What Is Bitcoin (BTC)? All You Need To Know
- December 27, 2022
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Bitcoin is the first cryptocurrency, which are decentralized digital currencies, based on the blockchain, BTC is the native coin of the Bitcoin network. It was invented in 2009 by a person or group of people under the alias of Satoshi Nakamoto.
It is a peer-to-peer network, so that means that transactions are happening between users directly and without a 3rd party to oversee the transaction such as Paypal, Stripe, or any of the banks.
The reason why this is possible is because of blockchain technology which puts all of the transactions on a decentralized ledger. A ledger is pretty much an accounting book, but with the add-on of blockchain, it turns into a decentralized accounting book or ledger. This is important because you can have an accounting book that cannot be tampered with or changed by any other party.
The blockchain is basically what is called a distributed database, meaning the database is stored in multiple physical locations, and the processing is distributed between the different computers running the nodes.
All new transactions are recorded on what’s called a block, which is then linked onto the blockchain.
When a new block with the transactions is added to the blockchain, there is nothing that can change it. This is what makes bitcoin and blockchain important. Any bitcoin transaction is accurate and unable to be changed by any central authority.
Who Invented Bitcoin and What Year Did Bitcoin Start?
Bitcoin was invented by one or many individuals under the pseudonym Satoshi Nakamoto. Bitcoin’s creator was well known within cryptography circles way before it was launched having participated in many cryptography discussions online. He published the whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System” on October 2008. The paper described a peer-to-peer system that allowed two parties to transact electronically without the need of intermediaries.
Bitcoin would serve as the foundation of other cryptographically backed currencies and systems based on a distributed ledger. A system that is tamper proof, transparent and censorship resistant.
If you’re wondering how old BTC is, it’s 13 years old. The first genesis block was mined on January 3rd, 2009. Understanding all aspects of BTC is important, so learning about Bitcoin mining is essential to understanding what a genesis block is.
How was Bitcoin created?
BTC is created through Bitcoin mining. Satoshi was the first to mine BTC through the genesis block thus launching the blockchain. Despite his identity remaining a mystery over the years, his intention with BTC was clear.
He aimed to decentralize the financial system and give power back to the people. Bitcoin was the result of the great financial crisis of 2008 that showed even the largest banks could fail. Nakamoto is believed to be one of those affected by the crisis and being the cryptography genius he was, he published the Bitcoin whitepaper on October 31,2008. The next year on January 3, 2009, Bitcoin mining began.
What does Bitcoin do?
Bitcoin is a digital token distributed on an open-ledger that records transactions using blockchain technology through a decentralized network of computers. It acts as a store of value.
How many Bitcoins are there?
There are currently 19,234,137 coins circulating, but the full supply is actually 21,000,000. The full supply will be reached some time in 2140. That is the approximate time when the last Bitcoin block will be mined.
Who controls Bitcoin?
Bitcoin is a peer-to-peer technology that runs without a intermediary. The management of transactions and issuing of coins are carried out by the network. Bitcoin is an open-source blockchain designed to be public.
How does Bitcoin work?
To understand how Bitcoin works, you need to understand the blockchain. This is the system that allows the cryptocurrency transactions to take place on a public ledger. Like the name, it’s made up of blocks that are chained together. When a new transaction takes place, they are added to the next block. That means the new block holds information about all the transactions that have taken place up until that time.
The blockchain is referred to as a distributed ledger, which is also a public ledger, as it holds information on BTC transactions and is kept by various entities within the BTC network. These are known as nodes, the nodes are networks of computer systems participating in the network. Their role is to help in validating transactions.
When a new transaction comes in, nodes or miners will compete to validate if it’s correct. The process involves solving complex mathematical puzzles and requires a lot of computing power. The node that gets its correct first is rewarded with Bitcoins. And this is how new bitcoins enter the system.
Bitcoin transactions require two holders of digital wallets to use their private keys to sign off on the transaction to create new blocks. The miners then verify transactions by solving algorithms which add the new block to the previous blocks on the bitcoin blockchain. Here is a deep dive into how bitcoin wallets work.
What Backs Bitcoin or Gives Bitcoin Value?
BTC isn’t backed by anything, but it is currently the best DIGITAL store of value in the world. There is no other form of currency in the world right now that is as impenetrable(because of blockchain and the Proof-Of-Work consensus) and with a limited, unchangeable supply.
As opposed to fiat currencies like the US dollar, transactions cannot be reversed by a payment processor, or central authority like a bank.
In a way BTCis a better version of gold. Gold is the world’s oldest store of value because regardless of inflation or devaluation of a fiat currency, gold maintains its value. BTC is volatile because of its infancy, but has the same characteristics of storing value amidst the inflation of currencies or unstable governments. Venezuela is a good example of people turning to BTC to maintain their wealth instead of letting inflation destroy the value of their assets.
It’s created, distributed, traded and stored on a distributed ledger. The ledger is secured cryptographically using a process called mining.
- Utility: BTC is used as a store of value, as well as a method of payment. You can argue that it is used more as a store of value, and a hedge against the fiat currency system.
- Trust: BTC is built and protected by using through the Proof-of-Work consensus on a decentralized ledger. It operates without the need of a 3rd party payment processor, central bank, or any other financial institutions.
- Limited Supply: The max supply of bitcoin is 21,000,000. There will never be more than that in circulation, and it cannot be changed. A limited supply with high demand means that the value will increase.
- Speculation: As with any asset speculation plays a role in an asset’s pricing. It is no different for Bitcoin, investors see it as a hedge to the current monetary system.
Is Bitcoin A Good Investment?
Bitcoin is a good investment if you believe in the intent of its creation, institutional investors have invested already believing it is a worthy digital asset. Satoshi Nakamoto wrote in a forum post on February 11, 2009, that the purpose of bitcoin is that it is completely decentralized without the need of a central server or trusted parties. Everything is based on cryptographic proof instead of the reliance on trusting a central bank.
Criticisms Against The Central Bank
The main criticism against the central bank system is that it requires trust to make it work, with multiple points of potential failure.
- Trust to not debase the currency, which the US government did when they got off the gold standard in 1933. Also, in present times where they’ve caused massive inflation.
- Trust to hold on to the money
- Trust they won’t lend out money irresponsibly. They lend out our money with barely a fraction in reserves, causing huge bubbles.
- Trust them with our privacy
- Overhead costs make micropayments impossible
How to get Bitcoin?
- Buy from a centralized cryptocurrency exchange
Cryptocurrency exchanges will allow you to sign up and use fiat or any other supported cryptocurrency to buy bitcoin. Read our reviews of cryptocurrency exchanges here.
- Buy from payment service companies like Paypal, CashApp, Venmo, etc.
Payment services are also an alternative. For example, you can use PayPal, CashApp, Venmo and any other service that allows for the buying and selling of virtual currencies.
- Get paid in BTC, or other cryptocurrencies
Additionally, there are a few ways to get BTC for free. Some popular ways include freelancing for BTC. You complete tasks assigned to you and get paid in BTC.
- Mine your own Bitcoin
The first is through Bitcoin mining. This involves use of highly specialized computers known as miners with high computing power to solve mathematical puzzles thus validating transaction. However, as the number of mineable bitcoins has dwindled, this endeavor has become arduous.
You need heavy capital investment to be able to mine Bitcoin successfully on your own. Buying the type of miners needed to compete with established mining rigs will set you back a few million dollars.
- Join mining pools
An alternative way is to join mining pools where you pull your computing resources with others to have a better chance of finding a block or validating a transaction. In return you are rewarded with bitcoins plus the attached transaction fees. The reward is shared among the pool participants according to the amount of processing power they contribute.
How to Buy and Sell Bitcoin?
There are three things to consider when buying Bitcoin. These include the payment method, platform used and where your coins will be stored. For payment methods, these will range from bank transfer using a bank account, credit card, debit card, face to face, payment app (Apple Pay, PayPal, Google Pay, Samsung Pay, etc) and even barter. However, each mode carries its trade offs when it comes to convenience, associated fees and privacy.
As for platforms, you can opt to use centralized crypto exchanges, digital wallet providers, OTC desks, peer to peer marketplaces and payments apps such as PayPal. Bitcoin ATMs are another option and face to face lets say in case you are dealing with a trusted party.
That said, there are a few options for where your coins go after you buy them. The first is a Bitcoin wallet that you have full control over. It’s referred to as a custodial wallet. The other option is a wallet that someone else has control over such as one controlled by a centralized exchange or payment app like PayPal.
How to use Bitcoin?
Bitcoin was meant to serve as a peer to peer mode of transacting. However, its network can process only 7 transactions per second which puts it at a disadvantage compared to popular payment modes such as Visa. For the network to achieve mass adoption as a payment system, much has to be done. A lightning network has been launched and it’s working on this.
That said, Bitcoin is still used as a payment mode as you will see in this section. Other than payments, Bitcoin serves as a store of value. It’s dubbed as, “digital gold” thanks to its limited supply. However, its detractors will point to the high volatility within the crypto market as one of the reasons this use case doesn’t hold weight.
One area that is pushing Bitcoin adoption for payments is online shopping. Here transactions can be done quickly especially if you are using QR codes on your mobile phone wallet. So far, it’s possible to use the Bitcoin network to make payments in the following online stores: Overstock, Home Depot, Newegg, Shopify, and Microsoft. There are also restaurants and supermarkets that accept Bitcoin such as Subway, Burger King and Whole Foods.
You can also use the Bitcoin network to purchase services from companies such as AT&T, Twitch, Dish Network, ExpressVPN, NordVPN, ProtonMail, Vultr, WordPress, Reddit, Namecheap, Bloomberg, Chicago Sun, Times, etc.
It’s also possible to use the digital currency to purchase online games such as Xbox, Humble Bundle, and Big Fish Games.
A few travel companies also accept Bitcoin as a payment mode. These include Expedia, AirBaltic and Virgin Galactic. Additionally, several taxis will take payment in Bitcoin. And if you love giving to non profit organizations that push various agendas the likes of The Giving Block, Wikileaks, and Wikimedia Foundation will gladly take Bitcoin donations.
That said, there are a few luxurious ways to spend your coins such as buying cars online using BitCars, AutoCoinCars, and Prestige Car kent. Buying real estate online using Bithome. And, buying Yachts on Denison Yacht Sales and luxury watches at Prestige Time.
Why is it important to hold your private keys?
If the platform that you use to buy, sell or trade Bitcoins goes down, you will have access to your coins. The recent FTX fiasco is a good example of why you should self-custody your coins by holding your private key. You should move your coins off any exchange when you buy cryptocurrency, which is super important when you invest in cryptocurrencies.
What options do I have to protect my coins?
Cold wallets are the best for storing your crypto holdings. A cold wallet is a wallet that is created on a computer off-line that has never touched the internet, thus your private key should never be exposed.
The most popular are hardware wallets such as Ledger and Trezor. Hot wallets are an option too however they present a risk as they are connected to the internet. A hot wallet is any wallet that has been exposed to the internet. Using a hot wallet can be extremely risky as a long term solution.
What does it mean to hodl Bitcoin?
It just means to hold bitcoin forever because you believe in its value.
What is a satoshi?
A satoshi is a BTC divided down to a hundred millionth
How much is one bitcoin?
As of December 23, 2022 1 BTC is worth $16867 USD
What will be Bitcoin’s price by the end of 2023?
Bitcoin’s price has risen dramatically in the past after a bear market. The same can be expected if the market bounces back in 2023.