The Basics Of Bitcoin


You have probably visited our site, because you are interested in bitcoin and want to learn bitcoin basics, before you decide whether or not to invest in it or not.

What Exactly Is Bitcoin?

First things first, let’s discuss exactly what bitcoin is – the short answer is that it is money. There is a lot of debate over whether it actually is money or not.

One of the problems people have with referring to bitcoin as money is because it is intangible – that is, there is nothing visible to show for it, other than numbers on a computer screen. For most, money is the stuff you can see, such as coins, paper notes; but also credit and debit cards too. Most also have a concept of when they are in possession of money, when they are close to running out and how to obtain more.

If you are like the people above, you probably also understand the price of things in your local currency. This could be anything from groceries to car fuel and other essentials that you might purchase from one week to the next.

Even if you can’t define it in simple terms, it’s probably safe to say that you have a good handle on what money is and how it works. Bitcoin is a new form of money, a digital form.

What Actually is Money Though?

This is where it can get a little tricky to follow though, when thinking about bitcoin basics, what actually is money?

Money has three basic uses traditionally:

  • Value store
  • Account unit
  • Exchange medium

In its capacity as a value store, money is the thing you put aside in the present to use at some point in the future. Generally speaking, a good value store is money with the same or similar value in the future that it was in the present. As they are a good value store, silver and gold have been used as this kind of money.

While dollar bills are a reasonable value store, you have to be careful, as you are probably aware, because the currencies of countries throughout the world tend to fluctuate in value. Bitcoin incidentally is a generally good value store because it has increased in value since 2010 and even though it went down in value from 2013, most of the time it has the same value as it did the previous day.

Account units are a very simple way of keeping track. Money that you have in your bank account is kept in your local currency and is yours to keep.

Speaking of money as an account unit refers to the fact that you use it to track bank accounts, pensions and debts. You can use it to determine how much money you have access to. Credit cards have credit limits so you know exactly how much money in your local currency you can access.

When it comes to bitcoin basics, credit cards are a good example of money not always being tangible – something you can actually see and touch. As we noted earlier, bitcoin is digital and not physical.

As an exchange medium is one of the most common uses of money. All this refers to is the fact that you use money to purchase and sell services and goods. Some you can get for discounted prices, some the prices have to be negotiated on. However, if you don’t have enough or the right currency for the thing you want to buy, you can’t get it and it is almost like not having money at all.

Interestingly though, bitcoin can be used in various different places for different goods and services and is not determined by local currencies.

Money is obviously exchangeable. For example, if you have one kind of money, it is possible to exchange it for a different kind of money. This is what happens when you travel outside of your own country, you can exchange your local currency for the equivalent value of the visiting country’s currency. Bitcoin is no different to other forms of money and can be used in other countries. So even if your bitcoins are accounted for in your own currency you can check how much they are worth in other countries.

Bitcoin Basics – Some Important Terms

If you are completely new to Bitcoin, you will find once you start researching and browsing Bitcoin websites, like this one and many others, that there are a lot of terms and phrases that come up again and again.

To help you understand some of the most relevant, we will highlight these in the glossary below.


If there is one thing that is most important when it comes to money, it is what can you buy with it. Typically, this means almost anything, especially if you are shopping in your own country using your own currency.

With this in mind, while you get a grasp on bitcoin basics, it’s worth noting that over the last decade or so, cryptocurrency such as bitcoin has experienced an increase in acceptability. More and more companies and organizations are accepting this as a form of currency in exchange for a wide range of products and services.


One of the most important terms you need to get a grasp on when looking at bitcoin basics is blockchain. This term is mentioned again and again on articles, reviews and anything discussing bitcoin. What is blockchain then? This is the public, open source ledger for transactions that tracks all transactions involving bitcoin.

While you are able to download Bitcoin Core to check out the complete blockchain, it should be noted that this is now in the region of tens and hundreds of gigabytes of data.


Cryptocurrency is the umbrella term used for digital currencies like Bitcoin. Bitcoin was the original and is still the most commonly used. Basically, cryptocurrencies use cryptography-based maths. In particular, the hash function. Cryptocurrencies are also commonly referred to as cryptocoins and along with bitcoin, there are many others including Reddcoin, DarkCoin, Dogecoin and Litecoin.


Bitcoins, like other kinds of commodities, are interchangeable. What we mean is, an ounce of pure gold has the exact same value as a different ounce of pure gold. In the same way, one bitcoin is worth the same as another one bitcoin.

You are even able to collect and accumulate smaller portions of complete bitcoins. Along with being fungible though, when looking at the bitcoin basics, it’s also good to know that they are incredibly divisible. This means that you can divide a complete bitcoin into smaller segments – as small as 8 decimal places. Therefore, the smallest portion of bitcoin that can be used in a transaction is 0.00000001 BTC.

Hash Function

One of the fundamentals of bitcoin basics is maths and the most important mathematical function used is Hashcash. This was created by Adam Back in 1997. In short, hash function applies to inputs and generates outputs. With Bitcoin, the hash function is known as SHA256. What does the SHA stand for? Secure Hash Algorithm. SHA-2 is the name of the hash functions family that the National Institute of Standards published. For the basis of understanding the bitcoin basics, the hash function should be something that is almost impossible to invert.


As with all modern technologies, keeping them safe and encrypted – especially where sensitive information and financial transactions are concerned – is essential. Bitcoin is no exception. Although this new data stream is apparently quite safe because everything is registered in the blockchain and verified independently and randomly, there have been some quite major breaches of security in 2017/18 which have called crypto-safety into question. Hacks can and have occurred, and will continue to do so until a point is reached where encryption is so tight that it is impossible to be accessed without taking over the whole blockchain and all of its intricate components.


Despite what you may have heard or previously believed, Bitcoin is a completely legal form of currency. Not only is it legal to own it and use it, it is also legal for trading with. While it is true that some people choose to use Bitcoin for illegal purposes, this is no different to other forms of money. The actual truth of the matter is that, contrary to popular misconceptions, Bitcoins are not nearly as popular with criminals and those taking part in illegal activities, as a form of currency, when compared to the good old-fashioned American dollar.

Although there is obviously a lot more you can learn when it comes to bitcoin basics, we hope this introduction has proved insightful.