What is bitcoin? Your guide to buying bitcoin

Cartoon man holding a bitcoin after using bitcoin investment guidance

Bitcoin is the first and most popular cryptocurrency. 

Bitcoin is the first cryptocurrency ever invented. It was created in 2008 by the famous Satoshi Nakamoto. No one knows who Nakamoto is (him/her/they?), where they live, or even if they’re still alive.

Since inventing bitcoin, it has paved the way for thousands of other cryptocurrencies. Yet bitcoin’s popularity remains unrivalled because it is typically the first cryptocurrency people invest in and the cryptocurrency with the biggest market share.

 

What is bitcoin and what makes it unique?

Bitcoin is a digital currency that was created to offer a “peer-to-peer digital cash system,” meaning two parties can transact directly with each other without having to go through a financial institution. This is called decentralization.

The fact bitcoin is digital also makes it super divisible, with the smallest unit being called a “satoshi” (or, sats for short). Unlike the Canadian dollar which only breaks down to 100 cents, you can go all the way to one hundred millionth of a bitcoin (0.00000001). Its divisibility is why you can buy small portions of a bitcoin. 

Another defining characteristic of bitcoin is that it’s limited in supply. There will only exist 21 million bitcoin. No more and no less. No one can just make more of it. Why does this matter? Well, let’s compare the production of Ferraris with the value of money.

If there were a ton of Ferraris in production they’d be cheaper to buy because there’s a lot of them available. But if there are less Ferraris available, they become more expensive and more valuable. 

This is how money works too. When there is too much money in circulation, it loses value. It gradually becomes more and more worthless. Your savings shrink in value and you can now afford to buy less food at the grocery store.

Today, banks are printing money at unprecedented rates. This excess of money supply is expected to devalue our money in the long-run. That’s why the cap on bitcoin’s supply (at 21 million) helps bitcoin retain value in the long-term. The scarcity helps to protect it against hyperinflation, corruption, and devaluation. 

But being a young currency and technology means that its value fluctuates as it continues to find market-fit. The price volatility of bitcoin scares some people. That’s understandable. However, consider that many people see this volatility as the growing pains of a new (and better) financial system being put in place. Eventually, when the dust settles, people believe the value will stabilize. 

 

So why do people buy bitcoin?

They buy bitcoin because of one (or more) of the following reasons:

  • they believe it’s the future of money
  • they see it as an investment that can make them money, and
  • they see it as a safe place to store their savings in a world where politicians and bankers are devaluing the worth of a dollar

Did you know? The first official purchase made with bitcoin was for pizza on May 22, 2010. Laszlo Hanyecz agreed to pay 10,000 bitcoin for two Papa John’s pizzas. “I’ll pay 10,000 bitcoins for a couple of pizzas… like maybe 2 large ones so I have some left over for the next day.” Now May 22 is celebrated yearly as “Bitcoin Pizza Day”.

Academy

More Beginner Lessons

 

Lesson 2

How does a blockchain work?

Lesson 4

How much do I need to get started with crypto?