Lesson 2: Getting Started With Bitcoin

Welcome to lesson number two in Kriptomat’s Introduction to Cryptocurrencies – “Getting Started With Bitcoin.”

As you probably know, Bitcoin was the first modern cryptocurrency.

• When people think of crypto, they think of Bitcoin – despite the fact that Bitcoin is just one of more than 20,000 cryptocurrencies that have been launched over the past 10 years.

• That’s because Bitcoin is the most widely used cryptocurrency – by far. The value of all existing Bitcoins accounts for about 40% of the value of all the world’s cryptocurrencies put together.

• Bitcoin is one of the few cryptocurrencies intended to serve as a replacement for government-issued currencies like euros, pounds, and marks.

The first known Bitcoin purchase? Pizza!

• Bitcoin enthusiasts traditionally have pizza for lunch every May 22 – Bitcoin Pizza Day.

• The holiday commemorates the day in 2010 when programmer Laszlo Hanyecz said in an online discussion group that he would pay 10,000 Bitcoins for two large pizzas.
  
• A British Bitcoin user saw Laszlo’s message and accepted the transfer of 10,000 Bitcoins, then spent about US$25 U.S. in a credit card transaction to get a Florida restaurant to deliver the pizzas.
  
• At the time, 10,000 Bitcoins were worth about US$41. At Bitcoin’s all-time high price of 68,991 euros, that would be about nearly 350 million euros for each pizza.

What is a Satoshi?

• A Bitcoin now sells for tens of thousands of euros. At current prices, a US$25 pizza order like Lazslo’s would cost something like 0.00117731 Bitcoins.

• Those decimals are awkward to work with, so the Bitcoin community invented a unit of currency called the Satoshi. One Bitcoin is equivalent to 100 million Satoshis.
  
• The 0.00117731 Bitcoin price of two pizzas can be expressed as 117,731 Satoshis.

How Bitcoins are created.

• Bitcoin transactions are confirmed as valid and added to the coin’s open ledger through a mechanism called “proof of work.” Bitcoin miners compete to solve a difficult cryptography problem and earn the new Bitcoins that are created every time a block of transactions is added to the blockchain.
  
• Proof-of-work mining is the only way new Bitcoins are created. 

Is Bitcoin bad for the environment?

• Large mining projects have created a market for custom computer chips that are optimized to perform the cryptographic functions required for mining Bitcoin. Around the world, these miners consume a great deal of electricity.

• Bitcoin mining uses about as much electricity as the entire country of Argentina.

• Critics say this energy consumption means that Bitcoin mining must be contributing to climate change.

• The crypto community has responded by connecting mining facilities to renewable energy sources when possible.

History’s best investment

• Bitcoin’s price has gone up and down, but the overall trend has been upward. Bitcoin is easily the best-performing asset of all time. Bitcoin has an average annual return rate of 1,576% and delivered an ROI of 876,509% from 2011 to 2021.

So – what have we learned? 

• Launched in 2009, Bitcoin was the first modern cryptocurrency.
• More than 20,000 other cryptocurrencies have been introduced since then.
• Bitcoin is the best-performing investment asset of all time.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What was Bitcoin created to do?

Support the development of decentralized applications that run on the internet.

Serve as an international currency suitable for replacing government-issued currency.

Ease climate-change worries by creating value by mining instead of environmentally hazardous manufacturing and farming.

Demonstrate the viability of cryptocurrency mining.

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What happens every year on May 22?

The reward for validating a block of Bitcoin transactions is cut in half.

On Satoshi Nakamoto’s birthday it is traditional to give Bitcoin gifts to loved ones.

Crypto users eat pizza to celebrate the anniversary of the first retail purchase made with Bitcoin.

Reinitiate the blockchain by erasing the previous year’s transactions and starting with a new “genesis block.”

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How are new Bitcoins created?

They are created as rewards for miners who use a proof-of-work mechanism to validate blocks of transaction data to be added to the Bitcoin blockchain.

Bitcoin holders vote (proportional to their holdings) on whether and when to launch another block of new Bitcoins.

Every time dollars or pounds or other conventional currency is converted into Bitcoins, new Bitcoins are created to transfer the value onto the blockchain.

Satoshi Nakamoto created 21 million Bitcoins when launching Bitcoin, and no more can be created.

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Why do people say Bitcoin is bad for the environment?

Many transactions are unreported and untaxed, and therefore funds to combat climate change are not sent to government agencies as they should be.

The increase in the number of Bitcoin millionaires has raised the consumption levels of high-impact services and activities, including travel by private jet.

Bitcoin millionaires have a record of investing in Lamborghinis and other notorious sources of atmospheric carbon.

The proof-of-work consensus mechanism for approving and adding blocks to the Bitcoin blockchain consumes a huge amount of electricity.

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What is a Satoshi?

A special kind of pizza that is traditionally eaten on May 22, Bitcoin Pizza Day.

A unit of Bitcoin that is worth 1/100,000,000 of a Bitcoin.

The Bitcoin given to the miner who is selected to receive a reward when a block of transactions is validated and added to the blockchain.

A blockchain node that contains the entire history of Bitcoin, starting with the initial “genesis block.”

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