Bitcoin was invented as a peer-to-peer system for online payments that does not require a trusted central authority. Since its inception in 2008, Bitcoin has grown into a technology, a currency, an investment vehicle, and a community of users. All of us at one time were completely new to bitcoin and the blockchain at first but with a little work and a whole lot of passion we realized how amazing the entire crypto world can be. In this guide we hope to explain what Bitcoin is and how it works as well as describe how you can use it to improve your life. All of us at one time were new to bitcoin but learning the ins and outs of this disruptive technology is half the fun.
Since anything digital can be copied over and over again, the hard part about implementing a digital payment system is making sure that nobody spends the same money more than once. Traditionally, this is done by having a trusted central authority (like PayPal) that verifies all of the transactions. The core innovation that makes Bitcoin special is that it uses consensus in a massive peer-to-peer network to verify transactions. This results in a system where payments are non-reversible, accounts cannot be frozen, and transaction fees are much lower. As such it benefits us to accept Bitcoin for CBD purchases but also our customers as the lack of chargebacks and large transactions fees allows us to pass those savings on to our customers with our 10% discount on all purchases made with Bitcoin and other crypto!
Address ~ A Bitcoin address is a unique string of 27-34 alphanumeric characters. An address can be created freely with the use of a wallet and always starts with a 1 or a 3.
Alternate Currencies ~ There are many different alternative currency that have sprung up based off of the idea and/or basic code of Bitcoin. A few of the more notable ones are Ethereum, Litecoin, Bitcoin Cash and Ripple. To learn more about these, please visit our alternate currencies page.
ASIC ~ Application-specific Integrated Circuit, an ASIC is the current ‘top of the line’ technology used in Bitcoin mining. It is able to generate orders of magnitude more hashes per watt of power than the next best technology. For greater detail, please see the hardware page.
Block ~ A block is a unit of the code the comprises the blockchain. It is the record of transactions that have occurred since the last block was created and a confirmation to previous transactions. Each block links to the block before it, thus creating a full chain back to the original or “genesis” block.
Blockchain ~ the public record of all bitcoin transactions. The blockchain may be viewed by anyone and can be used to determine how many bitcoins were attached to any one address at a given time. One place to be able to easily view this information is blockchain.info
Lightning Network ~The Lightning network is an off chain point to point solution for transacting in Bitcoin. The Lightning Network features low or not transaction fees and instant confirmations of payments. For more information check out our post Bitcoin and The Lightning Network.
Cold Storage ~ This is the process of moving your bitcoins to an offline wallet. The benefit of this is that no one can hack into your computer and steal your private keys if your computer is not connected to a network. Bitcoins will need to be brought back out of cold storage to be spent or transferred again.
Difficulty ~ this is the measure of how hard it is to generate a new block in the blockchain. The difficulty is designed to adjust every 2,016 blocks (roughly 2 weeks) to balance out the rate at which blocks are created. The difficulty has an absolute minimum of 1, but not such limit exists for the maximum.
Encryption ~ the process by which information is protected from others and only accessible to those who have authorization. That is not to say that authorization may not be gained through unintended ways, but that is all dependent on the quality of the encryption.
FinCEN ~ The Financial Crimes & Enforcement Network functions under the authority of The United States Department of the Treasury. FinCEN is the portion of the agency charged with combatting money laundering and other illicit financial practices. They are currently one of the lead agencies trying to figure out how to regulate and monitor the flow of Bitcoin.
FPGA ~ Field Programmable Gate Array, an FPGA is the former king of the Bitcoin mining world. An FPGA is an integrated circuit whos function can be changed as it can be reprogrammed. This makes if more versatilethan an ASIC, but far less efficient in its ability. They enjoyed a short time between GPUs and ASICs as the most efficient way to mine. For further details, please see our hardware page.
Genesis Block ~ This is the very first block that was created and the beginning of the blockchain.
GPU ~ Graphical Processing Unit, a GPU (or commonly just referred to as a graphics card) was previously the dominant way of Bitcoin mining. It was way beyond the efficiency of a CPU and plenty common among computer users to gain widespread adoption. With the increase in the difficulty it has recently become too inefficient for most to continue mining with GPUs as their electric bills now compete with the value they generate. For futher details, please see our hardware page.
Hash (Rate) ~ A hash is the output of a hash function and, as it relates to Bitcoin, the Hash Rate is the speed at which a compute is completing an operation in the Bitcoin code. A higher hash rate is better when mining as it increases your opportunity of finding the next block and receiving the reward.
Mining ~ This is the process by which new blocks are created and all Bitcoin transactions are verified. Mining is actually a poor name for the process taking place, but caught on due to the hope of completing a block and winning the attached Bitcoin reward.
Private Key ~ This is the part of data that you keep secret in your Bitcoin wallet. Every Bitcoin address has a unique private key attached. Possession of this key is what allows you to maintain control of those bitcoins. If someone else is able to obtain your key, they also have control of your bitcoins.
Transaction Fees ~ This is a small, optional fee attached to a Bitcoin transfer. Upon the completion of all 21 million bitcoins being created, these fees will provide the reward to encourage miner to continue mining and verifying the network transactions.
Bitcoin Wallet ~ a program in which one stores the private keys to which their bitcoins are attached.
As we mentioned above, there is no central person or central authority in charge of Bitcoin. If you are new to bitcoin and used to the normal way money is transferred this may be daunting but stick with us. It all starts with the various programmers donate their time developing the open source Bitcoin software and can make changes subject to the approval of lead developer Gavin Andresen. The individual miners then choose whether to install the new version of the software or stick to the old one, essentially “voting” with their processing power. It is in the miners’ best interest to
If you are new to Bitcoin the best way to learn is to get some and experiment. We have compiled some articles from around the internet about how to set up your own Bitcoin wallet, how to acquire bitcoins, and how to use bitcoins to help you get going. We have also written about a number of other Bitcoin topics if you prefer a hands-off approach to learning. If your questions remain unanswered feel free to hit us up via the onsite chat in the bottom right hand corner of the screen of via our Contact Us page. We are always happy to discuss Bitcoin and CBD with our visitors!