Bitcoin for Beginners: How Bitcoin Works

Bitcoin is a digital currency that operates independently of a central bank. It's decentralized, meaning it's not controlled by any government or financial institution. Instead, it relies on a network of computers to verify transactions and maintain the integrity of the system. 

In this article, I'll explain the basics of how bitcoin works, including proof of work, and the role of miners in the Bitcoin network. Whether you're new to bitcoin or just looking to brush up on your knowledge, this article will help you understand the fundamentals of this revolutionary network.

What is Bitcoin?

Bitcoin is a digital currency that allows for peer-to-peer transactions without the need for a central authority, such as a bank or government. It was created in 2009 by an unknown person or group using the name Satoshi Nakamoto when the Bitcoin Whitepaper was released.

Bitcoin transactions are recorded on a public ledger called the blockchain, which is maintained by a network of computers around the world. The supply of bitcoin is limited to 21 million, with new coins being created through a process called mining. 

Overall, Bitcoin offers a decentralized and secure way to transfer value without the need for intermediaries.

How does Bitcoin work? – The Basics

Bitcoin operates on a decentralized network of computers that keeps a public record known as the blockchain. Transactions are verified and recorded on the blockchain by a network of miners, who are rewarded with newly created bitcoins for their work.

Proof of Work vs Bitcoin Mining

Proof of work is a  mechanism used by the Bitcoin network to confirm transactions and add new blocks to the blockchain. The basic idea behind proof of work is that bitcoin miners must solve a complex mathematical puzzle to prove that they have done the work necessary to add a new block to the blockchain.

If a miner successfully solves the puzzle, they broadcast their solution to the network, and the other nodes on the network verify that the solution is correct. Once the solution is verified, the block is added to the blockchain, and the miner receives their reward.

The Benefits of Using Bitcoin.

The fact that Bitcoin is resistant to censorship gives room to explore how it works and its benefits– which are further discussed below;

Decentralization

Bitcoin operates on a decentralized network, meaning that no central authority controls the currency or the transactions. This means that Bitcoin is not subject to government or financial institution interference or manipulation, providing users with greater financial autonomy and privacy.

Speed & Security

Bitcoin transactions are secured using cryptographic encryption, making them resistant to hacking or fraud. Transactions through the lightning network are also fast and irreversible, making it more difficult for fraudsters to reverse or alter payments. 

Lower transaction fees

Bitcoin transaction fees are generally lower than those charged by traditional financial institutions, making it a more cost-effective way to send and receive money.

Global Accessibility

Bitcoin can be accessed from anywhere in the world, even with the use of feature phones. This makes it an ideal solution for individuals who need to transfer money internationally.

Transparency

All transactions on the Bitcoin blockchain are transparent and can be viewed by anyone. This provides a level of transparency that is not available with traditional financial institutions.

How to get started with Bitcoin on Bitnob.

Getting started with Bitcoin on Bitnob is easy. When you create an account with Bitnob, you’re automatically provided with a BTC and USD wallet. So you can start buying, receiving, and sending bitcoin. Below is a detailed tutorial on how to get started with bitcoin on Bitnob;

Download Bitnob to Create an Account

Buying and selling bitcoin starts with using a bitcoin app that will make trading easy for you. You can start by downloading Bitnob from the App Store or Play Store to explore several possibilities. 

Next is to create an account and complete your KYC, and in a few minutes, you have your Bitnob account up and running. If you have further questions or concerns, check here to get your answers quickly.

Fund your USD Wallet

Following the creation of your Bitnob account, the next step is to fund your USD wallet, as this is where your money will be taken from to buy bitcoin.

Step 1: Tap on “Deposit”

Step 2: Tap on “Fund with Local Currency”

Step 3: Enter the amount you want to fund your wallet with and tap on “Continue”.

Currently, the Bitnob app supports naira, Ghana cedis, and Kenyan shillings. But in this case, make sure “Nigerian Naira” is selected.

Step 4: Fill out the security questions

You’ll be presented with 3 security questions to help guide you on the proper way to fund your USD wallet. Make sure you answer the questions correctly. 

Step 5: Make payment using the payment details provided. Once payment is made tap on “I have made this payment”

Just like that, you have successfully funded your USD wallet on the Bitnob app. 

Buy Bitcoin on Bitnob

After you've funded your USD wallet, buying bitcoin is next. To do this, simply follow the simple steps below. 

Step 1: Tap on “more” in the quick links section and then tap on “Buy Bitcoin”

Step 2: Enter the amount you want to buy and tap “Continue”.

Step 3: Input a transaction note to help you remember your transaction and tap "Next".

Make sure you check the transaction summary for any corrections.

Step 4: Review the transaction summary, then tap on “Complete Purchase” and voila you have successfully bought your bitcoins.

After the transaction, your USD wallet will be instantly debited, and your BTC wallet will be credited. We have also created a guide on the things to consider before buying your first bitcoin.

Create a Bitcoin Savings Plan [Optional]

You can set up a bitcoin savings plan in addition to buying bitcoin and funding your USD wallet. Let me take you through it.

Step 1: Tap on “more” in the quick links section and then tap on “Savings”

Step 2: Tap on “Create Savings Plan” and Select “Bitcoin Savings”. Then, give your plan a name.

Step 3: Select an amount that you’ll be saving. You can start with as little as $1.

Step 4: Set your savings frequency. You can choose to save every day, once a week, or once a month.

Step 5: Set a lock period for your savings. It could be 3 months, 6 months, or a year. 

Step 6: Pick a start date for your savings. Then select a funding source, which is your USD wallet. Then, select Start Plan, and you're all set!

Bitcoin and the Dollar Cost Average Strategy

If you are just starting on your bitcoin journey, we always advise that you adopt the Dollar Cost Average strategy [DCA]. This is when you set aside an amount– $5 for example, and you make regular daily purchases of $5 worth of bitcoin regardless of its market value. Let’s take a quick look at the benefits of the DCA strategy;

• Reduces the impact of market volatility: Dollar cost averaging helps to smooth out the impact of short-term fluctuations in the Bitcoin market, reducing the risk of buying at a high point.     
   
• Disciplined approach to investing: By investing a fixed amount of money at regular intervals, you develop a disciplined approach to investing in bitcoin, which can help you avoid emotional decisions based on short-term market movements.     
   
• Can lead to a lower average cost per coin: Since you are investing at regular intervals, you are more likely to buy Bitcoin at a lower average price per coin than if you invested a lump sum at a single point in time.

• Encourages long-term investing: Dollar-cost averaging is a strategy that is best suited for long-term investors who are willing to hold their Bitcoin investments for an extended period, which can lead to greater potential returns over time.

• Easy to implement: Setting up a dollar-cost averaging strategy is straightforward and can be done with most exchanges or brokerages. It requires less time and effort compared to actively managing your investments.

Bitcoin is Freedom

Bitcoin offers a level of financial freedom that is not available through traditional financial systems. It allows you to bypass restrictions, maintain control over your finances, and enjoy greater privacy and security in these transactions.

If you have been able to grasp in detail how bitcoin works, you can start your bitcoin journey safely by using Bitnob to buy, sell, receive, and store bitcoin as a beginner. Go ahead to share this article if you found it helpful.