Bitcoin: The Uncomplicated Frequently Asked Questions
By: Dawdu M. Amantanah
For many, Bitcoin can be very confusing on what the heck it exactly is, how it works, and the process of accumulating some. Holding your private keys is the most crucial step, before any other, to protect yourself, some may say, but if you do not understand the basics of this digital asset, private key ownership means nothing. The maze of technical and economic know-how can be intimidating to grasp, so hopefully, this short article serves its purpose. I hope to conceptually break down bitcoin basics in an easily digestible FAQ format for beginners and experts alike.
There are tons of questions a newbie to this technology would ask, so I’ve done my best to answer some questions in that regard. Pro tips for those looking to buy Bitcoin for the first time are essential, but beginners seem to ask the right questions. Only purchasing Bitcoin from an exchange that will allow you to withdraw it are the solutions people new to this asset need to know, not just numbers go up like someone would ask once they get past the basics. Let’s dig into some uncomplicated, frequently asked questions on bitcoin.
What is Bitcoin?
In short, digital cash on an electronic peer-to-peer network where you don’t need to ask your bank or government permission to give someone money. Bitcoin is a form of digital currency where transactions are recorded in a linked data structure called a blockchain; the blockchain network is secured through a consensus mechanism called proof-of-work. There is no centralized control of bitcoin; for example, the federal treasury can only print the U.S. dollar. This gives an entity such as the federal government sole control to increase or decrease its supply of dollars.
Bitcoin removes man’s ability to manipulate money because man cannot just print more bitcoin out of thin air. This runaway printing of money has ballooned the assets of billionaires, the debts of our children, and the cost of living for the poor and working class. Bitcoin is decentralized, meaning there is no sole controller of how it operates, thus removing corruption, coercion, or a hostile manipulation of its supply. The 21 million fixed reserve is set to a specific scarce amount and cannot be altered or changed.
A pseudonymous individual or group, going by the name of “Satoshi Nakamoto,” created Bitcoin in 2009. According to Satoshi, “Bitcoin can be defined as a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution.”
Bitcoin In Units
One whole bitcoin can be broken down into a unit or denominations. One bitcoin is equal to 100 million satoshis, the smallest on-chain unit. One Satoshi is like having one penny’s worth of bitcoin if we equate it into fiat terms. Satoshis are abbreviated as Sats. A Satoshi millionaire is a bitcoin holder with an accumulated 0.01 bitcoin or one million Satoshis.
What is Bitcoin backed by?
In the traditional sense, a government backs money through gold and military power to secure that money as a reserve currency. Bitcoin is backed by nothing. Before you close this application in disbelief, asking yourself this internet money everyone is talking about has no backing? Let’s dig into why bitcoin doesn’t need to be backed by anything except the conviction of the people using it and its network.
According to Eric Yakes, author of The 7th Property: Bitcoin and the Monetary Revolution, “Only money that lacks inherent monetary properties must be backed by another money that maintains those properties. The idea that our base layer money needs to be backed by something is thinking from the era of paper money.” Do not confuse market value with monetary value, and Bitcoin has an excellent economic value which gives it market value.
In the early days, economics was about the kings interests, & the wealth of a nation was measured by the kings treasury or by gold & silver in the country. Now, in the modern day also known as the digital age wealth will be measured via energy by way of technological advancements, frequency and human capital. Bitcoin is energy that has store of value. Energy that is convertible into money. This is why Bitcoin is a big deal.
Won’t the Government ban Bitcoin?
If you are worried about the government banning bitcoin you actually need bitcoin more than it needs you. In a worse case scenario a government can attempt to ban its citizens from using the network, but Bitcoin will continue to run on the internet. Bitcoin cannot be banned or destroyed. Many countries have actually banned bitcoin and people find other ways to acquire it. Banning bitcoin is like banning the internet. The Securities Exchange Commission’s Hester Peirce put the final nail in the coffin on this idea when she stated “governments would be foolish to ban Bitcoin.”
What is this Blockchain that Bitcoin runs on?
At its core, blockchain is simply a computer file for storing data and record keeping. Blockchain follows a ledger of open and closed distributed databases in more technical terms. Blocks of data are stored in a chain that keeps an accurate record. This isn’t some magic storage technology to solve humanity’s data issues. The blockchain is just a tamper-evident, meaning it will be evident to all if any data is changed. That serves well in ownership disputes where people forge signatures to obtain money or hijack property like real estate.
Different blockchains harness different characteristics. What makes bitcoins blockchain unique is its decentralized protocol, security, immutability, and censorship resistance, all things you need when dealing with large quantities of data and, ideally, money. Multiple technologies working together in harmony make these characteristics possible. In other words, Bitcoin is not powerful due to any one single factor.
In the Bitcoins blockchain network, these characteristics are determined by nodes that run the Bitcoin software. Think of a node as a beacon sending out a signal to communicate with peers, verify the information they receive, and broadcast new details. Nodes also organize what they know in data structures to conform to consensus rules. Consensus rules are the rules that all full Bitcoin nodes use to determine if a block, and the transactions in the block, are valid.
How do I buy Bitcoin?
There are plenty of exchanges to choose from to purchase bitcoin. Kraken, Gemini, Coinbase, Strike, Cashapp, plus so many more, are all places you can buy digital gold, aka bitcoin. Connecting your digital wallet is easier than ever now, whether it’s direct deposit, one-time purchase, dollar-cost averaging, or using tips.
Step 1: Choose a crypto trading service or exchange
Step 2: Connect your exchange to a payment option
Step 3: Place an order
Step 4: Safe storage
I heard Bitcoin is bad for the environment doesn’t it use a lot of energy?
Bitcoin mining is changing the energy sector and few people know about it. Bitcoin requires energy for its mining process and to power the network but many other items use far more energy than bitcoin. Today, the Bitcoin network uses around 110-140TWh of energy which the mainstream media says is damaging to the environment. But a closer look shows the exact opposite — bitcoin doesn’t use as much energy as advertised, and simultaneously pushing crypto towards a greener more renewable future.
Miners tend to use energy that is cheap and not being used or wasted. People are on a constant search for the cheapest cleanest sources of energy to run bitcoin because it’s cost effective. Whether it’s hydro electric energy or natural gas bitcoin recycles marginal energy. What is the cost of protecting all the money on the earth without using energy to do it. Bitcoin takes recycled energy and uses it to create money. Max Keiser a well known bitcoiner states “Just keep the Pentagon filled with gas for their tanks, jets etc cost two hundred and fifty million dollars a day.” This expense of energy to defend the dollar is astronomical. Bitcoin protects money with energy not guns, bombs or tanks like government printed money does today. Bitcoin removes humanity from using weaponized dollars and encourages the use of renewable cheap energy sources instead.
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About The Author
Dawdu M. Amantanah is a technical writer and contributing editor for Bitcoin Magazine , BlackBitcoinBillionaire and Senior Editor for Satoshi’s Journal. He is passionate about cryptocurrency, economics, radical entrepreneurship, and whatever else he finds attractive at the time.