📖 A beginner’s guide to Bitcoin

So, you’ve heard about Bitcoin and you’d like to dip your toes into the Bitcoin pool, but you’re not quite sure how to get started. 

We’re here to help – consider this guide your entry ticket to understanding Bitcoin. We'll cover the essentials in clear and simple terms to help you gain confidence as you learn to navigate the world of Bitcoin.

Okay, so what's Bitcoin?

Bitcoin was created in 2009 by Satoshi Nakamoto, a pseudonymous pioneer who envisioned a decentralized financial system where transactions are transparent and autonomous.

Essentially, Bitcoin is a form of digital money that operates without a central authority or banks. This means you can send Bitcoin to anyone across the globe without having to go through a financial institution.

It’s the first and most famous cryptocurrency – the star of the cryptocurrency world, if you will.

How does it work?

Bitcoin operates on something called the blockchain. Any time a Bitcoin is sent, a record of the transaction is kept on the blockchain.

To understand the blockchain, picture a ledger, the kind that’s used in accounting to keep detailed records of all transactions a company makes. Now, imagine a digital ledger, and instead of only being in one place, you have copies of it across thousands of computers around the world. 

This ledger is like an open book that anyone can read, but no one can erase or edit. Each “page” of this ledger is a block, and these blocks are linked together in a chain.

That’s the blockchain, a secure, fail-proof way to keep track of all Bitcoin transactions so that no one can send the same Bitcoin twice, or magically give themselves millions of Bitcoins.

How are new Bitcoins created, and what's mining?

New Bitcoins are created through a process called “mining”, though you mine with CPUs, not picks and hard hats 👷⛏️

Instead, it involves a network of computers (called “nodes”) trying to solve complex mathematical puzzles. Every time someone makes a transaction with Bitcoin, this information is broadcast to the network, and the computers all race to solve the puzzle.

If they solve it, they get shiny new Bitcoins as a reward. This process also helps secure transactions and verify them.

Is there a limited supply of Bitcoins?

Sure is. The total number of Bitcoins that can ever be mined is capped at 21 million. This was intentional, as it makes Bitcoin what’s called a deflationary asset. 

Unlike traditional currencies that central banks can print in an unlimited number, Bitcoin's fixed supply makes it resistant to inflationary pressures that can erode purchasing power over time.

In other words, the idea around limiting the total number of Bitcoins that can ever be mined was to create scarcity, which can drive up value, much like gold.

What's a Satoshi, or "sat"?

A Satoshi, also affectionately known as "sat," is the smallest unit of Bitcoin (0.00000001 Bitcoin, to be precise). Basically, sats are to Bitcoins what pennies are to dollars (but cooler). 

Sats allow you to buy or earn much smaller shares of Bitcoins. By accumulating sats (also known as “stacking”) over time, you can gradually build up a significant holding in Bitcoin, making Bitcoin more accessible to everyone, regardless of their budget.

For instance, an app like Shakepay allows you to start accumulating sats by purchasing Bitcoins even with a budget of only a few dollars, using the Shakepay Card for your everyday purchases, or shaking your phone to earn sats as rewards.

What’s a Bitcoin wallet address?

A Bitcoin wallet address is kind of like your email address, but for Bitcoin. It's a string of letters and numbers that allows people to send you Bitcoin. You can share your address publicly, but your wallet also keeps a private key – like a super-secret password – that lets you access and spend your Bitcoins.

With Shakepay, you can send or receive Bitcoin to or from someone else on Shakepay, or to or from an external wallet address.

We cover transaction fees for moving your money off Shakepay (what’s known as “miner fees” or “gas fees”), which means you can easily transfer your Bitcoins to or from various locations. This includes secure cold wallets, which are offline storage devices like USB drives that provide an extra layer of security against online threats.

If you’d like more information about sending or receiving Bitcoin from or to your Shakepay account, look here.

Are crypto transactions fully traceable?

Yes and no. While Bitcoin has a reputation in popular culture for being fully anonymous, it’s not actually true. All Bitcoin transactions are recorded on the blockchain, which makes them public and traceable. In practice, this makes Bitcoin one of the most transparent currencies ever invented.

Think of it this way: the address from which you send or receive Bitcoin functions a little bit like a pseudonym. Since all transactions involving this address are permanently recorded in the blockchain, if your address becomes associated with your real identity, transactions linked to that address could then be traced back to you.

If you’d like more information about Bitcoin and anonymity, look here.

Are crypto transactions irreversible?

Yup. Once a Bitcoin transaction is confirmed, it's set in stone – no ctrl + Zs 😅

This means you should always double-check the address before sending Bitcoins. If you send Bitcoins to the wrong address, we won’t be able to retrieve them for you or reverse the transaction, as it's final.

Just to be safe, you may want to send a test transaction first involving a very small amount.

If Bitcoin is anonymous, why do you ask for my personal information?

Many countries, including Canada, have laws in place to prevent money laundering and financial crimes. 

As Shakepay is licensed as a Money Service Business by FINTRAC and registered as a Restricted Dealer in all Canadian provinces and territories, we’re subject to rules and regulations that have been put in place.

Before we can give you full access to all of Shakepay’s functionalities, we have to verify your identity, which is why we ask for personal information like your name, address, and date of birth.

Verifying identities helps protect against fraud and watch out for suspicious activities.

Tips for Bitcoin beginners

Wrapping up

So there you go – you now know the basics of Bitcoin. 🎓

Whether you decide to buy some sats, shake your phone to earn rewards, or simply keep an eye on Bitcoin as it continues to evolve, you're now better equipped to understand the conversations around cryptocurrency.

If you want to dive deeper, the Security section of our blog contains tons of useful tips and tricks from seasoned Bitcoiners.

Happy Bitcoin-ing! 🚀