How Does Bitcoin Work? Step-by-Step Guide for Everyone
“Why Your Dog Knows More About Bitcoin Than You”
Here’s the thing about Bitcoin: everyone talks about it, but very few actually understand it.
Your barista? Talks about Bitcoin.
Your neighbour? Apparently a ‘crypto genius.’
Even your dog seems to bark every time it hears the word ‘Bitcoin.’
Meanwhile, you’re sitting there wondering if Bitcoin is a currency, a tech trend, or the plot of a new Marvel movie.
Breathe easy, friend. This article is your lifeline.
We’ll break down Bitcoin step by step, like we’re explaining it to a golden retriever (minus the treats).
By the time we’re done, you’ll understand how it works, why people care, and maybe—just maybe—you’ll consider joining the revolution.
Or at least, you’ll finally understand what all the barking is about.
So, you want to know how Bitcoin works? Good for you.
While your mates are still trying to figure out their crypto wallets and muttering about “blockchains” at brunch, you’re here to get ahead of the curve. Smart move.
For those of you who feel Bitcoin sounds like a sci-fi currency or the kind of thing tech bros talk about while drinking cold brew, don’t panic.
this guide will break it down in plain English (with a bit of humour thrown in) so even your nanna can follow along.
Let’s roll.
Bitcoin for Beginners: What Even Is It?
Bitcoin is a digital currency.
Unlike the Aussie dollars in your wallet, Bitcoin isn’t physical.
You can’t lose a Bitcoin between your couch cushions, but you can lose it if you forget your password – so there’s that.
It’s not controlled by a bank, a government, or some shadowy financial overlord.
Instead, it runs on a thing called a blockchain – basically a digital ledger (like a giant spreadsheet) that records every Bitcoin transaction ever made, this ledger can be viewed by anyone that has an internet connection, even you!
Why does this matter?
Because it means Bitcoin is decentralised, transparent, and not subject to wild bank fees or exchange rates. It’s the people’s currency, mate.
Step-by-Step: How Does Bitcoin Actually Work?
- A Bitcoin Transaction Happens
- Let’s say you decide to send Bitcoin to your mate Dave because you lost a bet on footy (tough day for the Tigers).
- Dave gives you his Bitcoin wallet address – think of it like his bank account number but a lot longer and more confusing.
- The Transaction is Verified
- Here’s where the magic happens: instead of a bank verifying the transaction, thousands of computers (called “miners”) around the world check it.
- They make sure you actually own the Bitcoin you’re sending to Dave. No dodgy business.
- The Transaction is Added to the Blockchain
- Once verified, the transaction is added to the digital ledger (blockchain) for everyone to see. It’s locked, secure, and tamper-proof.
- Dave Gets His Bitcoin
- The Bitcoin lands in Dave’s wallet. No middlemen. No delays. Job done.
3 Examples: How Bitcoin Helps You
1. Cutting Out the Bank Fees (Because Why Should They Win?) Imagine you’re sending $1,000 to your sister in the UK for her wedding.
If you go through a bank, they’ll take a nice fat slice for international transfer fees and give you a terrible exchange rate for good measure.
With Bitcoin? None of that.
You send the exact amount, and it arrives faster than you can say, “Why does my bank hate me?”. For expats, travellers, and anyone sick of handing money to middlemen, Bitcoin is a lifesaver.
2. Protecting Your Wealth When Things Go Pear-Shaped - Let’s say the economy takes a nosedive (looking at you, 2008 financial crisis).
Traditional currencies can lose their value overnight, but Bitcoin isn’t tied to any government or financial institution.
It’s often called digital gold because people use it to protect their wealth when the world feels wobbly.
For regular Aussies, this means Bitcoin can act like a backup plan if you want to diversify your investments. It’s volatile, sure – but hey, so is the stock market.
3. Buying Things Without Sharing Your Life Story - Ever bought something online and been asked for everything short of your blood type? Bitcoin offers more privacy.
You can pay for stuff online without linking your credit card, full name, and address to every transaction.
From buying pizza to booking holidays, Bitcoin lets you keep things simple, secure, and low on personal details.
More Bitcoin Uses: Everyday Benefits
Easier Cross-Border Payments
Got family overseas?
Sending money internationally through banks can feel like you’re funding a third-world coup with the fees they charge. Bitcoin makes sending money overseas cheap, quick, and easy. No exchange rate rip-offs. No hold-ups. Just Bitcoin doing its thing.
Microtransactions Made Easy
Let’s say you’re streaming content or reading an online article that costs $0.25.
Paying that amount through traditional banking systems would cost you more in fees than the content itself. Bitcoin allows for microtransactions without the financial fuss. Imagine paying exactly what something costs – no more, no less.
Owning a Piece of the Future
Whether you’re an investor or just a curious cat, Bitcoin represents the shift toward digital money.
It’s decentralised, transparent, and – in many ways – a financial revolution. Even if you own $10 worth of Bitcoin, you’re part of that revolution. And let’s face it – being part of something cool is always worth it.
Why Should You Care About Bitcoin?
Bitcoin isn’t just for tech nerds or people wearing hoodies at 3 a.m. It’s a tool anyone can use to make life easier:
- No more crazy bank fees
- More control over your money
- A hedge when traditional systems wobble
- Privacy in a world obsessed with your data
- Micro-payments without the hassle of middlemen
And let’s be real – knowing how Bitcoin works will also make you sound wildly intelligent at your next dinner party. You’re welcome.
Final Thoughts: Bitcoin for Beginners Made Easy
Bitcoin isn’t as scary or complicated as it sounds.
At its core, it’s just a digital way to send, save, and spend money without the hassle of banks, fees, or long wait times.
Whether you’re curious about investing, want to send money overseas, or just enjoy learning how things work, understanding Bitcoin is a game-changer.
So, go forth and drop some knowledge bombs next time someone asks, “Wait, but what even is Bitcoin?”
Slug: how-bitcoin-works-step-by-step-guide
Meta Description: Learn how Bitcoin works with this simple, step-by-step guide. Perfect for beginners looking to understand Bitcoin, avoid jargon, and see real-world benefits.
Here are some straightforward metrics that beginners can use to assess Bitcoin (see below). CoinMarketCap illustrates many of the below metrics on one page - https://coinmarketcap.com/currencies/bitcoin/
- Price: The current market value of Bitcoin, indicating how much one Bitcoin is worth in fiat currency (e.g., USD, AUD).
- Market Capitalisation: Calculated by multiplying the current price by the total number of Bitcoins in circulation, this metric reflects the total market value of Bitcoin.
- Trading Volume: The total amount of Bitcoin traded within a specific period, showing the level of market activity and liquidity.
- Hashrate: Measures the total computational power used to mine and process transactions on the Bitcoin network. A higher hashrate suggests a more secure and robust network.
- Mining Difficulty: Indicates how challenging it is to mine a new block. The network adjusts this periodically to ensure blocks are added at a consistent rate.
- Transaction Volume: The total number of transactions processed over a certain period, reflecting the network's usage and adoption.
- Number of Active Addresses: Represents the count of unique addresses participating in transactions, serving as a proxy for user activity.
- Fees per Transaction: The average fee users pay to have their transactions processed, which can indicate network congestion and demand.
- Mempool Size: The aggregate size of unconfirmed transactions waiting to be added to the blockchain. A larger mempool can signal higher network congestion.
- Supply Metrics: Includes the total supply of Bitcoin, the number of Bitcoins mined, and the remaining supply to be mined, highlighting Bitcoin's scarcity.
For beginners, focusing on these metrics can provide a foundational understanding of Bitcoin's market dynamics and network health.
This is Part I of your Bitcoin for Beginners: The Quickest Way to Learn About Bitcoin series
By Stevo – Armchair Banker MAppFin, AdvDipFP, ADA
‘Meet Stevo, the financial wizard behind Armchair Banker. With 15 years of experience in investment banking, corporate finance, and markets, Stevo’s résumé is so impressive it could intimidate a spreadsheet.’
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DISCLAIMER: The information in this article does not constitute personal financial advice. Consult your adviser or stockbroker prior to making any investment decision.
MORE DISCLAIMERS: Stevo is not a Financial Adviser, however, works as an Investment Banker assisting ASX listed companies with retail capital raises. All opinions expressed and written by Stevo, including all other ‘Armchair Banker’ contributors is for informational and entertainment purposes only and should not be treated as investment or financial advice of any kind. Any information provided from our articles, blogs and written opinions is general in nature and does not take into account your specific circumstances. Armchair Banker and its contributors are not liable to the reader or any other party, for the reader’s use of, or reliance on, any information received, directly or indirectly, from any content by Armchair Banker in any circumstances.
The reader should always (we’re serious about this):
1. Conduct their own research
2. Never invest more than they are willing to lose
3. Obtain independent legal, financial, taxation and/or other professional advice in respect of any decision made in connection with this video.
Full Disclosure: Stevo holds Bitcoin at the time of publishing.
