Trading Preschool Lesson 1 – Full Lesson List:
In this trading preschool lesson 1, we take a look at what Bitcoin is, in practical terms.
You know when you send ZAR 1,000 to a friend? Well, you don’t mail the cash, do you? Of course not.
You get your bank to send the cash. The bank doesn’t mail the cash either. Instead, the bank has a ledger it shares with all the other banks.
Your bank sends an instruction to your friend’s bank. They tell them to increase your friend’s side of the ledger (balance) by ZAR 1,000. And they decrease your balance by that same amount.
Banking infrastructure is quite old. Some of the technology is still from the ‘70s! So the whole process can take a while, sometimes days. Also, it can cost huge amounts in fees.
The Bitcoin ledger is controlled by the Internet itself. A copy of the ledger is shared by volunteer computers, globally. Anyone, anywhere, can keep a copy.
When you want to send money to your friend, you send a signal to this distributed network of computers to update the ledger.
Just like the above example with the bank, the network will increases your friend’s balance and decreases yours. Only, in this case, the distributed network of computers did it by itself, autonomously.
The transfer process on this ledger is super fast and super cheap, when compared with the bank. Also, anyone can use this ledger. You don’t need anyone’s permission, any forms, or ID.
On the Bitcoin ledger you are sending ‘Bitcoins’; Dollars, Euros, Rand, Yen, etc.
On the bank ledger they use Rand, Dollars, Euros, for example. On the Bitcoin ledger they use; Bitcoins.
Bitcoins are money. You can use them to buy things, pay bills, etc.
The Bitcoin ledger offers near instant money (Bitcoin) transfer, globally, at very low cost.
The Bitcoins only exist as ledger entries. They are not physical. It is virtual currency.
A process called ‘mining’ brings bitcoins onto the ledger. You can mine bitcoins out of the digital crust of the internet. Just like you mine gold out of the Earth’s crust.
There are only 12 million of them at the moment. They are very rare. As result, they are very expensive to ‘dig’ out of the digital ‘crust’ of the internet. There will only ever be 21 million Bitcoins.
Economically, the mining process for bitcoins and gold is the same.
Your bank receives Rand on its ledger from the central bank. The bank prints a lot of them. Some say too many. So, some would argue that Bitcoin is simply better money, for this reason.
Do you feel you now know what Bitcoin is and what it’s all about? Well, we’ve just started! In the next section we’ll reveal why to trade Bitcoin and similar digital currencies. There are plenty of advantages and profit opportunities with trading Bitcoin. We’ll reveal those in our next chapter.