How Many People Lost Money When Bitcoin Dropped

What is Bitcoin? A Complete Beginner'southward Guide

By: Ofir Beigel | Last updated: one/13/22

Want to know all there is to know about Bitcoin? Hither at 99Bitcoins we translate Bitcoin into plain English so even if you lot have no technical background you'll be able to understand everything! In today's mail service I'thousand going to give you a simple, plain English explanation about what Bitcoin is and why information technology's then revolutionary.

Don't like to read? Watch our video guide instead!

What is Bitcoin Summary

Bitcoin is the first decentralized digital currency. All Bitcoin transactions are documented on a virtual ledger called the blockchain, which is accessible for everyone to see. Bitcoin gives you complete control over your money, dissimilar other assets you own which are regulated by banks and governments. Equally bitcoin gains more popularity, more than and more places take it equally a payment method.

If you lot want a more detailed explanation nigh Bitcoin keep on reading, here's what I'll cover:

What is Money?
- Newspaper Money
- Fiat Money
Transitioning to Digital Money
Centralized Money
What is Bitcoin?
Bitcoin Compared to banks?
Oft Asked Questions
- Who Accepts Bitcoin?
- How Does Bitcoin Work?
- Why does Bitcoin Have Value and How is it Adamant?
- Tin Bitcoin be Converted to Cash?
- How do I Buy Bitcoin?
Conclusion

i. What is Coin?

Before we talk near Bitcoin I need to take a moment and talk about coin. What is money exactly?

At its core, coin represents value. If I do some work for you, you give me money in commutation for the value I gave yous. I tin then use that coin to get something of value from someone else in the future.

Throughout history, value has taken many forms and people used a lot of different materials to represent money. Salt, wheat, shells and of course gold accept all been used as a medium of exchange.

Even so, in order for something to correspond value, people have to trust that it is indeed valuable and will stay valuable long enough for them to redeem that value in the hereafter.

Paper Money

Up until a hundred years ago or so we always trusted in someTHING to stand for coin. Yet something happened forth the way and we've changed our trust model from trusting someTHING to trusting in someONE.

Permit me explain.

Over time, people found information technology too cumbersome to walk around the earth conveying confined of gold or other forms of coin, then paper money was invented.

Hither's how information technology worked: a bank or regime would offer to take possession of your bar of gold; let's say worth $1000, and in return, that bank would give you lot receipt certificates, which we call bills, amounting to $one thousand.

Not only were these pieces of paper much easier to bear, but you could spend a dollar on a cup of coffee and non have to cut your aureate bar into a thousand pieces. And if you wanted your gold dorsum, you simply took $1000 in bills dorsum to the banking company to redeem them for the actual class of money, in this case that gold bar, whenever you needed…

And so, paper began its use equally money as an instrument of practicality and convenience.

Withal as time progressed, and due to macroeconomic changes, this bail betwixt the newspaper receipt and the gold it stands for was broken.

At present, to explain the path that led us abroad from the gold standard is extremely complex, just suffice to say that governments told their people that the government itself would be liable for the value of that paper coin. Basically nosotros all said "permit's just forget about golden and trade paper instead".

So people continued to trade with receipts that are backed by nothing only the government's hope.

And why did information technology proceed to work? Well, because of trust. Even though there is no actual article backing paper money, people trusted the authorities and that's how fiat coin was created.

Fiat Money

Fiat is a Latin word that ways "by prescript". Meaning the dollars, or euros or any other currency for that thing have value because the authorities orders it to. Information technology'due south what is known as "legal tender" – coins or banknotes that must be accustomed if offered as payment.

So the value of today's coin actually comes from a legal status given to information technology by a central authority, in this case, the government. Then the trust model has changed, from trusting someTHING to trusting someONE (in this case, the regime).

Fiat money has 2 main drawbacks:

It is centralized – You take a central dominance that controls and bug it. In this instance the government or central bank.
Information technology is not limited by quantity – The government or central bank can print every bit much as they want whenever needed and inflate the money supply on the market. The problem with press money is that because y'all're flooding the market with more than money the value of each dollar drops, so your own money is worth less. When you lot see prices rising throughout the years information technology's not necessarily that prices are rising as much as that the purchasing power of your money is dropping. Y'all need more dollars to buy something that used to "cost less".

2. Transitioning to Digital Money

Once fiat money was in place, the move to digital money was pretty simple. We already have a central authorization that issues money, so why non make coin mostly digital and permit that authority keep rails of who owns what.

Today we mainly apply credit cards, wire transfers, Paypal and others forms of digital money. The corporeality of physical money in the earth is virtually negligible and is getting smaller with each year that passes.

Then if money today is digital, how does that fifty-fifty work? I mean, if I have a file that represents a dollar, what's to stop me from copying it a million times and having a million dollars? This is called the "double spend problem".

The solution that banks utilise today is a "centralized" solution – they go on a ledger on their computer which keeps track of who owns what. Everyone has an business relationship and this ledger keeps a tally for each account. We all trust the depository financial institution and the bank trusts their computer, and and so the solution is centralized on this ledger in this computer.

You may non know this, but there were many attempts to create alternative forms of digital currencies, however none were successful in solving the double spend trouble without a central authority.

3. Centralized Money

Whenever you requite anyone control over the money supply you're giving them enormous power and this creates three major issues:

Abuse

ability corrupts, and absolute power corrupts absolutely. When banks have a mandate to create money, or value, they basically control the menstruation of value in the world, which gives them nearly unlimited power.

A pocket-sized example of how power corrupts tin be seen in Wells Fargo's scandal where employees secretly created millions of unauthorized bank and credit card accounts in guild to inflate the banking company's revenue stream, without their customers knowing virtually it for years.

Mismanagement

If the primal authority's interest isn't aligned with the people information technology controls at that place may be a instance of mismanagement of the money. For example, printing a lot of coin in lodge to save a certain banking concern or establishment from collapsing, equally what happened in 2008.

The problem with press too much money is that it causes inflation and basically erodes the value of the citizen's money.

One farthermost case for this is Venezuela, where the government has printed and so much money, and the value of information technology has dropped so much, that people are no longer counting money just are weighing it instead.

Control

Y'all are basically giving away all command of your money to the government or banking company. At any point in time, the regime can decide to freeze your business relationship and deny you lot access to your funds. Even if you use simply common cold hard cash the government can cancel the legal status of your currency as was done in India a few years back.

This was the country of things until 2009. Creating an alternative to the electric current monetary organization seemed similar a lost cause. Merely then everything changed….

4. What is Bitcoin?

In October 2008 a document was published online by a guy calling himself Satoshi Nakamoto. The document, likewise called a whitepaper, suggested a style of creating a system for a decentralised currency called Bitcoin.

This arrangement claimed to create digital money that solves the double spend problem without the need for a fundamental authority.

At its core Bitcoin is a transparent ledger without a key potency , but what does this confusing phrase even mean?

Well, let'south compare Bitcoin to the bank. Since near money today is already digital, the bank basically manages its own ledger of balances and transactions. Notwithstanding the bank'due south ledger is not transparent and it is stored on the bank's main computer. You can't sneak a peek into the bank'due south ledger, and but the bank has consummate control over information technology.

Bitcoin on the other mitt is a transparent ledger. At whatever point in time I tin sneak a peek into the ledger and run into all of the transactions and balances that are taking place. The merely thing yous can't figure out is who owns these balances and who is backside each transaction.

This means Bitcoin is pseudo-bearding – everything is open, transparent and trackable but you still can't tell who is sending what to whom.

Let's explain this with an example. Before you tin run into certain rows from Bitcoin's ledger. We can see that a sure Bitcoin address sent ten,000 Bitcoins to some other Bitcoin address on May of 2010.

Bitcoin transaction

This specific transaction is the first purchase that was e'er made with Bitcoin and information technology was used to buy 2 pizzas by a guy named Laszlo. Laszlo published a mail back in 2010 request for someone to sell him ii pizzas in commutation for x,000 Bitcoins. Well, someone did, and now the price of these two Pizzas is worth well over 100 million dollars today.

Bitcoin is decentralized

in that location's no i computer that holds the ledger. With Bitcoin, every reckoner that participates in the arrangement is also keeping a copy of the ledger, also known every bit the Blockchain. And then if you want to take down the system or hack the ledger yous'll have to take down thousands of computers which are keeping a copy of it and constantly updating it.

Bitcoin is digital

This ways there'southward nothing physical that you can touch in Bitcoin. At that place are no bodily coins, in that location are only rows of transactions and balances. When y'all "own" Bitcoin it ways you own the correct to admission a specific Bitcoin address record in the ledger and send funds from it to a dissimilar address.

Why is Bitcoin such big news?

Well for the kickoff time since digital money came into existence nosotros now have an alternative to the current organisation. Bitcoin is a form of coin that no regime or bank can command.

Think about the fourth dimension before the Cyberspace, how centralized the flow of information was. Basically if you wanted information you could get it from a few major players similar the New York Times, The Washington Post and others like them.

Today, cheers to the Internet, data is decentralized and you tin communicate and swallow knowledge from around the world with the click of a button. Bitcoin is the Internet of money – it's offer a decentralized solution to money.

5. Bitcoin Compared to Banks

Here is why Bitcoin is different than the current banking system.

Complete control over your coin

With Bitcoin, you and you alone can access your funds (how you actually do this will be explained in a later video). No regime or bank can decide to freeze your account or confiscate your holdings.

Cutting the middlemen

This means that in many cases Bitcoin is cheaper to use than traditional wire transfers or money orders. Also, unlike fiat currencies Bitcoin was designed to be digital past nature, this ways you tin can add additional layers of programming on top of it and plow it into "smart money", but more on that in later videos.

Gratuitous for all

Bitcoin opens up digital commerce to 2.5 billion people around the globe who don't have admission to the current banking system. These people are unbanked or underbanked because of where they live and the reality they accept been born into.

Nevertheless today, with a mobile phone and a click of a button they tin kickoff trading using Bitcoin, no permission needed.

6.Frequently Asked Questions

Who accepts Bitcoin?

Today there are several merchants online and offline that accept Bitcoin. You lot can order a flight or volume a hotel with Bitcoin if you lot similar. There are fifty-fifty Bitcoin debit cards that allow you lot to pay at well-nigh any store with your Bitcoin residue. However the road toward acceptance past the majority of the public is still a long ane.

How does Bitcoin Work?

In a nutshell, Bitcoin works through updating a ledger of transactions (aka the Blockchain). Each computer that participates in the Bitcoin network holds a re-create of this ledger and verifies every transaction going through it.

Information technology's like we're keeping tabs on each other and each new transaction is announced to anybody so they can update their ain copy of the ledger. If you want a detailed explanation with examples nigh how Bitcoin works under the hood cheque out my post about Bitcoin mining.

Why Does Bitcoin Take Value and How is it Determined?

Bitcoin has value simply considering people are willing to trade money for it. Meaning somebody finds it valuable and decides to buy it from someone else. At that exact moment Bitcoin gained value.

Whenever people refer to Bitcoin'due south "toll", they are really referring to the price of the last trade conducted on a specific trading platform (e.one thousand. Bitstamp, Binance, Coinbase).

Unlike US dollars for example, at that place is no unmarried, global Bitcoin price that anybody follows. For instance, Bitcoin'southward price in sure countries can be different from its toll in the United states, since the major exchanges in these countries include different trades.

Generally speaking, as more people want to buy Bitcoin (i.eastward. demand rises) then the value of Bitcoin rises.

If less people desire to buy Bitcoin (i.due east. demand falls), and so they won't be willing to pay as much. In that case Bitcoin'southward value volition drib.

Can Bitcoin be Converted to Cash?

Yes. Several sites similar HodlHodl will allow you to find sellers of Bitcoin who accept cash. Additionally there are Bitcoin ATMs that accept bills and dispense Bitcoins in return.

If you're looking to catechumen Bitcoin to fiat currency but not necessarily cash (i.e. coins and bills) y'all can find a variety of trustworthy Bitcoin exchanges online.

How exercise I Purchase Bitcoin?

Go a Bitcoin wallet
Detect a Bitcoin commutation
Sign upwardly and verify your identity
Eolith money to the exchange
Trade your funds for Bitcoin
Withdraw the Bitcoins to your wallet

That'due south it! If you want a detailed guide well-nigh the process check out my guide on buying Bitcoin.

seven. Conclusion

Congratulations, you now know more about Bitcoin than 99% of the people effectually you! That wasn't and so hard, was it? Equally you tin can run into, above all Bitcoin was designed with ane thing in mind: To provide you lot a secure and individual way to gain back control over your money.

If y'all want to dig fifty-fifty deeper into how Bitcoin works at that place are additional posts well-nigh Bitcoin mining, Bitcoin wallets, how to buy Bitcoins and more than. The revolution of money began in 2009 and these days we are seeing it modify money equally we know it.

If y'all have any boosted questions or comments but exit them in the comment section beneath.

Source: https://99bitcoins.com/bitcoin/

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