Bitcoin Basics – Part 1

This article discusses the basics of Bitcoin which is a cryptocurrency. It is a two-part series where part one explains the fundamental topics while Bitcoin Basics – Part 2 focuses on the Bitcoin network and mining. Hence read on to learn about bitcoin.

Cryptocurrencies
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Update Feb 2021Bitcoin Price Historic Crash – Will It Fall Further?

The Early Origins Of Bitcoin

The Bitcoin protocol itself was defined in 2008 in a white paper published under the name Satoshi Nakamoto. Its not known whether it was a single person or a group of persons. Bitcoin is a digital currency. It has a certain value and this value is determined by supply and demand. As the demand for Bitcoins increases, as requests for Bitcoin purchases rise in number that is, the price rises. As demand decreases, as there are more people with Bitcoins to sell them than there are to purchase them, the price drops. So just like other currencies and commodities, Bitcoin’s value is very much affected by conditions both internal and external that drives its value.

Demand and Supply

There are a fixed amount of Bitcoins out there. As new buyers make purchase requests, (mining), so the coins are mined, new Bitcoins are created. Mining creates new transactions in the Bitcoin ledger (called BlockChain which will come up in future articles). Around October 2016, there were around 16 million Bitcoins. Also Bitcoin has a permanent cap of 21 million, so there can never be more than that. So at its current circulation, around 75% (approx.) of the cap has been consumed. Hence it’s fixed that the limited number of Bitcoins means demand will drive its value and cost.

How to get started with bitcoins

Bitcoin has grown out steadily and with it is the size of the community voting for it. The following are some of them:
The Community Portalhttps://Bitcoin.org/en/community
The Wikihttps://en.bitcoin.it/wiki/Bitcoin_Wiki:Community_portal
Forums: BitcoinTalk Forum, Reddit’s Bitcoin Community, Bitcoin StackExchange for Q&A

Units of Bitcoin

A single Bitcoin is with the denominator BTC. The creators of Bitcoin decided to assign a single Bitcoin as having a value of 10 to the 8th power, or 100 million units because it provides a very high degree of precision over Bitcoin units. The method for subdividing Bitcoins was adopted from the International System of Units. The Bitcoin system of units uses divisions of 10, just like the metric system. 10 is the number of choice that’s what the world uses to count. It’s easy to multiply and divide by 10. Examples of common Bitcoin units are the deciBitcoin, which is 1/10, the centiBitcoin is 1/100 and the milliBitcoin which is 1/1,000. The Satoshi namely, is the smallest unit of the bitcoin and  is a one hundred millionth of a single bitcoin (0.00000001 BTC)

Bitcoin Clients (Wallets)

Bitcoin clients are also known as wallets, are the software applications that allow you to buy and sell Bitcoins. Their main function is the creation and control of private keys, security and display of Bitcoin network information and transaction information and to distribute events to peers on the Blockchain.

What are Bitcoin Addresses?

A Bitcoin address is a location where Bitcoin payments are made. And they can be created by any Bitcoin user using a Bitcoin wallet. Imagine a Bitcoin address as an email address. I give you an address and you send Bitcoins to that address. An important difference between email and Bitcoin addresses, is that Bitcoin addresses are only used once. They’re a single use token. An address contains 26 to 35 alphanumeric characters and these aren’t hexadecimal hence you can choose the full 26 character alphabet to choose from. It always begins with either a 1 or a 3 and this represents the destination for Bitcoin payments. There’s no cost to create addresses, and most wallets will create them automatically when you send or request a payment. For example, in many, probably most Bitcoin wallets, you choose to create a new address for a transaction. You can also obtain a Bitcoin address at a Bitcoin exchange or online wallet service.

Summary

After covering the Bitcoin basics here and learning cryptocurrency, in our next post Bitcoin Basics – Part 2, we will cover in depth about the network behind Bitcoin and in detail about the mining process.

Hitesh Boricha

I have a little over a decade experience in the IT industry. Having worked in various roles in this industry, I am passionate about technology.

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