Bitcoin: 100 Things Everyone Should Know

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100 things to know for those new to bitcoin

 Bitcoin is the leading edge of a movement I think of as Open Source money, and here are a few ways of thinking about this that might help.

I will just make a list of 100 assertions and if you have any questions, just add them to the comments at the bottom. The goal isn’t for you to understand all of these assertions, but if they contain unfamiliar words or concepts, you can then google those concepts and become informed. Understanding what is behind these 100 assertions will help you become knowledgeable about Bitcoin. If you want you can see how many of these things you already knew and give yourself a score out of 100 at the end.

This is not an exhaustive list, nor is it a perfect list. I’m sure people more expert than me can point out flaws in my list or additions. If you see any flaws or want to add your own, please use the comments section at the bottom.

Without further ado, 100 things I’d like new Bitcoiners to know:

1. Bitcoin is open source software
2. Open Source software is characterized by competition across many variations that eventually converge to the most satisfying solution
3. Sometimes multiple groups find different versions of an open source project satisfying, so the eventual state includes multiple versions
4. This competition among open source projects causes those projects to increase in performance, security, inclusion and other values
5. A good software developer can fork Bitcoin
6. Forking means releasing a modified copy of the software
7. The word Bitcoin is not trademarked, so anyone can call anything Bitcoin
8. This means that just because something is called “Bitcoin Ultimate” or “Bitcoin Platinum” it does not have any official status
9. Bitcoin’s design is to eliminate the need for a trusted third party
10. Bitcoin’s rise is in part due to lack of trust in financial intermediaries such as governments and banks
11. There is nothing “intrinsic” to the value of Bitcoin (it isn’t backed by an asset) but the same thing could be said of the US Dollar
12. The US Dollar has lost about 90% of its value since 1950
13. The US Dollar used to be backed by Gold until 1971 and a the value of the dollar has since dropped to about 12 cents
14. This is in part due to the US Government printing more money
15. Bitcoin’s inventor is unknown and used the pseudonym “Satoshi Nakamoto”
16. Satoshi Nakamoto used to be an active member of the bitcoin community but is no longer sending or responding to emails
17. You can own very small fractions of a Bitcoin, for example you can buy $10 worth
18. The smallest unit of Bitcoin you can own is called a “Satoshi”. 100 Million Satoshis equal one Bitcoin.
19. Because of the divisibility of Bitcoin, nobody should be worried about the price of a individual Bitcoin being prohibitively expensive; people should be more concerned as to whether bitcoin as a whole is expensive or cheap
20. Bitcoin uses a public ledger called the blockchain
21. The blockchain is secured by elliptic curve cryptography
22. There are zero documented cases of a computer mathematically breaking into a bitcoin wallet by finding the private key from a bitcoin address
23. Bitcoins are controlled by a private key, a string of characters
24. Anyone who knows the private key can spend or transfer your bitcoins
25. If you don’t know what your private key is, and you own bitcoins, it’s likely that your coins are sitting on an exchange like Coinbase
26. If you leave your coins on an exchange, it’s possible that the exchange itself could steal your coins, or an employee at the exchange, or it’s possible that the exchange could be hacked and you could lose your coins.
27. You can back up your private key by printing it out on a sheet of paper, this paper is then known as a “Paper Wallet”
28. “Your” bitcoins are not stored on your laptop or phone or on any single device
29. “Your” bitcoins are stored on the bitcoin blockchain, and thousands of copies of that blockchain are stored across thousands of computers
30. Don’t share your private key with anyone, unless you are ok with that person taking all of your coins
31. All addresses on the blockchain as well as all transactions are a matter of public record on the decentralized ledger, but essentially anonymous
32. Bitcoin transactions are irreversible unless the recipients deliberately sends the exact amount back to the original sender
33. Bitcoin is decentralized, meaning it has no company, president, government or bank that controls it
34. Part of the design of a decentralized system is preventing “free riders” from stealing value from the system, at the same time as rewarding network participants (such as bitcoin “miners”)
35. Bitcoin has inspired many open source cryptocurrencies, but not all cryptocurrencies are open source.
36. People who focus on price movements and predicting what other people will do are called Bitcoin speculators
37. People who understand Bitcoin and support it are called investors
38. Selling or buying when you think others are selling or buying is a form of speculation called momentum investing
39. Selling or buying emotionally (panic selling, fear of missing out) is likely to cause you to lose money
40. Institutional investors (professionals) can make money from retail investors and speculators (amateurs) by pumping up the price and then dumping. This is market manipulation and something speculators are sensitive to
41. Professional investors are now trading bitcoin futures
42. In futures trading it’s possible to take both “short” and “long” positions
43. In a long position, the trader “bets” that the value of the asset will increase
44. In a short position the trader “bets” that the value of the asset will decrease
45. One danger in a “short” position is that it is subject to a “short squeeze” where traders are forced to liquidate as a function of the asset price increasing. Since there’s no upper bound on an asset price, the limit to how much you can be penalized for a short position in unlimited. While infinite losses have never happened, there have been some very large losses from short positions in history.
46. Large investors (whales) can manipulate markets by causing prices to inflate rapidly (pump) and decrease rapidly (dump)
47. The best protection against pump and dump is to invest in things you understand and to avoid speculation
48. Warren Buffett says the best holding period is “forever”. He also says that if you don’t know who the “mark” (fool) is at the table, it’s you.
49. HODL is a phrase from bitcoin talk forums signifying the desire to not sell Bitcoins despite price volatility. It is NOT an acronym, it comes from a typo where someone wanted to say they are HOLDing.
50. Bitcoins are deflationary
51. The restriction on the total circulation of bitcoin contributes to its ability to store value. Conversely, a cryptocurrency that continuously increased the number of coins in circulation should decrease in value per coin.
52. There will never be more than 21 million Bitcoins in existence, a number which is enforced by the source code
53. If you lose you wallet private key, those bitcoins are gone
54. It’s estimated that as many as 4 million bitcoins are out of circulation due to this or similar mechanisms
55. Bitcoin uses a peer-to-peer mechanism for verifying transactions called Nakamoto Consensus
56. Nakamoto Consensus is based on a class of algorthm called “Proof-of-work”
57. Proof of work algorithms involve doing computational work, in essence paying a price in order to participate in the Bitcoin blockchain
58. The work includes validating transactions, thus helping to secure the network
59. In addition to validating transactions, every ten minutes or so, the bitcoin blockchain elects a computer to write down all of the transactions that happened in the past ten minutes
60. This set of transactions is called a “block”
61. Each new block is added to the end of a chain of blocks and the new block contains a “hash” that represents the previous block, hence it is called a blockchain
62. Bitcoin consensus can work on separate versions of the “truth” but is designed to converge to a single truth at the point when each block is written
63. The election process for choosing who writes down the block is a computational race involving calculating the solution to a math problem
64. This math problem is a cryptography problem, and has the property of being quite expensive to solve, but extremely easy to check the answer.
65. The requirement that it has a very easy to verify answer, and yet it is an adjustably hard problem to solve is the main reason why the computation and thus the electricity used on this problem are considered “wasted”
66. Because of this consensus algorithm, Bitcoin is criticized for being ecologically wasteful
67. This block computation race as well as securing transactions is an activity known as Bitcoin mining, and miners get bitcoins by transaction fees, but also by winning the computational race described above.
68. The winner gets a fixed number of bitcoins and it is winner-take-all.
69. A “mining pool” distributes the compute proof of work over the pool, and pays everyone regardless of whether the pool wins the block or not. The amount the individual pool workers receive, depends on their compute power, and the current difficulty to achieve winning the block. Most small miners are part of a pool, since individually mining for a block of bitcoin, at current difficulty levels, would, on average, not be achieved in one’s lifetime. (credit to Ted Matsumura, no relation)
70. Mining is responsible for creating “new” bitcoins
71. Another way of looking at mining is buying bitcoins with electricity
72. The difficultly level of mining is adjusted in the software and generally increases programmatically at specified block intervals
73. Bitcoin is not the only cryptocurrency
74. In fact there are multiple cryptocurrencies with the name Bitcoin including Bitcoin Cash and Bitcoin Gold
75. Many more Bitcoin forks are coming up
76. Bitcoin’s primary utility is as a hard-to-censor store of value that enables that value to be transmitted across a distance
77. There are other cryptocurrencies optimized for payments and other financial applications
78. Bitcoin is considered “property” by the US IRS and so its use by US Citizens and Residents is considered taxable
79. New cryptocurrencies are issued all the time
80. The initial availability of a new cryptocurrency to be bought or sold is called an ICO or Initial Coin Offering
81. A large number of ICOs are built on a standard called ERC20 which means that the tokens are based on the Ethereum blockchain
82. Not all ICO tokens are ERC20, some tokens are based on the Waves Platform, some on Stellar and others are either based on more obscure blockchains or they are completely novel blockchains
83. Investing in ICOs is very risky
84. The second most popular cryptocurrency as of this writing is called Ether
85. The cryptocurrency is called Ether, the blockchain is called “Ethereum”
86. Unlike Bitcoin, Ether has a known founder, Vitalik Buterin, and this provides for greater centralization, for better or for worse
87. Ethereum is designed to be a general purpose framework for computing
88. The Ethereum blockchain is currently working on a new consensus algorithm called “proof-of-stake” that does not require ecologically wasteful cryptographic block races.
89. Bitcoin has recently gained the ability to execute smart contracts via a project called “Rootstock”
90. On coinbase the third coin available besides Bitcoin and Ether is Litecoin
91. Litecoin is very similar to Bitcoin only it writes blocks more often and it often gains features (like lightning and segwit) before Bitcoin.
92. Litecoin was created by former Coinbase employee Charlie Lee, referred to on twitter as Charlie Lee Satoshilite
93. If you want to buy bitcoins with US Dollars, you can do so on http://coinbase.com among others
94. If you want to see a list of the most valuable cryptocurrencies you can do so on http://coinmarketcap.com
95. It’s easy to convert bitcoins back into US Dollars on sites like coinbase
96. You can spend bitcoins using a bitcoin debit card
97. The value of all the gold in the world is about 8 Trillion dollars
98. The current value of all the bitcoin in the world is $278 Billion dollars
99. The value of bitcoin changes fairly quickly, so the value on line 95 will seem odd in a few short days
100. There is one more way to cash out your bitcoins – use an exchange service allowing you to instantly convert your digital money into dollars, euros or other currencies. You will need to choose what currency you have, its amount and what currency you want to get for it.