This course provided by One Month is intended to be an introduction for us to understand how to get started with Bitcoin, Blockchain, Altcoins, Ethereum, and much more. Giving us the ability to speak confidently with friends and co-workers, and be able to answer that most frequently asked question: “Should I buy Bitcoin?” The following are the notes I took during this course.
1. What is Bitcoin?
Bitcoin is two things: it’s a digital currency, and a technology.
Digital Currency: Most of us don’t actually have money physically in a bank. Most of the ‘money’ we make and spend is moved and managed digitally. If you use direct deposit, money is moving between you and you’re company digitally. The US dollar and most other national currencies are just as digital as Bitcoin.
Bitcoin (BTC): It is not a coin! But it is a digital currency. you can send someone bitcoins much faster, more safely, and without the middlemen or fees associated with traditional banking - because it is controlled by a network of people, not one single authority.
Coinbase: A site where you can buy and sell bitcoins.
2. How does the Bitcoin technology work?
The Bitcoin technology (known as the blockchain) revolutionizes how we share data, and identity across the Internet.
Decentralization: No permission is needed from a central authority to post anything on the web, there is no central controlling node, and so no single point of failure.
Blockchain is a combination of proven technologies applied together to allow folks to share decentralized information without compromising their identity, including:
- Private Key Cryptography: Kind of like a username and password for you’re identity. You have a public key, which anyone can access, and is a big hashed number. The private key is you’re password and allows you to access it. We get the term Cryptocurrency from this.
- P2P Networks: It means peer to peer network, and basically means that everyone holds a little bit of information so that everyone can see what everyone else has. BitTorrent works this way.
- The Blockchain Protocol : This puts the blocks of identity together so that they build on top of each other and are tied together.
Bitcoin’s innovation is that it allows many entities who do not know one another to reliably reach consensus about the state of the bitcoin blockchain.
3. Where did Bitcoin come from?
Digital Currencies Before Bitcoin: Digicash (1990), Hashcash (1997), B-Money (1998), BitGold (1998).
Bitcoin White Paper: Satoshi Nakamoto released a Bitcoin white paper in 2008. The 8 page paper announced the vision for a decentralized digital currency.
In January 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins, with Satoshi Nakamoto mining the first block of bitcoins ever (known as the genesis block), which had a reward of 50 bitcoins.
The First Bitcoin Transaction: On May 22nd 2010, Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas.
In June 2011 Wikileaks began to accept bitcoins for donations.
By December 2013, Mt. Gox, a bitcoin exchange based in Tokyo, Japan, was handling over 70% of all bitcoin transactions worldwide, as the world’s leading bitcoin exchange. However in March 2014, Mt. Gox announced that approximately 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time.
As of August 2015 it was estimated that 160,000 merchants accept bitcoin payments.
In August 2016, a major bitcoin exchange, Bitfinex, was hacked and nearly 120,000 BTC (around $60m) was stolen.
On August 1st, 2017 bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and the Bitcoin Cash (BCH).
4. How to buy your first bitcoin (BTC)
Set up a Coinbase account and follow the Coinbase Payment Methods , With $5 USD you can purchase a percentage of one bitcoin.
There will also be a miners fee. Miners are essentially the bookkeepers that verify bitcoin transactions, and the miner that verifies you’re transaction will be paid a small fee.
In Coinbase, you can set up your bitcoin wallet to only receive bitcoins, and well as to send bitcoins to other people. Your wallet address is almost like an email address, so when people send you money, they use your wallet’s QC code or hash.
When you want to send money from your wallet, you’ll put in the person in question’s address. The fees involved should be pretty low, and the transfer should happen pretty quickly.
5. Public keys and Private keys
Your bitcoin address is a Public Key. And it is publicly viewable on the blockchain. So Bitcoin isn’t anonymous, not really. There is a record of everything you do with your public key.
But don’t panic. The level of public access only stretches as far as the address your sending/receiving with. If you use a new address for every transaction, there won’t be a consistent purchase history.
The truth is, you never own bitcoin. All you own is a private key.
A private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. It is, more or less, your password. If you’re on Coinbase, the site holds onto your private key for you, and you get access to it by logging in. Which makes Coinbase kind of like a bank.
6. Never leave your money at the exchange
Three reasons why you should never leave your money in Coinbase, Kraken, Poloniex or ANY online exchange.
Private keys are vulnerable if you leave them in centralized places (like Coinbase) with a lot of valuable data. For hackers, banks are like honey pots. They will try much harder to break into a honeypot because there’s so much honey inside!
They’re’s also government regulation to consider. Because Bitcoin is decentralized, no one government can put a stop to it. But the government could come in and freeze all you’re assets in coinbase, or certain state regulations may hamper your ability to send and receive bitcoins.
And finally, there are the exchanges themselves, which can have human-error issues of they’re own.
How not to lose your coins: Move money into your cold wallet storage; Have a backup of you’re password & check on you’re backups; Use a password manager like 1password.com; Use 2-Factor Authentication.
7. Hot wallet vs. cold wallet
Hot wallet refers to any cryptocurrency wallet that is connected to the internet. Generally hot wallets are easier to set up, access, and accept more tokens. But, hot wallets are also more susceptible to hackers, possible regulation, and other technical vulnerabilities.
Cold storage refers to any cryptocurrency wallet that IS NOT connected to the internet. Generally cold storage is more secure, but they don’t accept as many cryptocurrencies as do many of the hot wallets. Cold storage devices (aka. Trezor, Ledger) also cost close to $80 USD, whereas hot wallets are free.
- Cold Wallets: Trezor or LedgerWallet
- Hot Wallets: coinbase or Any exchange would be considered a hot wallet.
8. Bitcoin vs. Ethereum
Altcoins are an “alternative to Bitcoin.” Bitcoin is open source, so anyone can go to Github and download it and make their own coin.
It’s important to understand that there are two categories of digital coins: Cryptocurrencies (e.g. Bitcoin, Litecoin, ZCash, Monero, etc) and Tokens (e.g. Ethereum, Filecoin, Storj, Blockstack, etc.).
Bitcoin is a “Cryptocurrency”. Bitcoin and other cryptocurrencies are competing against existing money (and gold) to replace them with a truly global currency.
Tokens are another type of altcoin. One of the most popular tokens is Ether, which is on the Ethereum blockchain.
Ethereum is a “Token”. What Bitcoin does for money, Ethereum does for contracts. Ethereum’s innovation is that it allows you to write Smart Contracts: basically, any digital agreement where you can say “if this” happens, “then something else happens.” Up until now, we’ve carried out these agreements with a signature at the bottom of a paper document. Ethereum dramatically improves this model because it is digital, and proof of the transaction can never be deleted.
Bitcoin (BTC) | Ether (ETH) | |
---|---|---|
What is it? | A currency | A token |
Inventor | Satoshi Nakamoto | Vitalik Buterin, Joseph Lubin, Gavin Wood, etc. |
Went alive | January 2009 | July 2015 |
Supply Style | Deflationary (a finite # of bitcoin will be made) | Inflationary (much like fiat currency, where more tokens can be made over time) |
Supply Cap | 21 million in total | 18 million every year |
Smallest Unit | 1 Satoshi = 0.00000001 BTC | 1 Wei = 0.000000000000000001 ETH |
New token issuance time | Every 10 minutes approximately | Every 10 to 20 seconds |
Amount of new token at issuance | 12.5 at the moment. Half at every 210,000 blocks | 5 per every new block |
Utility | Used for purchasing goods and services, as well as storing value (much like how we currently use gold). | Used for making dApps (decentralized apps) on the Ethereum blockchain. |
Price | Around $18,000 (in 2020) | Around $610 (in 2020) |
Purpose | Bitcoin is a new currency created to compete against the gold standard and fiat currencies | Ethereum is a token capable of facilitating Smart Contracts (For example a lawyer’s contract, an exchange of ownership of property, and voting) |
Ether is not as popular as BTC for purchasing goods. At the moment ether is mainly being used by developers building applications on top of it. Over time, and as more apps are developed, the value of ether will likely move from being speculative (as it is now), to more useful in everyday life.
Ethereum is a token that allows other tokens to be created on top of it using the Ethereum standard (officially called the ERC-20 Standard). So you’ll see tokens like OMG come out, which are new tokens created on the Ethereum Network.
Buying or having ETH isn’t what makes a smart contract. Smart Contracts in Ethereum are written using a coding language called Solidity. It’s very similar to JavaScript. With Solidity you can write contractual logic.
In order to confirm that transaction as valid, you pay the miners in ETH, the ETH miners works similarly to BTC. You’ll see the word “gas” used for the payment. Gas is the name of the execution fee, and it’s paid in ETH.
Is it possible to trade bitcoin into Ethereum? Yes. You can use ShapeShift so that you can exchange your bitcoin for almost any altcoin.
9. The 5 Investors in Bitcoin
There are 5 types of people that invest they’re energy into bitcoin. The user, miner, developer, investor, and business owner.
- The User: Anyone who has a Bitcoin account, and has a general education about it.
- The Miner: An entirely different stakeholder in Bitcoin, and involves a lot of hardware setup and use.
- The Developer: People who contribute code to the project, build things that use Bitcoin, write in Solidity (Ethereum’s language), or otherwise work on the Blockchain.
- The Investor: Speculators of the 21st century, folks investing with a focus through making money on Bitcoin, or other initial offerings (ICOs) for Altcoins. Coinbase Pro (formerly GDAX) is a great tool for investors.
- The Business Owner: Someone who owns a business and wants to accept Bitcoin. If you use Stripe, it’s really easy to turn it out. And Coinbase has a payment processing system as well. Fees will tend to be less than credit cards, and the more payment options you have, the more people who might be able to buy your products.
10. Resources for going deeper
Books:
- The Internet of Money, by Andreas Antonopoulos
- The Age of Cryptocurrency, by Paul Vigna
More ways to keep learning:
- The Quiet Master of Cryptocurrency — Nick Szabo Tim Ferris Podcast
- The Rise and Rise of Bitcoin Documentary
- Coindesk.com