A Bitcoin Primer for BeginnersFeb 08, 2021
What is a blockchain?
The blockchain is a software ledger for bitcoin that resides on thousands of decentralized computers which “sync” to each other. These computers may also engage in reconciling new transactions (“mining”) in upcoming blocks.
What is a block?
A block is one entry in the blockchain ledger which contains thousands of reconciled transaction records. Each block contains general transaction information and a computer-coded cryptographic string known as a hash. The hash is derived from information in this block and the previous block, so they are linked or “chained” together.
What is a bitcoin transaction?
A transaction can be as simple as Joseph sends .5 bitcoin to Harold or it can be that Joseph moved .5 bitcoin from one of his “wallets” to another.
What is a bitcoin wallet?
A wallet is a software program, a hardware device or even a printed piece of paper (“paper wallet”) which stores a secure private key (or password) that has the exclusive access to Harold’s .5 bitcoin. There are hundreds of bitcoin wallet products vying for your business.
How do I send bitcoin from one wallet to another?
All software wallet programs allow you to send bitcoin from wallet to wallet. The transaction is reconciled by miners and it is stored on a new block in the blockchain.
How does a transaction work and how is it reconciled?
Software broadcasts every new transaction to a “waiting area” of all the blockchain computers called Mempool or the transaction pool. A Mempool resides on every mining computer who is trying to reconcile transaction into a new block (In order to earn the reward and fees).
How much is the reward and fees and who pays them?
Until the next bitcoin reward halving (February 27, 2024), the reward is 6.25 newly created bitcoin. No one pays for this. It is like a central bank of a country which issues new currency. Fees are deducted from the sender’s wallet when the transaction is confirmed. They are computer-calculated based on many variables of the new block. A billion-dollar transaction can cost the sender as little as $1 (April 10, 2020) or as much as $700 (September 6, 2019).
What happens next?
Each bitcoin miner’s computer sees all the new pending transactions in their Mempool. Their software tries to gather several transactions and formulate a new block to add to the blockchain. They are racing against each to reach the goal first. The details are beyond the scope of this overview.
Now what happens?
When a miner successfully includes your transaction into a new block on the blockchain, your transaction and the block is ‘once confirmed’. A new block is created every 10 minutes, so after 30 to 60 minutes, your transaction has been confirmed 3x to 6x and you might consider your transaction fully completed. The details are beyond the scope of this overview. Your .5 bitcoin now is controlled by the new wallet.
Conceived on October 31, 2008 and born on January 3, 2009 under anonymous name Satoshi Nakamoto, who in my opinion, is probably Adam Back cited in the white paper as the inventor of Hashcash in 1997. He is CEO of Blockstream.
· Fully decentralized and open-source
· Backed up by satellite in case of internet failure
· Cryptographically secured (Sha256)
· Bitcoin are earned by verifying transactions (“mining”) with progressive cost
· Bakkt (NYSE) Futures and Options contracts
· Bitcoin Futures on CME
· Used as a store of reserve currency by major publicly traded companies
· Grayscale Bitcoin Trust on OTC market
Bitcoin Wealth Distribution
· Beginners should create a Coinbase account and dollar-cost average into this investment using recurring buy feature
· Once reaching an intermediate level, investors should split their bitcoin into:
a) Long-term investment into cold storage using a Nano Ledger S
b) Short-term investment portion onto an exchange which allows high-leveraged trading (2x to 100x leverage)
Exchanges: ByBit, Phemex, Bitmex, KuCoin (offshore margin and leverage trading) — Some may require VPN in restricted jurisdictions
a) Coinbase Pro (maximum 3x leverage) — A US regulated exchange
b) Gemini (no margin or leverage) — A US regulated exchange
c) SquareCash (no margin or leverage) — A US regulated exchange
Before using any exchange, perform your own due diligence on the security of any exchange.
Note: bitcoin.com is not bitcoin (BTC). It is bitcoin cash, a different coin (BCH).