What is Bitcoin in simple words. Theory and practice

In this article we are going to give you as short and simple an overview as possible of everything related to cryptocurrencies. You can print out this text and show it to your grandmother, who has been asking "Grandson, why do they keep talking about Beethoven? He died a long time ago! What other money?". We have a treasure trove of knowledge at our website - The Cryptocurrency Bible, it contains all the information you need to understand what cryptocurrency is, how to invest, how to mine and so on. All materials are written in simple language, but not everyone wants to go that deep into the issue.

This text is unique because we have "dug through" so much information and present it to you in plain language. Stephen Hawking, who wrote a book on the complex aspects of the universe and the structure of the universe, A Brief History of Time Without Mathematical Formulas, has done it before. They say that for the Smolny Institute for Noble Maidens a certain scientist also wrote a book on physics without a single formula. Let us try to repeat their success, but not in physics, but in modern finance, or even more correctly, in the finance of the future.

Along the way we will link to the Cryptocurrency Bible articles we mentioned above, if you want to delve into any aspect of cryptocurrencies and understand them in detail. There are some simplifications in the text that you can "pick on" - we don't mind at all.Bitcoin - the first and main cryptocurrency
There are thousands of cryptocurrencies. The first cryptocurrency that appeared in the world - Bitcoin, in English Bitcoin, the short designation BTC. In this article, for simplicity, we will mainly talk about Bitcoin.
All other cryptocurrencies are clones of Bitcoin. They have been fully or partially copied, somewhere new ideas have been added. This is possible because Bitcoin's programming code is open to anyone - it's no secret. Anyone in the world can see how it is set up and works.

The Bitcoin code is on GitHub in the bitcoin repository.
You don't understand anything about programming? Don't worry, the authors of this article don't understand either, but that doesn't stop you and me from using cryptocurrencies.
By the way, here we make the first caveat. You and I have to take on faith what the programmers who came up with Bitcoin did. Should we be afraid of that? You shouldn't. You don't know exactly how your car is built, one by one, or how the computer in your car works, right? It's the same here. Programmers all over the world are eager to find any flaw in the Bitcoin network, so, believe me, if there was a bug, they would have found it a long time ago. We just trust the professionals who built our machine and tested it, it's the same with Bitcoin: millions of programmers in the world read and study Bitcoin code every day.

What is cryptocurrency, who controls it? Is it possible to touch Bitcoin?
Bitcoin - electronic money
Judging by the name "cryptocurrency," you know very well that we are talking about money. Only this money is "crypto", that is, encrypted in some way. What and how it is encrypted - at the moment we are not interested. Let's consider that cryptocurrency is electronic money.
What does electronic money mean? Look, normal currency is printed (bank bills) and electronic (bank account). When you transfer money from your account to a friend's account, when you pay utility bills through an online bank, when you pay with a bank card in a store - in all these cases you don't see money. They are somewhere virtually on some computer servers. You can't see it or touch it with your hands.

You can go and withdraw $5,000 at an ATM from your bank card and put it under your pillow. In this case your electronic virtual money will become real. You can touch it, admire it, hang it on the wall. You can't do that with Bitcoin. You can't go to the cash desk, cash your Bitcoin and put it under your pillow as a certain BTC coin. Of course, you can exchange Bitcoin to dollars and put dollars under your pillow, but it will be dollars.
Is it really scary? In our opinion - it's not scary at all.

How many Bitcoins and rubles in total
According to the Central Bank , a total of more than 25 trillion in cash has been printed. In addition, virtual electronic money is stored in bank accounts. How many of them are there? No one knows. It's a similar story with the ruble, the euro, the pound sterling or any other conventional currency. We do not know and can not control how much of it exists, and how much will exist tomorrow or in a year. The process of dollar issuance (issue) is not controlled and cannot be predicted by us. And at any moment, the government of any country can print more paper.
With Bitcoin, everything is much simpler. There are just under 19 million Bitcoins (BTCs) in the world right now. Approximately 900 new BTCs appear every day, but over time, the number of Bitcoins appearing decreases daily. In total there will be 21 million Bitcoins in the world, 20,999,999.9769 BTC to be more exact. That's it. No more, no less.

If the Bank decides to print 100 million, it takes it and prints it. It won't ask you or us. It won't work that way with Bitcoin. There will only be 21 million coins. You won't be able to "print" a couple more BTC later - it's impossible.
Who controls the currencies?
The common currencies are managed by countries' central banks. The Ruble is managed by the Central Bank of Russia, the Dollar is managed by the US Federal Reserve System, and the Euro is managed by the European Central Bank.

Bitcoin is not run by anyone. Bitcoin is an anarchic system. It has no boss, everything that happens in the system of this currency is described by software code. In the next chapter we will look in detail at how this is possible.
How does Bitcoin work? How transfers between regular money and Bitcoins work. What is mining and why is it needed?
Money Transfer
The transfer of regular money is controlled by banks. How does it work? Let's say you want to transfer 1,000 to your grandmother.  You go into the program or the bank's website on your phone or computer, enter your grandmother's card or bank account number, the amount to be transferred, confirm with an SMS if necessary - and voila, the money is in her account.
What just happened? You instructed your bank to send 1000 to your grandmother. Your bank took the 1000 from your account, sent it to your grandmother's bank. Your grandmother's bank then credited her account with the 1,000.

Can anyone but you and the bank find out that you transferred money to your grandmother? No, no one knows and cannot find out. Bank account information is not public, that is, available to everyone.
You can't even track the transfer. Has it arrived? Will it reach you in 20 minutes or 24 hours? Your grandmother will say, "Honey, I didn't get the money. The bank will tell you "the money is gone, wait". A completely non-transparent system.
Bitcoin transfer
All Bitcoin wallets are interconnected. They are constantly whispering to each other and passing each other information about all cryptocurrency transfers. Let's look at an example right away.
You have 1 BTC, you decide to transfer 0.1 BTC to your grandmother. Just like in case of usual money you have an account number (a wallet address) for your grandmother. You see, so far there is no difference, except that the Bitcoin account number has not only numbers, but also letters and more signs. The bank account number looks like 40817810099910004312, and the Bitcoin wallet address looks like 32qoXh82StQpvgCwhQdQdQpxoLTrcAX5EqyG.
You go into the program with your Bitcoin wallet on your phone or computer, type in your grandmother's address, the amount, and click send. You wait about 10 minutes, and the sent cryptocurrency is deducted from your account and ends up with your grandmother.

How did this happen? Your wallet sent the transfer information to all the other wallets. However, only passing the information is not enough. Someone has to execute (approve) the transfer. In the case of regular money, the banks did this. In Bitcoin, a computer or group of computers can do that. That computer gets paid for making the transfers.
However, it is not easy to become such a computer. You have to solve a complex mathematical problem which changes every 10 minutes, and the competition is very high. This process is called mining, more about it in the next chapter.
All data in the Bitcoin system is open to anyone. All transfer information is open. This information, however, is anonymous. For example from purse bc1q3hq0rrkzvw48fgs3c9ceyxvjwe9zn5z0y7pkgc transferred 0.0138 BTC coins to purse 14o9CArVto8yPfo5W4bMSM7spmEK9E1q3Z, this happened September 21, 2021 at 00:46. Anyone in the world can see that. There's no way grandma can excuse herself that the money didn't come. The bank will not say that it is on holiday and that the money will arrive tomorrow. You can see right away that your money has reached your grandmother and is in her wallet. You can go and show it to other family members, everyone can see your transfer and grandma's balance.
What is blockchain
In addition to the words "bitcoin" and "cryptocurrency," you've probably heard two other important concepts "blockchain" and "mining." Both are related to each other and are the basis of how cryptocurrencies work.
We have already said that data about all transfers in the Bitcoin system is available to everyone. This data is stored in a blockchain. Don't be intimidated by the term. Blockchain should be thought of as a ledger with each page numbered in order, with the time of its creation and a list of transfers that have been made at that point in time written on each page. A page in the book is called a block.

Example page of a book (block).
    Page number: 456701
    Time: November 3, 2017 08:08
    Address 1CKXsyrhF9zfzizZb1x9zwkHczjxNRc6by transferred 0.065 BTC to 15pRb5SZDLWNVuQx3PqcueYarHy3u83LdA.
    Address 1NuUvBpCSHCa2Ltsj4KEVF1wb1kK6xyZQz transferred 4 BTC to address 17G52MMSn9tadonQKbo2Ch6oB7PygUc6c7.
And so on.
For simplicity, we can just assume that John transferred 0.065 BTC to Elena and Kati transferred 4 BTC to Bob. By the way, this is the real data in Bitcoin network. You can see them at the link.
Similar ledgers have existed since the days of ancient Rome. However, blockchain has its own peculiarity. Once you close one page and start filling out a new one, you can't correct or change anything that was on previous pages. Never. That's why they talk about a "chain," you can't stick a page somewhere in the middle in such a ledger. It's impossible.
Let's make a ledger together, that is, a blockchain. We take a notebook with an infinite number of sheets and start writing from page one. All the wallets in the Bitcoin network talk to each other. We receive information:
    Igor transferred 2 BTC to Sergey
    Oleg transferred 3 BTC to Barak
    Andre transferred 4 BTC to Tolya
And so on. Of course, we have no names, but only impersonal addresses like 15pRb5SZDLWNVuQx3PqcueYarHy3u83LdA.

We record all the information on the first page of the notebook. The information about the transfers keeps coming in. We write.
    Masha transferred 1 BTC to Sveta
    Semen transferred 3 BTC to Kolya
    Nastya transferred 5 BTC to John.
We are writing further. However, as long as the page is turned over, all these transfers are invalid. How do I turn the page? Only a cryptocurrency miner can do this. You and I, not being miners, cannot do this in any way. We call a miner to help us, and he turns the page over and writes the time and his name on it, so to speak, autographs it. In addition, the miner receives a bonus for his work, we also write this on the page before we turn it and seal it.
Then we fill the second page with new translations, to turn it over, we call the miner again - we can't do it without him. The process is endless.
The whole blockchain is always available to anyone, you can go to any page of the "ledger" and see who transferred what amount to whom and when it was. You can also see the balance balance of any of the wallets in the Bitcoin system. Curious, isn't it? You will not see the name John or Helena there, you will only see the addresses, but all information will be available. If you want to make sure, use, for example, blockchain.com

Seems simple, doesn't it? Great, now that the blockchain is taken care of, it's time to move on to mining. You really want to be that helpful and necessary person without whom you can't close a new block in the blockchain (you can't turn over a page in the ledger called Bitcoin). And they say it pays well, too.
What is mining
Bitcoin mining is a process in which computing equipment solves a mathematical problem. The problem is the same for every computer in the world. Whoever solves the problem turns over a page in the Bitcoin "ledger", that is, it creates a new block in the blockchain, thereby confirming all the transfers that have accumulated since the last block was closed. Once the problem is solved, the next problem appears. The whole world begins to solve it. It is important to be the first one to solve the problem, because only the first one to solve it gets the reward.
Is it difficult? Let's break down the entire mining process point by point again.
    All of the computing equipment involved in Bitcoin mining solves the same problem.
    On the open page of the "ledger" called the Bitcoin blockchain, users record all transfers: John transferred 2 BTC to Elena, Oleg transferred 3 BTC to Nina. However, all these transfers are not yet valid. So far, they are just piling up.
    One of the miners solved the problem.
    1) All transfers that were recorded are confirmed.
    2) The miner receives a reward.
    3) The miner inscribes his name (his wallet address) in the just closed block.
    The whole world, together with the lucky miner, starts looking for a new solution to the next page of the "ledger" (block).

How often does the problem change? Bitcoin's programming code is written in such a way that it takes about 10 minutes to find the answer to a problem. This is done by a very simple algorithm. The more miners are working on the problem, the harder the problem is. Conversely, if the number of miners decreases, the task becomes easier.
Using Bitcoin and other cryptocurrencies
Unlike regular money, cryptocurrencies are impersonal, but completely transparent. Such is the paradox. This means that you can see any Bitcoin transfers over the history of Bitcoin. There will be no names in the "Sender" or "Recipient" column, but there will be wallet addresses, which are those krakozabras we've already seen, such as 1CKXsyrhF9zfzizZb1x9zwkHczjxNRc6by.
On the one hand it provides complete anonymity. On the other hand, if you combine a live person and his Bitcoin address, you can see absolutely all of his transfers. To what addresses and how much he transferred. It must be said that anyone can have an infinite number of Bitcoin addresses, but it is not always possible to remain completely anonymous.
An important point that sets Bitcoin apart from the Ruble, Dollar or Euro is that Bitcoin is not regulated or protected in any way. A simple example.
If you transferred 1,000 not to your grandmother, but to another person's account. What will you do? Go to the bank, write an application, with a high probability you will be helped and your funds will be returned.

If you transferred 0.1 BTC not to your grandmother but to someone else's address, chances are you will never get it back. There is no mechanism to get the money back. There is no way you can contact the recipient to "give it back nicely". There is no Bitcoin police. You have no leverage at all.
In this respect, cryptocurrencies are more like cash. If cash is stolen, it will be impossible to find. Keeping cryptocurrencies can be just as dangerous as keeping cash. Except that cash has a size, they are pieces of paper, you can't hide a lot of them, but bitcoins in any quantity can fit on a flash drive, let alone in one small file on your computer.
An important difference between cryptocurrency transfers and regular currency transfers. If you have transferred Bitcoin and the transfer is already sealed in the blockchain, it means that the money has gone from you and reached the addressee. There is no other way around it. Anyone in the world can see that. If you transferred rubles from one account to another, they could have gone from one place and come to another in a day or two, or they could have been lost on the way because of bad banking practices.
Where and how can I use cryptocurrencies?
Usually cryptocurrencies are used for the following purposes.
    Investing. The process of buying cryptocurrencies to gain income from their rising price.
    Payment. You buy goods or services for cryptocurrency. Unfortunately, not many merchants in the world accept cryptocurrencies, but the situation is improving every year. For example, in El Salvador, Bitcoin was acknowledged as an official means of payment, you can buy cars and real estate with Bitcoin, and PayPal allows U.S. and UK residents to purchase cryptoassets.
    Mining. The process of obtaining cryptocurrency by computing on your equipment. In simple terms, you have mining equipment, it works and generates income for you.

Mining should never be confused with investing. Of course, the same person can be both a miner and an investor, but there is still a difference. Mining is about income here and now. Investing is "for the future".
Storing Bitcoin.
Regardless of exactly how you want to use Bitcoin, you need to get a wallet. Choosing a wallet is an important aspect. The security of your cryptocurrency is in your hands. Once again, if your cryptocurrency is stolen or you lose it yourself, no one will recover it! Whichever wallet you choose, there is a risk of losing your Bitcoin. Depending on the wallet and how you store it, the risk is higher or lower.
In detail:
    About storing Bitcoin
    About storing Ethereum and other cryptocurrencies.
If you are not going to store large amounts of money and are just starting your cryptocurrency journey, we recommend one of the multi-currency crypto-purses. They are available on your computer and cell phone. For example Coinomi or Trust. Be sure to save your passwords and special recovery phrases in safe places, as the wallet creators recommend.
The so-called hardware wallets will be a step safer. Special flash drives that you insert into your computer are somewhat similar to the 1C keys in an accountant's computer. The main danger in the case of such wallets is buying them by hand or from unverified sources. A hardware wallet must always be new and purchased directly from the manufacturer.

If you decide to store large amounts of money, you need to think about more secure storage. For example, you will need to buy a separate computer for storing cryptocurrency and some flash drives.
Remember that scammers and hackers are out there every step of the way. When using cryptocurrencies, you have to build your own defense against them. There will be no help.
Pay, buy, sell, exchange Bitcoin and other cryptocurrencies
There are special cryptocurrency exchanges and services for buying and selling Bitcoin, as well as exchanging it for other cryptocurrencies. Most of them require registration and providing personal information, such as a passport. You can also find those exchanges that still work in anonymous mode.
In any case, exchanging one cryptocurrency for another is usually much easier than exchanging cryptocurrency for dollars. All you have to do is go to one of the exchanges where you have various exchange options available to you. The most famous exchanges in the world: Coinbase, Gemini, Kraken, Binance.

You can also use a Telegram bot to buy or sell Bitcoin. This is a working option, especially for buying and selling small amounts.
Is cryptocurrency legal?
Somewhere cryptocurrency is allowed, somewhere it is prohibited, somewhere its status is still not regulated in any way.
Mining is not as complicated as you might think at first sight. The scary word "cryptocurrency farm", which scares people on TV news (usually when someone doesn't pay for electricity), is not so scary.
Mining equipment
There are two kinds of mining equipment:
    Special mining devices, called ASICs (Special Purpose Integrated Circuits). It looks like a small metal box, inside of which there are microchips and on the sides there are fans for cooling.
    Computer graphics cards. The same video cards that are used for computer games. To increase performance, they usually assemble special computers, with an open case for better cooling and install not one, but several video cards in one computer.
Bitcoin is only mined using ASIC devices while Ethereum is mined on video cards.

There is also luck in mining.
Both ASICs and graphics cards consume a lot of power, and they get very hot when running. Keep that in mind.
Is it hard to start mining?
In today's world, the complexity of mining is very high and the process only goes through so-called mining pools. Mining pools are servers that bring together miners. The miners work together and get rewarded. A mining pool distributes this remuneration in a fair way and pays the earned cryptocurrency to each miner.
If you have a desktop gaming computer with a video card installed, you can start mining today - it's not hard. Go to 2CryptoCalc, see which cryptocurrency is profitable to mine on your video card. Then follow the instructions of the mining pool. You will need to download a special miner program and install a wallet for the cryptocurrency you are going to mine.

If you want to mine Bitcoin specifically, an ordinary video card will not help you. The only option is to buy a special ASIC device. One of the most advanced at the moment Antminer Bitmain S19 Pro. It consumes 3.5 kW from the network and sounds like an airplane. At home, this will not put.
But the setting is not very complicated - all you have to do is to enter in the ASIC settings the address of your mining pool and your Bitcoin-purse, connect the device to the internet and plug it into the socket.
Putting knowledge into practice
You decided that enough theory is enough and it's time to put into practice? In this short section, we will give you two of the most common examples of "joining" the world of cryptocurrencies.
You have decided to become a cryptocurrency investor
    Set aside 2 thousand from your salary and want to buy Bitcoin with it.
    Set up a wallet. Coinomi right in your cell phone will do.
    Install the application - iOS/Android.

Choose the necessary cryptocurrencies, such as Bitcoin.

Be sure to back up your wallet. In Coinomi to do this, you need to click on the inscription at the top "Wallet not backed up TAP TO START", and then securely save the backup phrase. Remember that any unauthorized person will have access to all of your funds with the backup phrase.

Go to the Receive tab. It shows the address of your wallet.

    Buy Bitcoin for 2 thousand through Telegram bot and send to our wallet address, which is shown in the Receive tab.
 Now you are a cryptoinvestor. All that remains is to wait until 1 Bitcoin is worth one million dollars.
You have decided to become a cryptocurrency miner.
You have a computer on which you cut GTA, why should it idle?
    Your computer has an Nvidia 1080 graphics card installed. Go to 2CryptoCalc.com, choose your video card and see which cryptocurrency is the most profitable to mine.

It turns out to be Ethereum.
Install a wallet. Suitable, Coinomi right in your cell phone.
Install the app - iOS/Android.

Choose the necessary cryptocurrencies, such as Ethereum.

Be sure to back up your wallet. In Coinomi to do this, you need to click on the inscription at the top "Wallet not backed up TAP TO START", and then securely save the backup phrase. Remember that any unauthorized person will have access to all of your funds with the backup phrase.

Go to the Receive tab. It shows the address of your wallet.

Going to the Ethereum mining pool.

Download the archive for a quick start.

Unzip it, password 2miners.

Go to the Nvidia folder and use notepad to open eth-pool.bat

Change the wallet address to your own.
    Run eth-pool.bat.
You are now a cryptocurrency miner.
Thanks to this material you understand cryptocurrencies, don't you?


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