1. What is Bitcoin?
In this introductory section, we'll provide a few useful facts about Bitcoin. For more detailed explanations, keep reading the guide.
Bitcoin is the world's first and largest cryptocurrency. It was launched in 2009, and now its market capitalization exceeds $160 billion as of March 2020.
Bitcoin is completely virtual – it 'lives' only on the web. It's not regulated or controlled by any state or bank. It's not backed by any fiat money (dollars, euros, etc.), gold, or any other physical commodity.
Bitcoin has all the characteristics of money. You can use it to pay for goods and services or treat it as an investment. You can also trade it on crypto exchanges.
We don't know who created Bitcoin. This genius developer (or group of developers) used the pseudonym Satoshi Nakamoto. But Bitcoin’s creator almost certainly isn’t Japanese. There is some evidence that this person may be British.
Satoshi Nakamoto accompanied it with a white paper called Bitcoin: A Peer-to-Peer Electronic Cash System. The white paper is very clear, well written, and not too technical, so you should try to read it.
In order to use Bitcoin, you'll need a Bitcoin wallet. A crypto wallet isn’t just for storing coins, though. It also allows you to send BTC to other people. A wallet is protected with a secret key, or passphrase. You need this key to send money, but if it falls into someone else’s hands, they’ll be able to steal all your crypto.
There are dozens of good wallets, such as Electrum, BitPay, Bither etc..
Each BTC is divided into one hundred million satoshis, named as a homage to the developer. You can send very small portions of a Bitcoin, though you can't send just one satoshi – the minimum amount is 5340 satoshis, or circa $0.47 at the time of writing.
Bitcoins transactions are collected into blocks, and these blocks are put one after another in a chain – thus the name 'blockchain'. The whole history of transactions is completely transparent: you can see the sender's and recipient's addresses and the amount. However, since the addresses are anonymous, it's hard to connect a certain address to a specific person.
The maximum number of Bitcoins that can ever exist in the world is 21 million. This makes BTC different from fiat currencies, which can be printed by central banks without any limitations. New Bitcoins are produced in a process called mining (see section 5.2).
At present, there are a bit more than 18.2 million Bitcoins in the world. So 2.8 million more can still be mined. The last Bitcoin will be mined around the year 2140.
However, not all Bitcoins that exist actually circulate. When a user loses the key (password) to their Bitcoin wallet, they can't access their BTC anymore. Their BTC are essentially lost forever. Some people are even trying to build supercomputers to restore their lost passwords. In total, these 'lost' coins constitute about 20% of all BTC.