"I do think Bitcoin is the first [encrypted money] that has the potential to do something like changing the world." - Peter Thiel, co-founder of PayPal
"Bitcoin represents a fundamental transformation of money. An invention that changes the oldest technology we have in civilization. That changes it radically and disruptively by changing the fundamental architecture into one where every participant is equal." - Andreas Antonopoulos, Bitcoin educator and author
"Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value." - Eric Schmidt, former CEO of Google
"Bitcoin is a technological tour de force." - Bill Gates, co-founder of Microsoft
"Bitcoin is the currency of resistance." - Max Keiser, founder of Heisenberg Capital
These quotes highlight the potential of Bitcoin to disrupt traditional finance and transform the way we think about money. While there is still much debate about its future potential and risks, it's clear that Bitcoin has captured the attention of some of the most influential figures in technology and finance.
INTRODUCTION
How to Bitcoin! We received so much positive feedback on our first book, How to DeFi, that we decided to write this one!
Bitcoin was the first cryptocurrency that got us started on our journey. Our understanding of Bitcoin has opened up many opportunities for us, and in these pages, we hope to share our collective knowledge with you. In How to Bitcoin, you will learn of Bitcoin’s transformative aspects and how it can open new opportunities for you too.
Bitcoin is not new. As we write this, it is 12 years old. That being said, it is still early and not too late to learn about Bitcoin and its implications for the future. Perhaps you would have heard of Bitcoin as this “magic Internet money” with revolutionary potential. We hope to debunk that and put together what makes Bitcoin revolutionary other than just “magic.”
How to Bitcoin is written for beginners with simple analogies to help you understand how it works. There are step-by-step guides to show you how to buy and secure your first bitcoin. It will be a relatively light read if you already have a deep understanding of Bitcoin. If so, we would be honored to receive your suggestions on improving this book.
How to Bitcoin Lastly, we see a future where owning a bitcoin is a matter of choice and foresight rather than ignorance. We hope this book can contribute to making that a reality
Bitcoin is a peer-to-peer electronic payment system that allows parties to transact with each other without the need to use any trusted third-party intermediaries. It is an alternative to our traditional financial system, where payments need to be routed through financial institutions.
When you use Bitcoin, you do not need to trust a centralized entity such as a government, a bank, or a financial institution. For example, in the traditional financial system, using PayPal requires that you trust PayPal’s ability to make transactions. Paying with your MasterCard requires that you trust MasterCard, your bank, your merchant's bank, and other payment processors to clear your transaction.
Bitcoin is a payment protocol and a cryptocurrency itself. This protocol is a payment network that allows for transactions to be routed without relying on any third parties. It is powered by a new technology known as the blockchain. Bitcoin is also known as a cryptocurrency, a type of virtual currency, because transactions are secured using cryptography. For the purposes of this book, we will be representing ‘Bitcoin’ with a capitalized ‘B’ whenever we refer to the Bitcoin protocol and ‘bitcoin’ with a lowercase ‘b’ when we refer to the bitcoin cryptocurrency.
Bitcoin distinguishes itself from traditional fiat currencies as it is not backed by any government, central bank, or centralized authority. Instead, it is created, stored, and distributed digitally on a public, decentralized ledger that follows a strict set of simple rules.
This is the philosophy that created Bitcoin—the ability to operate a financial system in a decentralized manner without the need to trust any centralized intermediary
Using the Bitcoin network, Alice directly transfers value over to Bob without any authorization from anyone, hence the term “peer-to-peer”. The removal of the middlemen like the bank is profound as this bypasses the many potential issues associated with central authorities and third parties.
By removing third parties from the transfer of value, we remove the ability for these middlemen to exert authority over our financial transactions. PayPal is famous for freezing users’ accounts for various reasons; you can find many people complaining about this issue online. Bitcoin allows us to have full control of our own assets without the need to trust any institutions or third parties. With this control, no one can unilaterally freeze or revoke our assets without our permission.
The power now goes back to individuals. Anyone, no matter who or where they are, can now directly engage in the transfer of value and economic activity with another person without any third-party's permission.
The Bitcoin ledger is distributed globally. It is decentralized and no single entity is able to tamper or manipulate the data contained in the blockchain. Anyone who tries to unilaterally manipulate the data on their ledger will be known immediately because their ledger will not be similar to the ledger maintained by everyone else.
This means that no one fully owns or controls Bitcoin. No entity—not even governments—can annihilate Bitcoin’s existence.
To give a simple analogy to explain this concept of a decentralized ledger, let’s take a look at a game of Monopoly played between 4 friends. Instead of distributing Monopoly paper money to all 4 players during the game, a blank notebook and a pen is given to each player. Each player will record the amount of money that all 4 players have at each turn during the game.
After every turn, everyone pauses to check each other’s notebooks to ensure that it tallies with everyone else’s records. This way, any player who tries to cheat will have the discrepancy caught immediately and can be easily disqualified from the game
Bitcoin is also a type of money that is highly fungible, durable, portable and divisibleFrangibility is a concept where things are mutually interchangeable. Bitcoin is fungible because each bitcoin can be easily replaceable with another bitcoin.
Bitcoin is also highly durable because it cannot be easily destroyed by natural elements unlike paper money. So long as the private keys to your bitcoin are stored safely and are not lost, you will have access to your bitcoin.
Because bitcoin is a form of digital money, it is incredibly portable. You can bring your entire net wealth with you wherever you go with just the private keys. This is significant especially to people who live in countries without a stable government. With bitcoin, these people can pack their bags and move to a stable country while still retaining their wealth.
Bitcoin is also divisible to 8 decimal places. The smallest unit for bitcoin is 0.00000001 BTC, also known as a satoshi. This was named as a tribute to the creator of Bitcoin, Satoshi Nakamoto. This means that you do not need to send or own 1 whole bitcoin but can send small fractions of bitcoin to pay for goods and services
Being a digital currency is important because it means that the money we use can be easily programmed to do highly customizable things.
Antony Lewis mentioned in his writing that money in your bank accounts are not really programmable because the money in each bank is technically different. Dollars in Citibank and JP Morgan have different legal agreements and have different logic and constraints.19 Because there is no ledger referencing the money stored in different bank accounts, this makes it hard for money to be programmed to follow certain rules
Use Cases of Bitcoin – Can bitcoin be our new money? With the defining characteristics of bitcoin being so profoundly advantageous over the traditional financial system, the big question remains: Why isn’t bitcoin replacing fiat money? Let’s take a look at how bitcoin measures up to the 3 classical functions of money:
Medium of Exchange
Store of Value
Unit of Account
All in all, it is important to realize that Bitcoin’s inception was not intended to be a replacement of the fiat currencies that you use to buy your daily dose of caffeine. Rather, Bitcoin’s primary existence serves to provide an alternative financial system that can operate without the need to trust and rely on third-party financial institutions. Bitcoin’s inception revolutionizes the way we perform transactions using a decentralized, peer-to-peer payment system.