by Jeremy West
Updated Aug 5
This is a quick start guide to give you an overview of bitcoin. In order to better understand what bitcoins are and how they work, please read our detailed guide to understanding bitcoins.
Safety is a primary concern of bitcoin users. There are many factors that keep bitcoin highly safe.
Unencrypted wallets and online bitcoin wallets are subject to less security. Trading directly peer to peer requires trust. Measures must be taken to secure your computer and identity.
For more information see weaknesses and security.
No single person or institution owns or runs bitcoin. This is an important feature of bitcoin. It is decentralised and owned by the community through open source development. All balances and transactions are kept track of by the network of bitcoin users.
What are bitcoins backed by?
There is no central authority that guarantees the value of bitcoin. Bitcoins are, therefore, backed by the market that accepts them. As long as there is demand, bitcoins retain some value. How much demand there is compared with supply defines how great their value is.
The supply of bitcoins is subject to the rate of their generation by bitcoin miners and how many are available for trade.
As with any investment, purchase or trade, there is risk.
Yes. The value of bitcoin can change suddenly. There have been rises and falls in the value of bitcoin, but the general trend is more steady. Due to supply and demand bitcoins have increased in value over time.
Bitcoin value is simply defined by supply and demand. Imagine if the market was flooded with 10,000 luxury German cars, but there were only 10 people wanting to buy them. The cars would lose value.
Bitcoin works in the same way. If a long-time Bitcoin collector were to suddenly put 1,000,000btc on the open market, the value of Bitcoin would drop. The value would rise again as the available bitcoins were bought up.
There will be a finite number of bitcoins released, and they are released at a predetermined rate, this helps bitcoin retain value due to continued demand balanced with supply.
[DIAGRAM SHOWING VALUE DEFINED BY SUPPLY VS DEMAND]
You can use bitcoins like any other currency, but with some added features:
Bitcoins are “mined” at a pre-determined rate by powerful computers using a lot of resources to solve increasingly complicated mathematical problems.
If you would like to know more about bitcoin mining, please read our bitcoin mining guide.
Getting set up and started with bitcoin is easy. Just read our get started with bitcoin guide.