Bitcoin explained for new investors

Last Updated on May 15, 2024

If you still can’t figure out what the heck a bitcoin is, this simple explanation for a five-year-old may help you …

bitcoin explained

Bitcoin was invented as a peer-to-peer system for online payments that does not require a trusted central authority. Since its inception in 2008, it has grown into a technology, a currency, an investment vehicle, and a community of users. In this guide we hope to explain what the biggest crypto currency is and how it works as well as describe how you can use it to improve your life.

What is Bitcoin?

Since anything digital can be copied over and over again, the hard part about implementing a digital payment system is making sure that nobody spends the same money more than once. Traditionally, this is done by having a trusted central authority (like PayPal) that verifies all of the transactions. The core innovation that makes Bitcoin special is that it uses consensus in a massive peer-to-peer network to verify transactions. This results in a system where payments are non-reversible, accounts cannot be frozen, and transaction fees are much lower.

Where do bitcoins come from?

We go more in-depth about this on the page about mining, but here’s a very simple explanation: Some users put their computers to work verifying transactions in the peer-to-peer network mentioned above. These users are rewarded with new bitcoins proportional to the amount of computing power they donate to the network.

Who controls it?

As we mentioned above, there is no central person or central authority in charge of Bitcoin. Various programmers donate their time developing the open source Bitcoin software and can make changes subject to the approval of lead developer Gavin Andresen. The individual miners then choose whether to install the new version of the software or stick to the old one, essentially “voting” with their processing power. It is in the miners’ best interest to only accept changes that are good for the Bitcoin currency in the long run. These checks and balances make it difficult for anyone to manipulate Bitcoin.

How to get started with Bitcoin

The best way to learn about any cryptocurrency is to get some and experiment with it. We have written articles about how to set up your own Bitcoin wallet, how to acquire them, and how to use them to help you get going.

I suggest entering a reddit sub related to cryptocurrencies. It’s a great source for learning and for constant updates!

Is bitcoin a good investment in 2020?

I believe so! Bitcoin is only a tiny fraction of the total money in the world. Heck, Jeff bezos is worth more than the entire bitcoin market!

I’m not saying to go crazy and bet your house on it. But there’s nothing wrong in keeping 3 to 5% of your portfolio in crypto. You are protected against inflation and you have good chances of an awesome return on your investment.

Where and how to buy bitcoin?

If you’re interested in buying any digital currency, we suggest using coinbase. It’s the most secure and respectable firm selling bitcoin for fiat currencies such as euro or dollar.

Kraken is also a great alternative if you are in Europe!

My only suggestion is: buy some bitcoin, keep it on coinbase or kraken (it’s safe there) and forget about it!

You’ll thank me later!