Bitcoin Series #1 - The Basics

Summary

  • Bitcoin is on a massive uptrend, and now carries a $118.5 billion market capitalization.
  • This article will be the first of a series. The series will cover well-known facts about bitcoin along with many lesser-known facts.
  • After you go through all of this series, you should be able to understand what you need to understand, regarding using or investing in bitcoin.

I’ll be doing a series on Bitcoin to highlight both what it is, what it aims to be, and what its structure implies for the future of Bitcoin. This will be spread out over several articles.

I’ll start with the basics. The basics, of course, will be well known for most ardent Bitcoin fans, but I doubt they’re as easily perceived by the common investor. Thus, bear with me here as this will be the one article in the series where I’ll bring the fewest original thoughts.

The Basics – What Is Bitcoin?

Bitcoin is a digital currency launched in January 2009, whose main distinguishing characteristic is that it’s based on a peer-to-peer network creating a distributed ledger using a technology termed “blockchain”.

That is, Bitcoin’s main characteristic is that there is no central administrator creating the digital currency, saying who holds what amount of currency or relaying transactions. Instead, all of these functions are performed by the peer network itself.

This is in opposition to traditional currency, where currency creation is left to a central bank or a deposit-bearing financial institution (bank) when making loans. Likewise, the central bank and financial institutions centralize the records of who holds what amount of currency, and relay transactions between themselves for their clients. Today, the overwhelming majority of currency is digital, so Bitcoin being digital is not a distinguishing feature (hence, talk about digital currencies is gibberish).

In Satoshi Nakamoto’s (the supposed creator/creators) words, Bitcoin is:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

Blockchain And Miner Compensation

To achieve its peer-to-peer nature, Bitcoin implements a distributed ledger by using blockchain technology.

The blockchain is, as the name says, a chain of data blocks. Each block is

This article was written by

Paulo Santos profile picture
23.78K Followers
Author of Idea Generator
Our goal is to beat the S&P500 and to provide consistent positive returns.

Portuguese independent trader and analyst. I have worked for both sell side (brokerage) and buy side (fund management) institutions. I've been investing professionally for around 30 years.

I have a Marketplace service here on Seeking Alpha called Idea Generator that's focused on deep value, real-time actionable ideas based on valuation and catalysts. The Idea Generator portfolio has beaten the S&P 500 by more than 74% since inception (2015).

I can be reached at paulo.santosATthinkfn.com.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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