Bitcoin for Beginners: A Complete Guide to the World’s First Cryptocurrency

You have probably heard the word “Bitcoin” on the news, at work, or around the dinner table. You might still be wondering what it actually is. Is it magic internet money? Is it a kind of digital gold?

You are not the only one asking. Digital currencies can sound complicated at first, but the core ideas behind Bitcoin are fairly simple once you break them down.

What is Bitcoin?

Bitcoin (BTC) is the world’s first cryptocurrency. It was launched in 2009 by an anonymous creator, or group of creators, known as Satoshi Nakamoto. The idea was to build an electronic payment system that relies on cryptography and maths instead of trust in banks or governments.

Traditional money is issued by central banks and controlled by governments. Bitcoin works differently. It is “permissionless”, which means anyone with an internet connection can use it without needing a bank account or formal approval.

Bitcoin operates as a peer-to-peer (P2P) currency. People can send value directly to each other, without a bank, payment processor, or company in the middle.

Satoshi Nakamoto explained the design in the original Bitcoin Whitepaper. The big challenge was the “double-spending” problem, which is how to stop digital money being copied and used twice, without relying on a single central database.

How does Bitcoin work?

To understand Bitcoin, you first need to understand the technology behind it: the blockchain.

The blockchain ledger

Think of a blockchain like a shared online spreadsheet that everyone can see, but no one can secretly change. This digital ledger records every Bitcoin transaction that has ever taken place.

• Blocks: New transactions are grouped together into blocks.
• Chaining: Each block is linked to the previous one using cryptography, which creates a permanent chain of blocks over time.
• Transparency: The ledger is public. Anyone can check that a transaction happened, even though the people involved are only identified by addresses, not names.

The base layer

In technical terms, Bitcoin is a “base layer” or “Layer 1” network. It is the main record of truth for all Bitcoin balances and transactions.

Bitcoin prioritises security and decentralisation over speed. Some other networks process transactions faster, but Bitcoin focuses on being a final settlement layer. Once a transaction is confirmed on the Bitcoin blockchain, it is extremely difficult to reverse.

Real-life examples: How it works in practice

Bitcoin is a “fungible” token. This means one Bitcoin is worth the same as any other Bitcoin, just like one Australian dollar coin is worth the same as another.

This makes Bitcoin suitable for trade, payments, and investment. Here are some common uses.

As a medium of exchange

You can use BTC to pay for goods and services with businesses that accept it. Because it is digital, you can send it across the world in minutes, similar to sending an email.

For example, if you want to send money from Australia to a friend overseas, you can send BTC directly without worrying about bank opening hours, international transfer delays, or high wire fees. Some online merchants and platforms, including those built on Shopify, acceptBitcoin and other cryptocurrencies as payment.

As a store of value

Many people see Bitcoin as “digital gold”. The supply is limited, and the rules cannot be changed easily, so some investors use it as a hedge against inflation.

They buy and hold BTC over the long term, hoping that its purchasing power will grow as central bank money, such as AUD or USD, loses value due to inflation.

Divisibility (the Satoshi)

You do not need to buy a full Bitcoin. Each BTC can be divided into 100 million smaller units called “Satoshis” or “Sats”.

This means you can start with small amounts, such as AUD $50 or AUD $100, and still own a fraction of a Bitcoin. This divisibility makes it easier for everyday users and micro-payments.

Where does Bitcoin come from?

Unlike government money (fiat currency), which can be printed or created by central banks, new Bitcoin enters circulation through a process called mining.

Bitcoin mining

Mining is the process where specialised computers compete to solve complex mathematical problems. These problems are tied to groups of new transactions.

Miners collect unconfirmed transactions and bundle them into a block. The first miner to solve the puzzle for that block gets to add it to the blockchain.

In return, that miner receives a reward in newly created Bitcoin, plus any transaction fees included in the block. This reward pays miners for the hardware and electricity they use.

Because miners all compete and follow the same rules, the system is very hard to attack. To take over the network, a bad actor would need more computing power than all honest miners combined, which is extremely costly and, in practice, unrealistic.

The supply cap

The Bitcoin software includes a strict rule that there will only ever be 21 million BTC.

This limit cannot be changed easily, as it would require the agreement of most of the network. New coins are created as mining rewards, but that reward is cut in half roughly every four years. This event is known as a “halving”.

The halving slows the rate at which new Bitcoin is created. Over time, new supply falls while demand may continue to rise. The final Bitcoin is expected to be mined around the year 2140.

Bitcoin vs traditional money

It helps to compare Bitcoin with the money in your everyday bank account, often called fiat currency.

• Authority: Fiat money is controlled by central banks and governments. Bitcoin runs on open-source code and a decentralised network of users and miners.
• Supply: Governments can create more money to manage the economy, which can increase inflation. Bitcoin has a fixed maximum supply that is very difficult to change.
• Physicality: Fiat money exists as notes and coins, as well as digital bank balances. Bitcoin exists only in digital form.
• Access: Opening a bank account usually requires ID, approval, and passing checks. Anyone with an internet connection can generate a Bitcoin wallet and start receiving BTC, which can be helpful for people without access to traditional banking.

Risks and security red flags

Bitcoin offers more control over your own money, but that control comes with extra responsibility. There is no bank to call if something goes wrong.

Here are key risks to keep in mind.

• Volatility: The price of BTC can change quickly. It can rise or fall by large amounts in a short time, based on market sentiment, news, regulation, or adoption. Bitcoin is a speculative asset, and you should only invest what you can afford to lose.
• Irreversible transactions: Once you send Bitcoin and the transaction is confirmed, you cannot reverse it. If you send BTC to the wrong address or to a scammer, there is no central support team that can recover it for you.
• Private keys: Your Bitcoin is controlled by a private key, which is similar to a very strong password. If you lose your private key or recovery phrase and do not have a backup, you lose access to your funds permanently.
• Scams: Be careful of offers that promise “guaranteed returns”, doubling your Bitcoin, or pressure you to send BTC quickly. No legitimate exchange or wallet provider will ever ask for your private key or recovery phrase.

How to buy and store Bitcoin

Buying BTC

The most common way to buy Bitcoin is through a cryptocurrency exchange such as CoinJar.

You can deposit Australian dollars and swap them for BTC at the current market rate. Once you have bought Bitcoin, you can hold it, trade it for other cryptocurrencies, or spend it using tools such as the CoinJar Card where supported.

Storing BTC

To hold Bitcoin, you need a digital wallet. A wallet manages your private keys and lets you send and receive BTC. Broadly, there are two main types.

1. Hot wallets (online):
   These are connected to the internet. They are convenient for frequent trading or everyday spending. Exchanges like CoinJar provide built-in hot wallets for their users, so you can buy, sell, and send BTC from one place.

2. Cold wallets (offline):
   These are usually hardware devices that look similar to USB drives. They stay offline most of the time, which makes them less exposed to online hacks. Cold wallets are often used for long-term storage or larger amounts of Bitcoin.

Many experienced users keep a mix, with small amounts in a hot wallet for daily use, and larger holdings in a cold wallet for extra security.

The future of Bitcoin

Bitcoin has grown from a niche experiment worth less than a dollar in its early years to a global asset class held by public companies, funds, and millions of individuals.

As the network has matured, developers have built “Layer 2” solutions on top of Bitcoin. These systems aim to make transactions faster and cheaper, so Bitcoin can be used for everyday payments while still relying on the security of the base layer. This puts it in closer competition with traditional payment networks such as Visa and Mastercard.

At the same time, Bitcoin is increasingly linked with traditional finance, including products like Bitcoin Exchange Traded Funds (ETFs) in some markets. These products allow investors to gain exposure to BTC through familiar investment channels.

No one can predict future prices. However, Bitcoin’s role as a key building block of the digital economy now looks firmly established, and its use as both a store of value and a payment network continues to evolve.