Academy, Bitcoin

What is Bitcoin? – A Step-by-Step Guide

What is Bitcoin? - A Step-by-Step Guide

Bitcoin is the most talked-about subject in a decade. Everyone has heard about this digital currency, but only some know what it is or how it works. Bitcoin is the most revolutionary technology since the internet was invented. 

The cryptocurrency industry has tried to innovate a decentralized currency since 1998. But the industry only succeeded with the release of Bitcoin in 2009. Satoshi Nakamoto (a pseudonym) is the mastermind behind Bitcoin. It is still unknown whether this pseudonym stands for an individual or a group of individuals. 

Satoshi Nakamoto never revealed much about himself, raising concerns about Bitcoin’s true nature. 

After many discussions about Bitcoin, we want to understand what this cryptocurrency is and how it works. 

What Is Bitcoin? 

Bitcoin is digital money created to make payments on the internet. This form of money allows people to buy and sell goods through providers who accept this service. 

Bitcoin is decentralized, meaning no person, government, bank, or other entity can control or regulate it. Transactions are tracked in the blockchain so there is no need for intermediaries. In addition, every payment is registered in a digital ledger to keep track of all the transactions ever made. 

What differentiates Bitcoin from fiat money is that you cannot visually see it, it exists only digitally in your cryptocurrency wallet. However, Bitcoin has the same functions as fiat money:

  1. Medium of exchange
  2. A store of value
  3. Unit of account

One Bitcoin can be divided into up to eight decimal places, and its smallest unit is called “satoshis”. If needed, it can also be divided into more decimals. When it first launched, Bitcoin was sold for less than a dollar, whereas now it’s worth around $27,900.

How Does Bitcoin Work?

Bitcoin is part of the blockchain. Blockchain is a ledger that registers and verifies every transaction made on the internet. Blockchain data is stored on the internet and secured with encryption methods. This means that once a transaction occurs it cannot be edited or deleted. Furthermore, transactions are protected with digital signatures that give users control of their Bitcoins. 

Everyone can send their Bitcoins from their own Bitcoin addresses. After the transaction takes place, the information is sent to a new block to be verified by “miners”.  A new block opens once the verification is accepted, and Bitcoin is created and given to the “miners” to use or sell. 

What Is Mining? 

Mining is a process that brings new Bitcoin into existence and maintains its network. Miners are individuals who use computers to verify transactions, and in return, they gain new Bitcoins.

After mining consents to a transaction, it adds it to the blockchain. This way, the network’s neutrality is protected, and it enforces a chronological order. Every four years, the server is updated, which makes it twice as hard to mine and earn Bitcoins. Next year, will happen Bitcoin halving, which is the next update. 

When it launched, it was easy for miners to mine using basic computers. As Bitcoin became more popular, more miners joined the network, and this lowered the chance of solving the hash. 

Whereas now very advanced and powerful computers and graphics cards are required. These high-end machines used for calculations are expensive. To ensure the infrastructure of the Bitcoin network, the sender adds a fee for the number of transactions that were sent in the block. 

Can Bitcoin Be Converted To Cash? 

Like any other currency, Bitcoin can be converted to cash. When we compare it to other cryptocurrencies, Bitcoin is the easiest to trade. Thanks to the variety of cryptocurrency exchanges that are available online, Bitcoin is accepted even by small companies. In addition, transactions can happen between individuals on any communication platform. 

Bitcoin has no built-in official mechanism to convert it into other currencies. Moreover, the Bitcoin network is not supported by anything intrinsically valuable. But this is the same case, just like with fiat money, because since leaving the gold standard, even fiat currencies such as the U.S. dollar and the British pound do not have any valuable underpinning. 

Advantages of Bitcoin 

Undoubtedly Bitcoin is a revolution, and with revolutions come great things. Here are listed some of the benefits of Bitcoin and what makes it a game-changer: 

  • Bitcoin Needs No Permission 

Traditional currencies need permission from governments or banks to be used. Whereas, Bitcoin has no limit and is free to use globally. 

  • Decentralized And De-regulated 

Bitcoin has no location, it does not belong to anyone. Because Bitcoin promotes trade without a medium, third parties such as entities, governments, or banks can not freeze your account. Transactions do not require any additional fees.

  • Fast To Use 

Bitcoin is a peer-to-peer currency, so transactions are costless and faster than payments with Mastercard, PayPal, or Visa.

  • Anonymous

The owner of Bitcoin does not need to provide personal information such as a name, social security number, email, or any other information that can identify an individual. 

  • Untraceable 

Since Bitcoin owners do not need to provide personal information, no one can trace transactions back to them.

Disadvantages of Bitcoin

Nothing is perfect, and we would be lying to you if we said that there is no drawback in
Bitcoins. Of course, some of the disadvantages are easier to resolve whereas some are not. Here are some of the drawbacks that characterize Bitcoin:

  • High Volatility

Bitcoin is a curse and a blessing because its fluctuations are constantly changing depending on demand. This means that as fast as Bitcoin can grow, it can also crash low. In addition, it is risky for long-term investors to enter such a market. 

  • Competition

Every day different cryptocurrencies enter the market. Bitcoin is the dominant cryptocurrency, but there are a lot of competitors, such as Ethereum, who are trying to take its place. 

  • Time and Effort to Understand Bitcoin

There is a learning curve to understanding Bitcoin, especially if you are not familiar with digitalization. It takes time and effort to learn something new, and this makes it look riskier for a beginner who wants to invest. 

  • Transactions per Second 

The dominant cryptocurrency is Bitcoin, but that does not necessarily mean that it makes the most transactions per second. Compared to Bitcoin, blockchains like Avalanche and Solana operate with higher Transactions Per Second. 

  • Scams and Security Risks 

New investors run the risk of losing their private key, which gives access to their Bitcoin. Furthermore, there are scams, hacks, and phishing that are used to gain control. 

How To Buy Bitcoin (BTC)? 

We will walk through three steps on how to buy Bitcoin. 

Step 1: Open An Exchange Account

This is like a market where buyers and sellers meet to exchange their money for Bitcoin or any other cryptocurrency. There are a lot of options on the internet, but for a beginner, the best option is to find one that is easy to use and offers low fees and high security. 

When you open an account on a crypto exchange, you will be asked to provide personal information such as your name, address, phone number. After opening your account, you need to verify it using a valid ID in order for you to continue with transactions. 

Step 2: Deposit Your Funds

The next step if depositing funds in your account. You can start investing in Bitcoin right after you fund the account, this happens through bank transfers or a cryptocurrency wallet, depending on the exchange you chose to buy BTC on. 

Step 3: Buy BTC 

After funding your account, the next step is to buy your Bitcoin. This step is as easy as tapping a button and entering the amount you want to invest. Once you place the transaction and it is confirmed, you own a Bitcoin or a portion of it, depending on how much you invest. 

Frequently asked questions

What is a simple definition of Bitcoin?

Bitcoin is digital money created to make payments on the internet. It acts as money but is not regulated by any individual, government, bank, or other entity. Payments are done peer-to-peer in the network without a medium. 

How does Bitcoin have value? 

Just like fiat money Bitcoin has proven to have a store of value and can effectively be used to buy goods and services. It fulfills the six characteristics of money just like any other currency: durability, portability, divisibility, fungibility, scarcity, and acceptability. 

What is the price of Bitcoin? 

At the time of writing Bitcoin is around $27,900. The live price of Bitcoin and other cryptocurrencies can be found on CoinMarketCap

Why buy Bitcoin?

The reason why most investors choose to buy Bitcoin is that, since 2009, it has been the most popular and widely accepted cryptocurrency. It’s the first ever cryptocurrency, and it remains the most desirable asset since it has a limited supply that makes it like the gold standard. 


  • Bitcoin was first introduced under the pseudonym Satoshi Nakamoto.
  • Bitcoin is digital money for making payments on the internet.
  • Bitcoin is decentralized and deregulated by individuals, governments, banks, or other entities.
  • Bitcoin is safe and legal to use and trade.
  • It’s a medium of exchange, a store of value, and a unit of account.
  • It is now worth around $27,900. 
  • Bitcoin is part of the blockchain, which registers and verifies transactions on the internet and is secured with encryption. 
  • Mining is a process that brings new Bitcoins into existence and maintains its network, whereas miners are individuals who verify transactions and gain new Bitcoins.
  • To ensure the infrastructure of the Bitcoin network, the sender adds a fee for the numer of transactions sent in the block. 
  • Bitcoin is the easiest to trade and accept, but it does not have an official mechanism to convert it into other currencies. 
  • Bitcoin is a revolutionary technology that offers many benefits.