How to buy, sell, transfer and (potentially) make money on bitcoin

Bitcoin for beginners

Everything you need to know.

Bitcoin has taken the world by storm, bringing cryptocurrencies into the public eye and changing the way we think about money.

It’s impossible to talk about cryptocurrencies without talking about bitcoin. Starting from very humble origins and with a view to disrupting government control over public finances, bitcoin has grown to become a powerhouse in the financial sector. More and more merchants, businesses and even governments are adopting the coin, and the blockchain technology behind it, in ways the creator of bitcoin couldn’t have imagined.

In this guide, we’ll take a close look at bitcoin: what it is, how to use it and what it means.

What is bitcoin? A brief history

IconSymbolInitial release dateAlgorithm typeMax. supply
BTC, XBT3 January 2009SHA-25621 million BTC

Bitcoin started as a paper authored by bitcoin’s creator Satoshi Nakamoto, titled: “A Peer-to-Peer Electronic Cash System” (2008). In it, Satoshi – whose real identity remains unknown at the time of writing in October 2017 – details a system for decentralising the financial sector, with the aim of giving power back to the people via an entirely digital transaction system (which would later become known as the blockchain). In January 2009, the first block was mined by Satoshi for 50 bitcoin. While still directly involved in the development of bitcoin, Satoshi is rumoured to have mined nearly 1 million bitcoin, an amount that would, just 8 years later, be worth upwards of US$5.8 billion.


How does bitcoin work?

Before getting started using bitcoin, it’s important to understand how the technology works and the reasoning behind it. This will not only save you a few headaches in the long run, but it will give you a greater appreciation of what’s going on behind the scenes.

The Blockchain

Satoshi’s vision for bitcoin began from a very simple concept: we don’t need a centralised agency controlling our money (ie, the central bank). To accomplish this, bitcoin needs to be maintained by the people using the cryptocurrency, and it does so by using a public ledger, more commonly known as the blockchain. Understanding the blockchain will help you understand the finer points of the currency.

Imagine three people: Alice, Bob and Charlie. They often have to pay money to each other, but to avoid having to make a payment every time they need to, they decide to start keeping a ledger of money owed. At the end of the month, they work out who is owed what and pay them. To avoid having to trust each other with this ledger, they bring on Daryl, a third party who’s been entrusted with maintaining the ledger’s integrity. The ledger might look something like this:

Alice > Bob$10
Bob > Charlie$25
Bob > Alice$15
Charlie > Alice$55
Charlie > Bob$12

Every transaction made with bitcoin is stored in a digital ledger just like that one. Each line signals a sending address, a receiving address and an amount of bitcoin (BTC at the time of writing, but read our later comment about XBT). There is also some additional security information which ensures that the addresses are correct. Each set of transactions is stored on a “block”, like a page in a ledger. Once a block is filled with transactions, it can be mined by miners (we’ll talk about those in a later section too) and is then attached to the previous block to form a chain of such pages or “blocks”: a blockchain.

Public bitcoin wallet address

To instil some sense of anonymity in the blockchain, bitcoin does not hold the personal information of either the sender or receiver in blockchain transactions. Instead, each user gets a public address (a.k.a. wallet address) and these addresses are stored for the transaction instead.

Once a transaction is added to a block, and a block is added to the blockchain, it is said to be immutable: it can neither be edited nor deleted. To understand why, let’s next take a look at decentralisation.

Decentralisation

The problem with this ledger system is readily apparent when we introduce some malice into the system. If Daryl were to cut a deal with, say Charlie, and put in a new transaction showing Alice and Bob owing Charlie money, Alice and Bob are now in a difficult situation. They either have to pay the owed money, trusting Daryl, or refute the idea of the ledger altogether.

Alice > Bob$10
Bob > Charlie$25
Bob > Alice$15
Charlie > Alice$55
Charlie > Bob$12
Alice > Charlie$100
Bob > Charlie$100

To solve this problem, all three participants in our experiment now decide to keep a copy of the ledger. If someone were to tamper with their copy of the ledger, we would simply have to compare it with the others and pick the most commonly consistent ledgers to use.

This is the second important solution provided by the blockchain. This consistency check is built into the blockchain technology – albeit with a little more complexity. Whenever you log in to your copy of the ledger, you’ll see a copy of every single transaction made with bitcoin since its inception, and you will become part of this verification process. This democratisation of the verification process lies at the heart of bitcoin and the blockchain process.

AliceCharlieBob
Alice > Bob$10Alice > Bob$10Alice > Bob$10
Bob > Charlie$25Bob > Charlie$25Bob > Charlie$25
Bob > Alice$15Bob > Alice$15Bob > Alice$15
Charlie > Alice$55Charlie > Alice$55Charlie > Alice$55
Charlie > Bob$12Charlie > Bob$12Charlie > Bob$12
Charlie > Alice$85Alice > Charlie$100Charlie > Alice$85
Bob > Charlie$100

Unless you can convince more than 50% of bitcoin users to remove a transaction for you, then that transaction is essentially set in stone.

Check out our full guide to the blockchain.


Bitcoin mining and block verification

The key problem to be solved next is the idea of transaction verification. While there is no central authority that can decide whether a transaction is legitimate or fraudulent, there still needed to be a system for figuring this out. Bitcoin provides this solution via the act of mining. Miners, who are computer experts rather than people who work with pick-axes, do the complex work of mining.

Using powerful processors called ASICs (Application-Specific Integrated Circuits), miners receive a block of transactions and solve a computationally difficult mathematical puzzle on that block. The details of this puzzle are beyond the scope of this beginner’s guide, but suffice it to say that, once solved, this puzzle guarantees that the transactions on the block are valid and can be considered verified.

Once mined, the miner solving the puzzle attaches the block to the blockchain and receives a small amount of bitcoin for the work. Mining today is highly competitive, and miners have to use the latest Application Specific Integrated Circuits (ASICs) on the market, otherwise the cost of energy consumption to solve the puzzle outweighs the rewards.

Read through our full guide to bitcoin mining here.


Where can I use bitcoin?

Bitcoin is one of the (if not the) most widely accepted cryptocurrencies on the market at the time of writing in October 2017. From online merchants to brick and mortar shops, many service providers have started accepting bitcoin along with fiat currency (ie, regular currencies such as AUD, USD and EUR).

You can use bitcoin to purchase various products and services such as:

  • Electronics, software and gear. Microsoft, Newegg and Dell, for example, all accept bitcoin payments.
  • Flights and travel amenities. Expedia, one of the biggest travel agencies in the world, allows users to pay with bitcoin.
  • Casinos. The bitcoin.com online casino launched in 2016, is completely anonymous and lets you play with bitcoin.

Apart from these big-name companies, lots of smaller merchants and service providers accept bitcoin.


A short history of bitcoin prices

Bitcoin’s been shooting for the moon since its inception, but in 2016-2017, it saw explosive growth. From US$997.69/BTC in 1 January 2017...

...bitcoin grew six-fold to US$6,013.23/BTC in less than 11 months.

Investing in cryptocurrencies, even something as established as bitcoin, does not come without its risks as we saw in the third quarter of 2017 after China’s refusal to accept bitcoin caused the currency’s value to take a hit. But many market experts expect bitcoin to recover and regain its previous upwards momentum.

Bitcoin’s code: XBT or BTC?

When reading about bitcoin, you will sometimes see it referred to as BTC and other times as XBT. So which one should you use? Well, at the time of writing in October 2017, the bitcoin community has not yet reached an official consensus.

Originally, bitcoin’s currency code was BTC, but as it grew and gained widespread acceptance, the International Standards Organization (ISO) gave the currency a new code, “XBT”, with the “X” representing the fact that bitcoin is not tied to a specific government (as per the ISO 4217 standard).

Many users of bitcoin still refer to the currency as BTC though, and this is not likely to change soon even as use of XBT gains traction amongst bankers and financial advisors.

Track the live BTC/AUD exchange rate and view historical charts.

Today's bitcoin price

Historical rate chart of BTC and AUD

1 = 0 Updated: 23 Nov 2017 22:03:12 UTC

Can bitcoin be profitable?

Bitcoin, like other crypto coins, is extremely volatile and the value of the currency remains unpredictable. News and seemingly unrelated events affect its price greatly, sometimes positively, sometimes negatively. However, if you’d like to take the plunge and invest in bitcoin, here are two ways to do that:

  • Get paid in BTC

The fastest way to grow your wallet – bitcoin or otherwise – is to start getting paid with bitcoin. If you have an online shop, add a “pay with bitcoin” button to your shopping cart. As an online service provider, you might consider asking your clients whether they’d like to use bitcoin for payment. However, if you have a brick and mortar shop, you could print out your bitcoin wallet’s address QR code and stick it next to the checkout so people will be able to scan it and send you bitcoin instantly. And if you’re an employee, why not ask your employers if they’d be interested in paying your salary in bitcoin instead of fiat?

  • Invest in bitcoin

    The information we publish about bitcoin should not be interpreted as either an endorsement of the currency or a recommendation to invest. As an investment class, cryptocurrencies are speculative investments and investing in cryptocurrencies involves significant risks – they are highly volatile, vulnerable to hacking and capital loss and sensitive to secondary activity. Historic performance is no guarantee of future returns. Before investing you should obtain advice and decide whether the potential return outweighs the risks.

If instead you’d like to play the bitcoin market, you can invest in bitcoin and wait for your wallet to grow on its own. This works just like any other market trading process: buy bitcoin from a reputable cryptocurrency exchange when the value is low and sell it when it’s high. For example, if you had bought $10,000 worth of BTC on 26 July 2017 (3.92129183 BTC) and sold three months later on 21 October 2017 for $23,579.63, you would have made over $13,500 profit and more than doubled your investment.

When it comes to investing with bitcoin, keep in mind that past performance is not always an indicator of future performance, and with cryptocurrencies still in their infancy, large dips in value do occur.

Compare bitcoin exchanges

Details Features
CoinSpot Cryptocurrency Marketplace
CoinSpot Cryptocurrency Marketplace
CoinSpot is an Australian marketplace that allows you to easily buy, sell or exchange multiple cryptocurrencies using AUD.
  • Buy/sell Bitcoin Cash & Bitcoin Gold
  • Fees: 1-3%
  • Supported countries: Australia & New Zealand
  • Payment methods: BPAY, POLi, cash
Go to site More info
Bitfinex Multi-coin Exchange
Bitfinex Multi-coin Exchange
Spot trade all of the major cryptos on this full-featured exchange and margin trading platform. View a demo before you get started.
  • Trade Bitcoin Cash & Bitcoin Gold
  • Fees: Range from 0%-0.2%
  • Supported countries: Worldwide
  • Payment methods: Cryptocurrencies
Go to site
CEX.IO Cryptocurrency Exchange
CEX.IO Cryptocurrency Exchange
Use your dollars, euros or rubles to buy and sell bitcoin at competitive exchange rates and with high maximums for verified accounts.
  • Buy/sell Bitcoin Cash
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: Wire, Credit/Debit, AstroPay
Go to site
HitBTC Multi-currency Exchange
HitBTC Multi-currency Exchange
Buy crypto with fiat (USD/EUR) and trade over 150 other digital assets on this Europe-based exchange platform.
  • Buy/sell Bitcoin Cash & Bitcoin Gold
  • Fees: Varies by transaction type
  • Supported countries: Global, with exceptions
  • Deposit methods: USD/EUR/Crypto
Go to site
Binance Cryptocurrency Exchange
Binance Cryptocurrency Exchange
Trade 60+ cryptocurrency pairs on this up-and-coming exchange based in China. Multi-language support.
  • Trade Bitcoin Cash & Bitcoin Gold
  • Fees: 0.1% trading fee
  • Supported countries: Worldwide
  • Deposit methods: BTC, ETH, LTC, NEO & BNB
Go to site
Changelly Crypto-to-Crypto Exchange
Changelly Crypto-to-Crypto Exchange
Access competitive crypto-to-crypto exchange rates for more than 35 cryptocurrencies on this global exchange.
  • Buy/sell Bitcoin Cash
  • Fees: 0.5% + networking fees
  • Supported countries: Worldwide
  • Payment methods: USD, EUR, 35+ cryptos
Go to site
Coinbase Digital Currency Exchange
Coinbase Digital Currency Exchange
Buy and sell bitcoin, Ethereum and Litecoin on one of the world's most renowned cryptocurrency exchanges.
  • Fees: Varies by transaction
  • Supported countries: 190 countries
  • Payment methods: Bank transfer, Credit/debit card, Wire
Go to site
LocalBitcoins P2P Exchange
LocalBitcoins P2P Exchange
Trade fiat currency for bitcoin in person or online with this peer-to-peer exchange offering competitive fees and wide delivery options.
  • Fees: 1% commission for each completed operation
  • Supported countries: Exchangers in 248 countries
  • Payment methods: PayPal, Credit/Debit and more
Go to site
Indacoin Cryptocurrency Exchange
Indacoin Cryptocurrency Exchange
Use your credit or debit card to buy bitcoin and other cryptocurrency without having to verify your identity.
  • Fees: Varies by transaction
  • Supported countries: More than 100 countries
  • Payment methods: Payza, Credit/Debit cards (USD) and more
Go to site
Paxful Bitcoin Marketplace
Paxful Bitcoin Marketplace
Connect with bitcoin buyers and sellers through this peer-to-peer marketplace that accepts cash, credit and more than 300 other payment methods.
  • Fees: Varies by transaction, and PayPal no fees
  • Supported countries: Worldwide
  • Payment methods: Western Union, PayPal and many more
Go to site
BitMEX Bitcoin Trading Exchange
BitMEX Bitcoin Trading Exchange
Trade cryptocurrency derivatives with high liquidity for bitcoin spot and futures, and up to 100% leverage on margin trading.
  • Fees: Varies by trading type
  • Supported countries: Worldwide with exceptions
  • Deposit methods: BTC only
Go to site
Bitbond P2P Bitcoin Lending
Bitbond P2P Bitcoin Lending
This global P2P bitcoin lending platform offers competitive interest rates for lenders and flexible financing for bitcoin borrowers.
  • Fees: Varies for lender/borrower
  • Supported countries: 50+ countries
  • Payment methods: Bitcoin, US dollars, euros, Kenyan shillings
Go to site
VirWox Virtual Currency Exchange
VirWox Virtual Currency Exchange
Buy bitcoin through PayPal on one of the oldest virtual currency exchanges in the business.
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: PayPal, Skrill, paysafecard, uKash
Go to site
eToro Social Crypto Trading
eToro Social Crypto Trading
Copy the trades of leading cryptocurrency investors on this unique social investment platform.
  • Fees: Spreads
  • Supported countries: Worldwide (some exceptions)
  • Payment methods: Credit card, PayPal, bank transfer
Go to site
Coinmama Bitcoin Marketplace
Coinmama Bitcoin Marketplace
Use USD/EUR to buy bitcoin and Ether with credit card or cash on the Coinmama cryptocurrency exchange.
  • Fees: 5.5% + 5% for credit card
  • Supported countries: 226 countries worldwide
  • Payment methods: Credit/debit card, cash
Go to site
xCoins P2P Bitcoin Lending
xCoins P2P Bitcoin Lending
Buy bitcoin instantly with credit card, PayPal or bank account on this peer-to-peer lending platform.
  • Fees: Varies by transaction
  • Supported countries: 40+ countries
  • Payment methods: Credit card, PayPal, bank transfer
Go to site
Cryptex24 Exchange
Cryptex24 Exchange
Buy and sell crypto and other digital currencies on this global fixed-rate exchange.
  • Fees: Varies by transaction
  • Supported countries: Worldwide
  • Payment methods: Western Union, MoneyGram, Perfect Money & more
Go to site
24/7 Cryptocurrency Exchange
24/7 Cryptocurrency Exchange
Easy, safe and instant way to buy, sell or exchange bitcoin and other popular altcoins like Litecoin and Namecoin.
  • Fees: Varies by transaction
  • Supported countries:Local payment options in 110+ countries
  • Payment methods:Credit/debit card, money transfer and more
Go to site

How to get bitcoin

Sending and receiving bitcoin is a simple process as long as you’ve set up two things:

  • An account on a digital currency exchange. There are many currency exchanges available online from which you can purchase bitcoin. Check out our currency exchange page for information on how to choose the best one for your needs. After you’ve created an account and exchanged some fiat currency for bitcoin, the next step is to set up a wallet.
  • A bitcoin wallet. Again, there are many wallets you can use for bitcoin, and your best bet to choose one that fits your needs is to check out our guide here. Once you’re all set up, you’re ready to start paying for products or services. Simply follow the instructions for your wallet of choice and you’ll be trading bitcoin in no time.
Details Features
Ledger Nano S Wallet
Ledger Nano S Wallet
Securely store some of the world's leading cryptocurrencies on the Ledger Nano S hardware wallet.
  • Features: OLED display, USB connection
  • Multi-currency support: BTC, ETH, LTC & more
  • Security: PIN, backups, advanced passphrase
Go to site
Trezor Wallet
Trezor Wallet
Trezor hardware wallet is a secure way to keep your cryptocurrency safe from hackers and malware.
  • Features: OLED display, cross-platform support
  • Multi-currency support: BTC, DASH, LTC & more
  • Security: PIN, 2-factor authentication
Go to site
KeepKey Wallet
KeepKey Wallet
Protect your digital assets from hackers with the virus- and malware-proof KeepKey hardware wallet.
  • Features: OLED display, USB connection
  • Multi-currency support: BTC, ETH, LTC & more
  • Security: Private key, PIN, recovery sentence
Go to site

What to watch out for

Bitcoin is not without its pitfalls, and many of those come from its perceived growth and wide acceptance.

Bitcoin exchange scams

Because bitcoin is one of the most traded cryptocurrencies, it has attracted its fair share of scammers and phishing websites, most in the form of exchanges. Before giving your money to an online exchange, make sure that they:

  • Use HTTPS not HTTP
  • Require identity verification
  • Have good reviews online from reputable sources
  • Allow payments via credit cards and bank transfers (this way you’ll be able to get help from the bank if it’s a scam)

Tons of competition

Even though bitcoin paved the way for all the other altcoins available on the market, some coins are doing things that are far more interesting than bitcoin. At the time of writing, Ethereum is riding hot on the heels of bitcoin with its far more innovative features built on the blockchain, including smart contracts and decentralised apps. This is causing companies to pivot away from bitcoin and towards more exciting altcoins.


What’s next for bitcoin?

Bitcoin has been around since 2009, but its future remains promising, with important changes coming its way.

SegWit upgrade

In 2017, the bitcoin community’s main concern was how to better improve performance and transaction times. As more and more users flock to bitcoin, these have suffered, causing the system to take too long to verify transactions – sometimes up to 10 minutes – while other altcoins do it in under a minute.

This software upgrade has been a long time coming and should see bitcoin return to lightning speed transaction verification times and even cheaper transaction fees.

Acceptance on the rise

Every day, more and more merchants are joining the bitcoin community. While this continues, bitcoin’s value will continue skyrocketing. With wider acceptance will surely come some regulation from governments around the world. This is inevitable, but might not be the killing blow that many bitcoin users fear. Regulation would provide some peace of mind to businesses and organisations that are still afraid of getting their feet wet.

Dive deeper into bitcoin

Frequently asked questions

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    2 Responses

    1. Default Gravatar
      Jo-AnneOctober 30, 2017

      If I invest in Bitcoin does it actually represent real Australian dollars that I can withdraw from my normal bank account?

      • Staff
        LiezlNovember 2, 2017Staff

        Hi Jo-anne,

        Thanks for your question.

        In order to withdraw your bitcoin, you have to convert it into cash. You would have to look for a bitcoin exchange that will allow you to sell your bitcoin at a reasonable price. You can then withdraw the cash proceeds from your bank account once you have it linked to a digital wallet. Kindly note that you need to set up a bitcoin wallet in order to buy and sell bitcoins. Moreover, bitcoin’s value is volatile hence, the current value of your bitcoin can be higher or lower than your original investment. We have a guide on this page that might help you understand the basics of cryptocurrencies like bitcoin.

        I hope this helps.

        Cheers,
        Liezl

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