By Donald Gray
Originally published on FTX.com on March 26, 2022
When Bitcoin was released in 2009, it came onto the scene without media coverage, speculation, or governmental scrutiny. As a small group of developers worked towards a common goal, it was impossible to know that the software they were testing would change the course of history.
In the intervening years, Bitcoin has become a global phenomenon, drastically changing lives, disrupting markets, and revolutionizing how people interact with money.
Although all the attention Bitcoin receives today, there’s still much confusion about what exactly Bitcoin is. So what is Bitcoin? How does it work? Is it too late to get involved? If you’re ready for a comprehensive guide to Bitcoin for beginners, this article is for you.
What is Bitcoin?
Bitcoin is a digital, decentralized, peer-to-peer payment network that uses cryptography to verify and secure transactions.
There’s a lot to unpack in that sentence, so to start with, a better question might be:
What can Bitcoin do for you?
Bitcoin is a digital currency. When using Bitcoin, the concept is similar to how you’ve always interacted with money. Like the cash in your pocket, you can spend Bitcoin, send Bitcoin, save Bitcoin, and yes, you can lose Bitcoin.
But there are several key differences between the cash in your pocket and Bitcoin, and this is where the power of this technology begins to shine through.
Understanding how bitcoin works for beginners can seem complicated. Still, Bitcoin is merely an elegant solution to an age-old problem: our monetary system doesn’t work for everybody, nor was it ever intended to.
To see how Bitcoin offers an alternative, let’s revisit that first sentence and discuss some of Bitcoin’s key features.
Bitcoin is a digital, decentralized, peer-to-peer payment network.
Digital
Bitcoin exists purely as a digital asset. Unlike the cash in your pocket, Bitcoin cannot be physically withdrawn, handled, or felt. It exists purely within a new type of computer code called a blockchain.
Decentralized
Decentralization is one crucial factor separating Bitcoin from every currency that came before it. Whereas fiat currencies, like the cash in your pocket, are issued by central authorities— The Federal Reserve Bank in the U.S. or the European Central Bank in the E.U., Bitcoin is issued and managed by a vast global network of computers called nodes. These computers work together to verify and record every Bitcoin transaction. The widely distributed, decentralized aspect of the network eliminates the ability of individuals or entities to manipulate or control the system.
Peer-to-peer
One of the most surprising things to learn about Bitcoin for beginners is that the entire protocol is based on open-source software.
By allowing anyone to participate in the network and removing central issuing authorities like banks, payment processors, and intermediaries, Bitcoin enables true peer-to-peer connectivity. This means that anyone in the world can transact with anybody else, regardless of nationality, ideology, or geographic location.
Recap: Bitcoin is a new digital currency called cryptocurrency. It enables people worldwide to transact with each other on a one-to-one basis regardless of borders or nationality. Rather than being controlled by a single entity or group, Bitcoin is issued and managed by a global network of computers called nodes.
Now that you understand the basics of Bitcoin, you might be wondering where all of this came from. Next, we’ll look at the origins of Bitcoin and its enigmatic creator, Satoshi Nakamoto.
The History of Bitcoin
People often cite 2008 as the year Bitcoin was invented, but this doesn’t tell the whole story. The concept of a censorship-resistant digital payment network has its roots in the early 1980s.
Inception Era 1983-1999
In 1983 a computer scientist and cryptographer named David Chaum published a paper proposing the development of a digital payment network that would allow people to transact across the internet securely and anonymously without the need for a central authority. Having also developed the code to implement his idea, David Chaum is widely regarded as the Godfather of Cryptocurrency.
Though Chaum developed his payment network and took it to market in the mid-1990s, neither his product nor the copycats that followed achieved widespread adoption. The push towards a secure, independent digital payment network was relegated to internet message boards until 2008.
Satoshi Era 2008-2009
In September of 2008, a pseudonymous person or group of people writing under the name Satoshi Nakamoto published a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.”
In the paper, the author outlined a digital payment network that would leverage cryptography to allow people to transact directly with one another without the need for a central authority like a bank or a payment processor.
The paper addressed long-standing issues that had hampered previous projects by outlining a new type of computer protocol called a blockchain.
On January 9, 2009, Satoshi Nakamoto released Bitcoin as an open-source software client, and the Bitcoin network was born.
Early Adoption & Growth Era 2010-2016
Bitcoin was primarily used by a core group of developers and enthusiasts during its first year. The first exchange rate between Bitcoin and U.S. Dollars was established in October 2009, and the first purchase of physical goods using Bitcoin took place in May 2010. In February 2011, the value of Bitcoin reached $1 for the first time, and this threshold earned the nascent currency its first wave of media attention.
Bitcoin adoption grew steadily between 2012 and 2016. Media coverage during this time wavered between dismissive and alarmist, with illicit activity and security compromises dominating coverage of the currency. As Bitcoin’s valuation wavered during this period, advocates of the protocol expressed the growing need for a censorship-resistant, peer-to-peer payment network in the modern era, and adoption continued to grow.
Modern Era 2017-Present
2017 is viewed as a pivotal year in the history of Bitcoin. The value of one bitcoin reached the milestone of $1,000 for the first time at the beginning of the year and surpassed $3,000 that spring. These milestones garnered significant media coverage, pushing adoption to new heights.
2017 also saw contentious arguments about scalability within the Bitcoin developer community, resulting in a hard fork or split of the Bitcoin blockchain and the birth of Bitcoin Cash (BCH).
Though Bitcoin’s value would surpass $9,000 that December, the bull market of 2017 was short-lived. Prices dropped significantly in January 2018.
However, what didn’t drop was the interest that 2017’s bull market generated. That year, Bitcoin became a household name, prompting many independent and institutional investors to foray into the cryptocurrency space for the first time.
The influx of capital to the space drove a flurry of new developments and increased attention to younger projects like Ethereum. These developments birthed entire new industries like Decentralized Finance and previewed blockchain technology's disruptive effect on the global economy.
2020 saw explosive growth both in value and adoption of Bitcoin. Publicly traded companies began adding Bitcoin to their balance sheets for the first time, and the year closed with the currency’s value reaching an all-time high of over $69,000.
Interest in Bitcoin remains high today, with unprecedented numbers of both independent and institutional investors participating in the market. The cryptocurrency industry is still proliferating, and it’s still a great time to start investing in Bitcoin for beginners.
How Does Bitcoin Work?
We've established what Bitcoin is and had a look at Bitcoin's history, but it can seem like a daunting task to understand how bitcoin works for beginners. In this section, we'll look under the hood of this revolutionary technology.
The Blockchain
Double spending was one of the most significant issues that plagued early digital currency attempts. Digital currencies are nothing more than bytes of data, and if you’ve ever copied and pasted a snippet of text before, you already know that data can be replicated.
Bitcoin overcomes this problem by implementing an innovative technology called the blockchain. Outlined in Satoshi Nakamoto’s whitepaper, the blockchain is a universal, decentralized ledger that timestamps and records every Bitcoin transaction that has ever taken place. The blockchain’s entire recorded history exists on every computer connected to the network and is constantly updated as new transactions occur.
When someone sends bitcoin to another person, they broadcast a message to the network informing everyone of the transaction. Nodes on the network then solve cryptographic algorithms to verify the transaction. The first node to verify an entire block of transactions adds it to the chain and is then rewarded with a small amount of bitcoin.
The process of verifying and recording transactions is called mining, and it’s how new bitcoin is created. To keep the blockchain running smoothly, a small fee is attached to each transaction. This fee, along with the newly minted bitcoin, is an incentive for miners to keep the network running and secure.
Regarding security, Bitcoin’s strength lies in its decentralization and transparency.
Transactions require multiple verifications by different nodes on the network before being confirmed. Once confirmed, a record is sent to all network participants, making it nearly impossible to hide, fake, or manipulate transactions.
Bitcoin is the first real-world use-case for blockchain technology, and it has morphed from a loose network on the fringes of the internet into a global economic phenomenon. The fact that we are talking about it today means that Satoshi Nakamoto’s hypothesis has been tested and proven to work.
Now you have a good idea of Bitcoin and how it works. Let’s look at how to get started investing in Bitcoin for beginners.
How Do I Invest in Bitcoin
Investing in Bitcoin is easier than you might think. Here are three ways that you can get started investing in Bitcoin today.
1. Buy Bitcoin on an Exchange
One of the quickest and easiest ways to invest in Bitcoin is to buy Bitcoin directly from an exchange.
To buy from an exchange, you need to create an account, verify your identity, and link your bank account or credit card. Once your account is set up, you can start buying and trading Bitcoin.
Most exchanges will allow you to buy a small amount of Bitcoin with a credit card to get started. If you want to buy larger amounts, linking your bank account is highly recommended.
Hundreds of exchanges sell Bitcoin, so it’s essential to research and make sure that you buy from a reputable source.
2. Invest in Bitcoin through a brokerage firm
These days, people are beginning to invest in Bitcoin through their stockbrokers.
Buying bitcoin through a stockbroker isn’t as popular as buying directly from an exchange, but an increasing number of brokerage firms allow you to buy and sell Bitcoin.
If you’re interested in investing in Bitcoin without buying the asset directly, going through a stock brokerage is a great way to gain indirect exposure to the market by investing in companies that are either involved with Bitcoin or have Bitcoin on their balance sheets.
The number of these companies is growing yearly, and each company has a unique position in the market, so be sure to do your research before investing.
3. Buy Bitcoin Through a Retailer
Retailers and payment processors like Paypal have also begun to add support for Bitcoin. Paypal has 392 million active users, so it was a big deal when the company decided to integrate Bitcoin into its services.
While Paypal's adoption of Bitcoin means that many more people can gain exposure to cryptocurrency, services like Paypal don't give customers full custody of their coins. This means that while you can buy and spend bitcoin on Paypal, you can't withdraw your coins from the platform, preventing you from engaging with the broader Bitcoin ecosystem.
Lastly, we'll cover how to buy Bitcoin through a reputable crypto exchange, FTX.
Get Started Investing in Bitcoin with FTX
FTX is a cryptocurrency and digital derivatives exchange that allows you to buy and trade Bitcoin, Ethereum, and over 300 other cryptocurrencies. Built by veterans of some of the world’s leading investment and technology firms, FTX offers a full suite of investment products designed for first-time investors and advanced traders alike.
FTX is a great place to start investing in bitcoin for beginners because its extensive ecosystem of tools and innovative financial products allows you to hone your skills and grow as an investor.
As you build your crypto trading knowledge, you’ll be able to take advantage of features like margin trading, OTC trading, and, coming soon— tokenized stock trading. FTX gives crypto traders a safe and intuitive platform coupled with some of the lowest fees in the industry, making it the premier destination for beginners and advanced traders alike.
To get started, you need to create an account and verify your identity. Once your account is verified, you can quickly deposit money and start trading Bitcoin.
FTX is a US-regulated exchange, so you can invest with the confidence of knowing that your money is safe.
Investing in cryptocurrency involves risk, so research any asset or product before committing your funds.
You can register and get started investing today at FTX.us.
Thanks for reading, and Happy Trading!