Bitcoin

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The first real-life Bitcoin (BTC) transaction happened in May 2010 in the US state of Florida, when Laszlo Hanyecz spent 10,000 BTCs for two pizzas that retailed for $25. 

Little did he or anyone know how Bitcoin would revolutionise the financial world. Had he held on to those Bitcoins until April 2021, he could have been $680 million richer.

Bitcoin is the face of cryptocurrency, and rightly so, as it was the first one in the market. Bitcoin challenged the traditional idea of money and who controls and regulates it. 

What’s Bitcoin, and what’s its purpose? How does it gain value without a centralised bank regulating its use? How can traders and investors make money out of this cryptocurrency?

This article includes information about Bitcoin, its history, and how to obtain this asset. This write-up also discusses how to earn money through Bitcoin and whether Bitcoin trading is worthwhile.

Learning about the principles of virtual currency can help you understand Bitcoin technology and how it works.

Key Takeaways

Bitcoin has taken the market by storm at the height of its popularity and still stands its ground despite the emergence of other cryptocurrencies.

• There are currently over 19 million Bitcoins (BTCs) in circulation today. Cryptocurrency users expect that the total number of BTCs they can mine is 21 million.

• Bitcoin is a decentralised form of currency that is almost immune to political and ideological manipulations.

• Despite the Bitcoin creator’s anonymity, Bitcoin users agree that its creator is Satoshi Nakamoto. He first proposed a decentralised form of currency in 2008 and introduced Bitcoin to the world in 2009. 

Many believe that Nakamoto mined nearly one million BTCs, the largest Bitcoin cache, valued at around USD 23 billion as of March 2023.

What Is Bitcoin?

Bitcoin or BTC is a virtual currency or digital asset with a monetary value people can use for payments independent of any third-party involvement, like central banks or any financial institution. 

BTC ushered in the rise of cryptocurrency, a term that describes any digital currency kept safe by cryptography. Mathematical formulas encrypt digital currencies like Bitcoin, making it almost impossible to counterfeit.

Understanding Bitcoin

One defining feature of Bitcoin, or any cryptocurrency available today, is its decentralised nature. The benefit of having no central authority over this digital currency is that cryptos can be immune to government manipulation or interference.

What Is Bitcoin Mining?

Bitcoin mining is the method of “creating” new bitcoins in the market. You can store your bitcoins in a cryptocurrency wallet, which you can use to purchase items online whenever applicable.

Acquiring bitcoins is likened to mining because you only need “brute” strength to get the prize. Bitcoin mining is similar to the old gold rush in California, where prospectors flocked in droves, relying on their digging and sifting prowess to find gold. 

In Bitcoin mining, you need a computer capable of running a mining program that solves complicated mathematical problems to earn a bitcoin. 

Imagine you’re a miner chipping into a Bitcoin block. With every math problem you solve, you dig into the centre of a hash to get that valuable digital currency.  

A hash is a mathematical function that creates a “secret code” by turning each piece of information into an encrypted output of a specific length. A miner solves a mathematical problem to get this hash, which is the code for a specific Bitcoin value or a block reward. 

What Is the Purpose of Bitcoin?

Financial transactions depend on financial institutions like banks, even if your transactions are online. You can’t buy, sell, or trade anything without going through banks. 

The problem is that government policies, political events, interventions, and interferences can influence money institutions.

On the other hand, Bitcoin uses blockchain technology, allowing peer-to-peer transactions in a decentralised online network. This sense of freedom appeals to many, especially those desiring to be free from the binding reins of financial institutions. 

In financial terms, the movement towards accepting currency decentralisation is called DeFi (decentralized finance). 

Bitcoin’s Blockchain Technology

Blockchain technology is what’s powering this digital currency. A Bitcoin blockchain is kept secure by encryption methods that are almost impossible to crack. A blockchain is a ledger with a shared database to store Bitcoin data. 

Using blockchain technology for digital currency was also proposed by Satoshi Nakamoto, the alleged creator of Bitcoin. 

How Does Bitcoin Work?

Bitcoin is a digital currency or asset you can store in a digital wallet. Each “coin” represents the current value of BTC in the market. 

Bitcoin is built on a blockchain, a network of BTC users with digital copies of a Bitcoin ledger to confirm and verify BTC transactions through its public transaction history. 

A Bitcoin transaction starts with a hash, the digital code specific to your bitcoins. Everyone in the network can trace each transaction, and those with the ledger can verify it. 

If you want to turn your bitcoins into cash, you can send them through platforms like Coinbase or Kraken, agree to the conversion rates, and receive the money.

What Makes Bitcoin Unique?

Bitcoin is uniquely positioned as the first cryptocurrency to appear in the market. Bitcoin transactions are relatively secure because of the blockchain information or digital record of transactions made using this currency. 

You can trade Bitcoin in cryptocurrency exchanges similar to other fiat currencies in the market. Fiat currencies include the U.S. dollar, euro and British pound sterling.

Unlike the old currencies backed by precious metals like gold and silver, fiat money is backed entirely by the people’s faith and trust in their government.

As of May 2023, the crypto market cap’s worth is $1.17 trillion, while Bitcoin tops at $525 million. These figures change every 24 hours.

Crypto Wallets

Like physical wallets where you store cash, crypto wallets also hold Bitcoin assets. Digital wallets designed for crypto have passkeys or security measures that protect your data from tampering and theft. An example of a crypto wallet is Coinbase. 

Management: Who Are the Founders of Bitcoin?

Bitcoin became public in 2009 after it was created by a developer or developers using the name “Satoshi Nakamoto.” 

Nakamoto published a whitepaper (an informative paper about a decentralised currency system) before the release of the first bitcoin.  

The first bitcoin was mined from the first block (now called the Genesis block) on January 3, 2009, and it started influencing people to try cryptocurrency. 

BTC also inspired the development of other cryptos like ether (ETH), the native cryptocurrency of the blockchain-powered platform Ethereum. The newest upgrade to the Ethereum blockchain is called “The Merge.”

How Does Bitcoin Have Value?

Bitcoin’s value comes from the following:

• The supply and demand for Bitcoin: This digital currency has a fixed and predictable supply. According to estimates, only 21 million bitcoins will ever exist.

• Bitcoin uses an open-source, transparent code: Anyone can independently verify the entire Bitcoin supply and its transaction history recorded in the global ledger or blockchain.

• The cost of mining bitcoins: The BTC price is driven by the bitcoin miners’ production cost. 

The miners must have a computer setup that’s powerful enough to solve mathematical problems to mine the Bitcoin hash and pay for the corresponding power consumption. 

• Media attention and the news: When more people see Bitcoin as real money instead of an alternative, its value increases.

What Is Bitcoin’s Role as a Store of Value?

“Store of value” means a commodity or asset that maintains its value without depreciating. Precious metals like gold are good examples of commodities with a store-of-value characteristic. 

Meanwhile, Bitcoin’s store-of-value feature is still debated. Still, many crypto users believe that the widespread adoption of Bitcoin may result in a paradigm shift in the financial world.

Bitcoin Price: How Much Is Bitcoin?

The price of Bitcoin, like other currencies, fluctuates day to day, and traders see this happen in real time. As of May 2023, and according to Binance.com, the price of BTC is $27,036.24. 

However, some investors predict that BTC prices can soar up to $1 million by 2025. 

How Do You Buy Bitcoin?

You can buy BTC through the following methods:

1. Buy BTC through PayPal.
2. Buy BTC using credit cards.
3. Buy BTC in a Bitcoin ATM (automated teller machine).

Note: Bitcoin ATM has required government-issued identification since 2020.

How Much Bitcoin Is in Circulation?

BTC has a limited supply, unlike other forms of currency where central banks can inject money into circulation. 

According to estimates, Bitcoin has a cap of 21 million, meaning no new bitcoins will be released after the 21-million limit is reached. Currently, 19 million BTCs are in circulation, so only two million coins remain to be mined. 

How Is Bitcoin Used?

BTC is a currency that you can use for peer-to-peer payment systems. However, because of growing competition from other cryptocurrencies, BTC is also increasing in use. 

Here are the different ways people are using bitcoins. 

Payment

You can use BTCs for payment. However, you’ll need a cryptocurrency wallet first. These digital wallets can hold the private keys of your bitcoins. 

You can use BTCs to pay for goods and services from merchants, stores, and retailers that accept cryptocurrencies. 

For instance, Elon Musk, owner of Tesla Corporations, announced that people can now buy Tesla cars using Bitcoin. 

Investing and Speculating

Investing and speculating are two different activities where you can use BTCs. 

Investing is allocating money to something stable and growing to achieve a positive return over time. 

On the other hand, speculation is buying stocks, shares, or securities in the hopes of a more significant payout after a given period. 

How to Mine Bitcoin

To mine BTCs, you’ll need powerful computers to solve complex computer problems, which are mathematical puzzles called proof-of-work (POW). 

After the miner provides the solutions and validation of transactions and adds them to the blockchain, they get a portion or an entire BTC as a reward minus the transaction fees. The resources needed to mine BTC can be too much for an average trader.

How Is Bitcoin’s Technology Upgraded?

BTC technology improves through upgrades called “hard fork and soft fork.” 

A hard fork is a radical protocol change that validates previously invalid transactions, requiring all users to upgrade. This upgrade is essential because the validation of BTX transactions is peer-to-peer. 

Let’s say users X and Y disagree on whether a transaction is valid. In that case, a hard fork only validates the transaction to both users.

A soft fork is a change in protocol that only affects previously valid transactions and makes them invalid. 

When the majority wants to enforce new rules about BTC, they can use a soft fork upgrade to make the necessary changes. 

An example of a soft fork upgrade is recognising new blocks or BTC transactions. Old nodes or BTC users with ledgers verify each transaction.

What Is Taproot?

A significant upgrade made for BTC technology is the Taproot upgrade. Multiple transaction verifications are streamlined and made efficient by requiring digital signatures on BTC’s network for transaction verification. 

Before Taproot’s application, all multi-signature transaction verifications on Bitcoin’s network were slow because every digital signature had to be validated versus a public key. 

What Is the Lightning Network?

The lightning network is a secondary layer for Bitcoin that uses micropayment channels to make transaction handling and blockchain capabilities efficient and cheap. This technological solution aims to resolve glitches linked to Bitcoin by introducing off-chain transactions. 

A channel is a mechanism between two parties, where each can do payment transactions with the other.

Risks of Investing in Bitcoin

Despite the positive reviews and benefits claimed by BTC enthusiasts, there are still risks in investing in Bitcoin.

1. Market volatility and price fluctuations: As with other currencies, Bitcoin may experience price fluctuations and rising or falling exchange rates. 

1. The threat of cyber theft: Despite the security systems created to protect Bitcoin data, hackers and cybercriminals still threaten your earnings. 

1. The threat of fraud and scams: The popularity of Bitcoin can fuel the proliferation of fraudsters and scammers capitalising on the crypto trend by making fake exchanges where people can get scammed for their money. 

1. The looming threat of regulation: Though Bitcoin has its ecosystem detached from central banks and traditional financial institutions, the government can still affect its use by limiting its circulation within national borders. 

For example, in 2021, the Chinese government made cryptocurrency illegal for its citizens. Meanwhile, the government in India imposed a 30% tax on all crypto transactions.

1. Technical problems: You can store your BTCs in a cryptocurrency wallet or on your hard drive or computer. However, if you happen to lose your private key or your hard drive crashes or gets corrupted, you could lose access to your funds.

1. Links to illegal activities: A report released by Chainalysis revealed that the kinds of illegal activities that use bitcoins range from ransomware, hacking, terrorism, human trafficking, and child sexual abuse. 

Chainalysis is an American-based firm that provides blockchain data and analysis to governments.

What Are the Problems With Bitcoin?

Environmental footprint is a real problem with Bitcoin mining. The mining process requires powerful computing devices that consume large amounts of energy.

Approximately 60% of the electricity that powers Bitcoin mining machines is generated from sustainable sources.

Bitcoin Energy Consumption

Bitcoin mining consumes about 132TWh (terawatt hours) per year, exceeding the energy consumption of Norway, which was about 123TWh in 2020. 

It’s been calculated that cryptocurrency activities like mining emit 25 to 50 million tons of carbon dioxide into the air due to excessive energy consumption.

FAQs

• How is the Bitcoin network secured?

You can keep your Bitcoin stash safe using offline wallet storage and other data storage devices. Here are some security measures to consider: 

1. Transaction hashing: When you conduct transactions using Bitcoin, you encrypt and decrypt a long string of code called a hash. When you send one bitcoin into the network, you convert the digital asset into an encrypted hash that’s difficult to decipher by brute force. 

1. The proof of work in mining: When a miner successfully “mines” a bitcoin, other miners in the blockchain network confirm the process. This confirmation process is the miner’s proof of work.

1. Transaction block confirmations and distributed ledgers: An attempted reversal of a Bitcoin transaction is challenging. Once your bitcoin is in the blockchain network, each miner has a “node” that helps verify any transaction, making it almost impossible to fake.

• Who are the largest corporate holders of bitcoins?

Satoshi Nakamoto is estimated to have the most extensive stash of bitcoins. Many believe Satoshi Nakamoto possesses around one million bitcoins spread over more than 22,000 addresses. 

As of May 2023, Grayscale Bitcoin Trust is the largest corporate holder, with 643,572 bitcoins ($11.1 billion).

• How long does it take to mine one bitcoin?

In some cases, you can mine one bitcoin from a block in 10 minutes. However, there are cases where Bitcoin mining takes up to 30 days.

Several factors can determine the mining speed for one bitcoin, such as: 

• The mining hardware’s capacity
• Whether the miner is part of a pool of miners or doing it alone
• The level of difficulty of the block that needs to be solved 

• Is Bitcoin a good investment?

Like any investment, Bitcoin is an investment that involves both risks and rewards. Whether it’s a good investment depends on the BTC user’s capability to utilise the bitcoins mined and the type of transactions they plan to make with cryptocurrency. 

• How much is one bitcoin in U.S. dollars?

As of May 2023, one bitcoin is worth $27,062. 

• How does Bitcoin make money?

Bitcoin makes money mainly because of the bitcoins’ value and worth in the market. Miners spend time, effort, and money, not to mention expensive mining rigs, to quickly complete solving one block of hash to earn a bitcoin. 

You can transfer or convert Bitcoin into other currencies to pay for goods and services provided by merchants who accept BTC payments. 

• Is Bitcoin political?

Bitcoin is apolitical, indifferent to any ideology or political belief, and neutral.

Ever since the inception of Bitcoin, its nature has been a decentralised form of currency free from political or government oversight, interference, or manipulation.  

• What is the all-time high of Bitcoin?

According to financial history, Bitcoin reached an all-time high of $68,789 on November 10, 2021. However, the price went below $20,000 in 2022. 

• What other assets are similar to Bitcoin?

There are other cryptocurrencies in the market aside from Bitcoin, such as the following:

• Ethereum 
• Binance Coin (BNB) 
• Ripple (XRP) 
• Solana 
• Cardano
• Dogecoin

• What is the typical holding time of Bitcoin?

The term HODL (hold on to dear life) means to hold on as long as possible to your BTCs despite price fluctuations in the market. 

Surveys on the actual consensus of BTC users reveal that only 12% of those asked will hold on to their BTCs for more than ten years. 

• What is the market cap of Bitcoin?

As of this writing, Bitcoin’s market cap is $544.96 billion. A market cap or market capitalisation is the total dollar value of a company’s shares of stock. 

• What is the 24-hour trading volume of Bitcoin?

As of May 2023, the 24-hour trading volume of Bitcoin is $12,917,453,777. The 24-hour trading volume is the number of assets of a specific commodity, in this case, BTC, traded in 24 hours. 

• How many bitcoins are there?

According to estimates and calculations, the total amount of bitcoins that people can mine is 21 million. As of May 2023, more than 19 million BTCs are circulating worldwide. 

• What is the relative popularity of Bitcoin?

Bitcoin became popular because of its unique characteristics of being a  decentralised currency. 

You can compare Bitcoin’s popularity through the market cap or the total market value of an asset. As of May 2023, Bitcoin tops all cryptocurrencies in terms of market cap at $524.5 billion.

• Can bitcoins be converted to cash?

You can convert BTC to cash using a crypto exchange such as Coinbase, Gemini, or Kraken. You can also store your bitcoins using online wallets like the ones provided by Bitcoin.org.

• Is Bitcoin safe?

The cryptography used in Bitcoin is based on the SHA-256 algorithm, which the U.S. National Security Agency designed. Trying to crack this code is almost impossible.

• How do beginners buy bitcoins?

The best way for beginners to buy bitcoins is through the help of an expert in Bitcoin or a trustworthy broker. However, buying bitcoins can be prohibitive as one BTC is now well over $20,000.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial advice. It is not intended to be a recommendation to buy or sell any financial instrument or engage in any investment activity.

While we strive to provide accurate and up-to-date information, we do not guarantee its completeness or accuracy. We rely on various sources for the information presented, and we cannot guarantee the reliability or accuracy of these sources.

The information provided here does not necessarily reflect the products or services offered by our company. Any mention of financial products or services is for informational purposes only and should not be considered an endorsement.

All investments involve risk, including the potential for loss of principal.

This information should not be considered as financial advice. You should always seek professional financial advice from a qualified advisor before making any investment decisions.

Reference

1. The History of Bitcoin, the First Cryptocurrency

https://money.usnews.com/investing/articles/the-history-of-bitcoin 

1. What Is Bitcoin?

https://www.investopedia.com/terms/b/bitcoin.asp 

1. How Does Bitcoin Mining Work?

https://www.investopedia.com/tech/how-does-bitcoin-mining-work/ 

1. What Is Ethereum and How Does It Work?

https://www.investopedia.com/terms/e/ethereum.asp 

1. The Genesis Block: The First Bitcoin Block

https://www.nasdaq.com/articles/the-genesis-block%3A-the-first-bitcoin-block 

1. Bitcoin Price Prediction: Can Bitcoin Reach $1,000,000 by 2025?

https://www.forbes.com/advisor/in/investing/cryptocurrency/bitcoin-prediction/ 

1. What Happens to Bitcoin After All 21 Million Are Mined?

https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/ 

1. Investing vs Speculating: A Bitcoin Story

https://gci-investors.com/investing-vs-speculating-a-bitcoin-story/ 

1. Bitcoin’s Taproot Upgrade: What You Should Know

https://www.investopedia.com/bitcoin-taproot-upgrade-5210039 

1. The Top 10 Risks Of Bitcoin Investing (And How To Avoid Them)

https://www.forbes.com/sites/forbesfinancecouncil/2018/12/05/the-top-10-risks-of-bitcoin-investing-and-how-to-avoid-them/?sh=62da72a82407     

1. Market Capitalization: How Is It Calculated and What Does It Tell Investors?

https://www.investopedia.com/terms/m/marketcapitalization.asp