Bitcoin for beginners: Step by step guide

It is impossible to have a conversation about cryptocurrencies without mentioning Bitcoin - the coin that started it all. From its beginnings as a concept paper on cryptography to multi-billion dollar exchanges, internal theft and high-stakes heists to its price volatility that makes roller-coaster rides seem like a leisurely drive, Bitcoin has had an incredible run since 2008.

In this step-by-step guide, we’re going to explain Bitcoin and talk about everything you need to know to invest in Bitcoin

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What is Bitcoin

Bitcoin is a decentralised currency that was defined in a concept paper written by the mysterious Satoshi Nakamoto, who remains unknown to this day, in 2008. The idea came from the concept that money should not be controlled by one authority that we are expected to trust. It should be controlled by the people who use it and the trust would be created through a secure computer network that would verify every transaction.

Today, Bitcoin is both a currency, as it was originally envisioned but is also an investment option like property or shares.

Where can I get Bitcoin?

There are two ways for you to own Bitcoin: You can buy them or you can mine them.

How to buy Bitcoin

Think of this as buying another currency when you’re going on holiday. You can buy Bitcoin using Australian dollars either online or in person. There are places in Australia where you can deposit cash at a bank at the Bitcoin will be automatically sent to you.

The other way for you to buy bitcoin is to either use a Bitcoin exchange. A Bitcoin exchange, like all cryptocurrency exchanges work like the stock exchange. These are online sites where you would exchange Australian dollars for Bitcoin at a pre-decided price.

How to mine Bitcoin

Mining Bitcoin refers to the process of creating Bitcoin. Think of this as similar to when the bank prints new currency notes and creates money. The difference being that, since Bitcoin is decentralised and not controlled by a single authority, anyone can theoretically create a Bitcoin. Mining bitcoin is done using specialised computer hardware to join a secure network and solve mathematical problems. So you are using your computer’s processing power and electricity to “mine” Bitcoin. Today thought Bitcoin mining has become a specialised activity controlled by a few global companies and it isn’t feasible to mine Bitcoin at home using your computer effectively making the only effective option to buy Bitcoin

What can I do with Bitcoin?

Bitcoin currently works exactly like money is expected to work. You can either spend it to buy things or invest in it expecting it to become more valuable.

Buy things

There are places both in Australia and online where you can spend Bitcoin exactly like you would any other currency. Sites like Overstock.com offers Bitcoin like a payment option alongside PayPal and credit card.
Pay your bills

With the Living room of Satoshi or Hive Spend, you can pay all your utility bills using Bitcoin. The site ties cryptocurrency to the familiar BPay allowing you to pay off your electric bill or your mobile phone bill using Bitcoin.

How do I invest in Bitcoin?

There are two ways to invest in Bitcoin – directly or as part of an index portfolio. What we mean by investing in Bitcoin directly is to buy Bitcoin from an exchange. You would then hold on to Bitcoin with the expectation that it would increase in value.

Index portfolio with Bitcoin

What an index portfolio does is track the market activity. Currently there are over 1500 cryptocurrencies with Bitcoin being the largest in terms of value. Investing in Bitcoin as part of an index portfolio allows you to diversify and spread the risk out by investing in more cryptocurrencies than just Bitcoin.

Chillur offers an index portfolio of the top 10 cryptocurrencies by market capitalisation. What this means is that instead of investing $10 in Bitcoin, you would spread it out over 10 different currencies. Passive investing implies that you don’t try to chase the market movement but simply follow the market.

Where do I keep my Bitcoin

Your Bitcoin can be stored in specialised software called Bitcoin wallets. Bitcoin wallets can be computer software that sit on your desktop or laptop. They could be mobile software that sit as apps on your mobile phones. Or they could be hardware devices, which are physical devices – like pen drives – that you would load the Bitcoin onto. This gives you the xtra comfort of actually being able to carry your Bitcoin along with you – just make sure it doesn’t fall out of your pocket.

How did Bitcoin start

2008

The mysterious Satoshi Nakamoto wrote a paper that described a currency supported by a computer network and cryptography. This paper was the source for the concept of the first popular cryptocurrency, Bitcoin.

2009

A year later, people were able to create Bitcoin for the first time by using their computers to join the secure network and mine the cryptocurrency.

2010

The first known, recorded exchange was made where 10,000 Bitcoin were traded for two pizzas. Today, those damn pizzas would be worth $100 million!

2011

New cryptocurrencies emerge. Litecoin being the most well known of that batch

And the rest, as they say… is history.

What does the future hold for Bitcoin?

In short – Your guess is as good as anybody else’s. There are as many self-professed experts who are completely convinced that Bitcoin could be the currency of the future that is used by millions around the world for all of their payments. There are those who see it the currency of the Internet and then there are those ‘experts’ who call it a scam like the beanie babies of the 1990s. And then there are those who believe Bitcoin could hold the same place as art or fancy cars – investments that people would pay money for but it’s not for everyone.

Right now, millions of people around the world are investing their money on Bitcoin. Some of them are lured by the incredible price increase that the currency saw in the years 2016-2018 and don’t want to miss out. Then there are millions who would not want anything to do with Bitcoin and who agree that it could all be a joke.

The best way to find out just what the future holds for Bitcoin is to be a part of it. And one way to explore this new technology is to invest a small amount of money into Bitcoin and see where the road takes you.