BITCOIN • A BEGINNER'S GUIDE
Bitcoin explained for beginners
Bitcoin Explained for Beginners: What Is Bitcoin?
This is Bitcoin explained for beginners in plain English, based on real experience — from spending 18 months as part of a Bitcoin mining team at Perth College UHI to owning, investing in and using Bitcoin today through Revolut.
BITCOIN BASICS • 01
What Is Bitcoin?
At its simplest, Bitcoin is a way of storing and transferring digital value without requiring a bank or other central organisation to operate the underlying network.
Bitcoin can be confusing at first because the word is used to describe several closely related things. Bitcoin is a computer network, a set of rules that allows that network to operate, and a digital asset — BTC — that can be transferred through it.
Unlike money held in a conventional bank account, Bitcoin does not rely on one bank maintaining the master record of who owns what. Instead, computers participating in the Bitcoin network maintain and verify a shared record of transactions. That record is known as the blockchain.
THE NETWORK
Computers around the world communicate with one another and help maintain the Bitcoin system.
THE BLOCKCHAIN
A shared historical record of Bitcoin transactions that is maintained across the network.
BTC
The digital asset transferred through the Bitcoin network. One bitcoin can also be divided into much smaller units.
BITCOIN BASICS • 02
How Does Bitcoin Work?
When you send Bitcoin, you are not moving a digital coin from one computer to another. You are creating a transaction that tells the Bitcoin network that control of a certain amount of Bitcoin is being transferred to someone else.
That transaction is shared with computers participating in the Bitcoin network. These computers check that the transaction follows Bitcoin’s rules and that the Bitcoin being transferred can legitimately be spent.
Valid transactions are gathered together and ultimately recorded in blocks. Those blocks are added to the existing blockchain, creating a shared historical record that computers across the network can independently verify.
This is what allows Bitcoin to operate without one bank, company or government maintaining the only authoritative copy of the ledger.
01 — CREATE
A wallet creates and digitally signs a transaction specifying where the Bitcoin should be sent.
02 — BROADCAST
The transaction is shared across the peer-to-peer Bitcoin network rather than being sent to one central bank or server.
03 — VERIFY
Computers on the network check that the transaction follows Bitcoin’s rules and does not attempt to spend the same Bitcoin twice.
04 — RECORD
Valid transactions can be included in a block, which becomes part of the blockchain’s permanent transaction history.
The important idea is simple: Bitcoin replaces one central record-keeper with a network of computers that can independently check the same shared history.
BITCOIN BASICS • 03
What Is Bitcoin Mining?
Bitcoin mining is the process in which specialised computers compete to perform the computational work required to add new blocks of transactions to the Bitcoin blockchain.
Miners collect valid Bitcoin transactions and organise them into a proposed block. Their computers then repeatedly perform cryptographic calculations, searching for a result that satisfies the Bitcoin network’s current difficulty requirement.
The miner that successfully finds a valid result can propose the next block to the network. Other computers independently check that the block follows Bitcoin’s rules before accepting it as part of the blockchain.
The successful miner can receive newly issued Bitcoin together with transaction fees included in that block. This reward provides an economic reason for miners to contribute computing power and electricity to securing the network.
01 — TRANSACTIONS
Miners assemble valid transactions waiting to be recorded into a candidate block.
02 — COMPUTE
Specialised mining hardware performs enormous numbers of cryptographic calculations in search of a valid result.
03 — BLOCK
A successful miner proposes a new block containing the selected transactions.
04 — REWARD
If the block is accepted by the network, the miner can receive the block reward and transaction fees.
Mining does not mean manually solving equations or searching for hidden Bitcoin. Mining hardware performs the calculations automatically, extremely quickly and repeatedly.
I have first-hand experience of this process. While at Perth College UHI in Perth, I was part of a small team that mined Bitcoin for approximately 18 months. The next section explains what that experience was actually like.
MY BITCOIN EXPERIENCE • 01
18 Months Mining Bitcoin at Perth College UHI
My understanding of Bitcoin did not begin with an investment app or a price chart. In 2018, while studying HND Computer Science at Perth College UHI, I became part of a four-student team running a real Bitcoin mining operation.
I acted as the data centre manager for the project. Our own setup consisted of 10 Bitmain Antminer S9 mining units running 24 hours a day, seven days a week. We also joined a mining pool in which 30 machines were contributing in total.
Running the equipment quickly showed us that Bitcoin mining is not simply a matter of switching machines on and waiting for Bitcoin to appear. The miners generated a substantial amount of heat, the cooling systems made the environment extremely noisy, and the electricity consumption was very high.
There was also regular technical work. Configuration and coding issues had to be dealt with frequently, often on a daily basis. Keeping the mining operation running reliably became as much a computing and infrastructure exercise as a Bitcoin experiment.
At one point, the operation managed to mine approximately half a Bitcoin in a single month. For me, however, the most valuable result was the practical understanding of what Bitcoin mining actually involves: hardware, networking, configuration, cooling, electricity, maintenance and constant technical attention.
THE 2018 SETUP
4 students
Studying HND Computer Science
30 machines in the mining pool
Including machines beyond our own ten-unit setup
10 × Bitmain Antminer S9
Our mining hardware
My role: Data Centre Manager
Managing the day-to-day operation and technical upkeep of the mining setup
24/7 operation
The miners ran continuously
≈ 0.5 BTC mined in one month
A result achieved during the project
What Mining Was Actually Like
HEAT
Ten Antminer S9 units running continuously produced a significant amount of heat, making cooling an essential part of the operation.
That experience is why I see Bitcoin as more than an investment. I have seen some of the physical computing infrastructure behind the network and the practical work required to keep mining hardware operating.
NOISE
The miners and the cooling systems created a very noisy working environment.
ELECTRICITY
Continuous mining required substantial electrical power, making energy consumption impossible to ignore.
MAINTENANCE
Configuration, coding and technical problems required regular attention to keep the mining operation functioning reliably.
01 — CHOOSE
Choose a reputable service or platform that allows you to purchase Bitcoin.
BITCOIN OWNERSHIP • 01
How Do You Buy Bitcoin?
Buying Bitcoin is much simpler than understanding all of the technology behind it. You do not need mining equipment and you do not need enough money to buy one whole Bitcoin. Bitcoin can be purchased in much smaller amounts.
Most people buy Bitcoin through a cryptocurrency exchange, a financial app, or another service that supports Bitcoin. You normally create an account, add funds using a supported payment method, select Bitcoin, and choose how much to spend.
The amount of money you spend is converted into an amount of BTC at the available market price. Because Bitcoin is divisible into very small units, somebody can begin with a relatively small purchase rather than buying one complete Bitcoin.
After buying Bitcoin, another important question appears: who actually controls it? Some services hold the Bitcoin on your behalf, while others allow you to transfer it to a Bitcoin wallet that you control yourself. We will explain that distinction in the next section.
02 — FUND
Add conventional currency using one of the payment methods supported by the service.
03 — BUY
Select Bitcoin, choose how much money you want to spend and review the purchase before confirming it.
04 — OWN
The Bitcoin you purchase is then either held by the service for you or can potentially be transferred to a wallet you control.
YOU DO NOT NEED TO BUY 1 BTC
Bitcoin is divisible. One bitcoin can be divided into 100 million smaller units called satoshis. This means you can own a fraction of one Bitcoin rather than needing to purchase an entire BTC.
BUYING AND MINING ARE DIFFERENT
Mining uses specialised computing hardware to help secure the Bitcoin network and add new blocks. Buying Bitcoin simply means acquiring BTC that already exists through another participant or service.
I currently own and invest in Bitcoin myself. I also use Bitcoin through Revolut for real-world purchases. Later on this page I will show exactly how that works, because buying Bitcoin, holding Bitcoin and actually using Bitcoin are three different things.