcoin directly, but with Jubiter’s debit card, you can spend Bitcoin anywhere that accepts payment cards. It converts Bitcoin to cash when you make a purchase.

In addition to spending Bitcoin, you can also trade Bitcoin for other cryptocurrencies, or hold it as an investment. Finally, you can send Bitcoin to (or receive Bitcoin from) friends and family.

What is a Bitcoin exchange?

A Bitcoin exchange is a service that buys and sells Bitcoin, such as Jubiter. Typically, you can trade Bitcoin for cash, or for other cryptocurrencies such as Litecoin and Ethereum.

What is a Bitcoin address?

A Bitcoin address is a string of text that can be used to send and receive Bitcoin. Sometimes, these are called “Bitcoin wallet addresses” because wallet applications are used to generate them.

Each address has a public key, which you can give to people who want to send Bitcoin to you. Each address also has a private key, which you can use to send transactions, and which you must not share.

What is a Bitcoin wallet?

Bitcoin wallets are applications and tools that manage Bitcoin addresses. If you sign up with Jubiter, you will be able to access our online Bitcoin wallet, which works with desktop PCs and mobile devices.

Whereas Bitcoin addresses store your funds, Bitcoin wallets give you an easy way to spend your Bitcoin and track your balance. They also allow you to set a password for extra security.

Can Bitcoin be converted to cash?

Yes. Jubiter and most other exchanges will allow you to sell your Bitcoin for regular currency. Additionally, Jubiter’s debit card allows you to convert Bitcoin to cash and then make purchases.

You can also sell Bitcoin to other people through peer-to-peer exchanges like LocalBitcoins and Paxful.

Finally, Bitcoin ATMs provide a way to convert your Bitcoin to cash in public locations.

What is a Bitcoin ATM?

A Bitcoin ATM is a machine or kiosk that allows you to buy and sell Bitcoin. Right now, there are over 5000 Bitcoin ATMs operating worldwide, and they can be found on Coin ATM Radar.

What can you buy with Bitcoin?

You can buy anything with Bitcoin, from online services and downloadable media to physical products and gift cards. You can also book flights and hotel rooms, pay off your bills, and do much more.

What companies accept Bitcoin?

Thousands of companies accept Bitcoin worldwide, including Microsoft, Travala, Shopify, Overstock, and NewEgg. Several charities, including UNICEF, also accept Bitcoin.

How can I pay with Bitcoin?

If a store accepts Bitcoin, you can send them Bitcoin from your wallet. Otherwise, you may need a special Bitcoin payment card, such as the Jubiter card, which allows you to spend Bitcoin anywhere.

As a retailer, how can I include Bitcoin as a payment option for my customers?

If you have a store in the real world, you’ll need to accept Bitcoin through a point-of-sale app. If you have an online store, you can accept Bitcoin through a web plugin. Both of these tools can be obtained from payment processors such as BitPay and Coingate.

For more information, read our article on How to Accept Bitcoin in Your Store.

Who regulates Bitcoin?

There is no single authority that regulates Bitcoin. However, most countries have introduced their own regulations, typically through bodies that are responsible for taxes, banking, and securities.

What is the future of Bitcoin?

It’s hard to predict Bitcoin’s future. Some critics underestimate Bitcoin, arguing that it cannot replace traditional money. Others overestimate Bitcoin, arguing that it threatens traditional banking entirely.

The truth is somewhere in the middle. Bitcoin is gaining acceptance from plenty of businesses. Meanwhile, banking giants such as Goldman Sachs are warming up to Bitcoin, not resisting it.

If Bitcoin continues to gain acceptance, it will experience more demand. This should in turn drive up the price of Bitcoin. Bitcoin might not experience sudden growth, but the future looks bright.

Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.