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Table Of Contents
- What Problems Does Bitcoin (BTC) Solve?
- How Does Bitcoin (BTC) Work
- Mining Bitcoin (BTC)
- Benefits of Bitcoin (BTC)
- History of Bitcoin (BTC)
- Who Invented Bitcoin (BTC)?
- How to Buy Bitcoin (BTC)
- How to Store Bitcoin (BTC)
Bitcoin is an “electric peer-to-peer cash system” according to its anonymous creator, Satoshi Nakamoto. The goal behind Bitcoin’s creation was to create “a system for electronic transactions without relying on trust“. Bitcoin succeeded in this task through a combination of ingenuity, determination, and technological prowess.
It’s hard to imagine a world without Bitcoin. Today, the world’s first and most successful cryptocurrency is a household name. There have been countless TV shows, songs, tributes, artwork, and books dedicated to this revolutionary invention.
Despite all of this attention, most people in the world remain clueless as to how this protocol works, what gives it value, and why so many people are obsessed with it. At its core, Bitcoin is simplistic, you could even say elegant. This revolutionary program was built upon decades of previous developments in the virtual currency sector to create a decentralized currency that is censorship-resistant.
What Problems Does Bitcoin (BTC) Solve?
Bitcoin didn’t enter the market as just some random chance. It was directly built to combat some of the most pressing issues facing humanity at this time. There’s a fundamental core message at the center of Bitcoin. It provides the world with the ability to separate the state from monetary policies. A cryptic message located within the coding of Bitcoin’s Genesis block makes the goal of the project clear. Embedded in the coinbase of this block was the cryptic message:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
The message itself refers to a headline in The Times published on the same date listed. The creator of Bitcoin believed that bad monetary policy would lead the world into disaster. Perhaps this is why Bitcoin utilizes only sound financial principles to ensure its value and use.
Bad monetary policy usually leads to runaway inflation. When countries experience inflation their currencies plummet in value. Inflation can destroy the local economy and cause citizens to be left in a state of crushing debt. Entire life savings are erased in days when inflation gets out of control. Inflation comes about when the amount of currency in the market exceeds the demand.
Fiat-currency has no maximum supply. Governments and the Federal Reserve can meet up and create new funding as they deem fit. The problem with this approach is that governments are notorious for letting the printers run wild to cover expenses such as infrastructure and wars.
Bitcoin doesn’t experience runaway inflation because it has a limited supply of only 21 million coins. This capped supply is introduced to the market in regularly timed intervals. In this way, Bitcoin provides the world with a global reserve currency that is far more predictive than the other systems in place.
Censorship is another important issue that Bitcoin tackles head-on. Decentralized networks are historically hard to censor. For example, think of your favorite video streaming platform. That’s another form of a decentralized network. It simply allows you to meet other people online and trade data, regardless of what it is.
Bitcoin is similar in many ways. It allows anyone to meet up and exchange value. All Bitcoin transactions occur in a direct peer-to-peer process. Since there are no middlemen, regulators, or other parties involved, there is no-one to censor your right to spend your crypto as you choose.
Bitcoin functions on a core protocol of transparency. Public blockchains allow everyone in the network to see every transaction in real-time. Not a single Bitcoin moves across the network without people having the ability to track it. This transparency allows Bitcoin to decouple from the other markets in the world. Bitcoin is the first truly decentralized market determined by supply and demand.
While providing more transparency, Bitcoin is also able to provide more privacy. Bitcoin does away with account names and instead, you rely on two keys. The first key is your public key. This is the key that you give people to send you Bitcoin. The second key is your private key. This is how you can send Bitcoin. Never give this key to anyone. If you do, they can take all of your Bitcoin and you can do nothing about it.
How Does Bitcoin (BTC) Work
Bitcoin succeeded where previous virtual currencies failed because of the introduction of blockchain technology. A blockchain is a decentralized network of computers. This chain of computers leverages the entire computational power of the network to remain secure.
Bitcoin transactions get grouped into blocks. These are the blocks that create the chain of transactions, i.e. Blockchain. Blockchain currencies introduced a timestamp into their equation to make them unalterable. This timestamp is how Satoshi Nakamoto was able to defeat the age-old problem encountered by virtual currencies, double-spending.
Double Spend Quagmire
Previous attempts at virtual currencies came very close but ultimately failed because of the double-spend problem. The double-spend problem was how to stop hackers from spending a cryptocurrency twice during a transaction. In the material world, this isn’t a problem. Someone hands you the cash and they don’t have it and you do.
In the digital world, hackers can send you a virtual currency and while that transaction is processing, resend a similar transaction before the system recognizes the duplication. Nakamoto cleverly added a timestamp to each block of transactions. This timestamp is then used in the cryptographic code in the following block.
Mining Bitcoin (BTC)
Transactions on the Bitcoin blockchain receive approval from nodes, also known as “miners.” Once the block of transactions receives approval, it gets added to the chain of transactions to form the blockchain. Importantly, miners receive rewards for securing the network.
Originally, this reward was set at 50 Bitcoin. These rewards are set to half every 210,000 blocks. On average, this process takes around 4 years. In 2012 the first halfing occurred. It brought Bitcoin mining rewards down to 25 BTC. Then, in 2016 another one occurred. This left miners receiving 12.5BTC. The most recent halving was on 11 May 2020 and it took rewards down to 6.25BTC. Analysts predict at this rate, the final mining reward will occur sometime in 2140.
Why So Much Power
You often hear people complain that Bitcoin’s network is power-hungry. The reason that Bitcoin requires so much power has to do with its mining setup. In the Proof-of-Work (PoW) algorithm, only one miner can add the transaction to the blockchain. To determine what node gets this honor, every node competes to solve an advanced mathematical formula. This formula is known as the SHA-256 equation
SHA-256 is an extremely complex equation that requires computers to flex all their processing power. The equation is so difficult that it makes more sense for the computer to generate random guesses rather than attempt the equation directly. Notably, the answer to the equation must start with four zeros to be valid. It takes around 10 minutes for this process to complete.
The more congestion on the Bitcoin network, the more difficult the equation becomes. This difficulty adjustment mechanism helps Bitcoin maintain its predictive monetary supply. Due to the introduction of high-end miners such as ASIC (Application Specific Integrated Circuits), Bitcoin mining difficulty has reached new heights. These chips are thousands of times faster than PCs at solving the SHA-256 equation. Keenly, the protocol will require more zeros at the beginning of the answer. This maneuver increases the difficulty of the equation.
Benefits of Bitcoin (BTC)
Bitcoin introduces some amazing benefits to the market. For one, Bitcoin is a safe ecosystem. Your transactions complete in a peer-to-peer fashion. The fewer intermediaries involved, the more cost-efficient and faster the transactions become. This is why Bitcoin is so much cheaper to send internationally than fiat currency.
You can send millions in Bitcoin in minutes and for a fraction of the cost of sending the same amount of value in fiat currency. Bitcoin streamlines international payments in a previously unimaginable way. Bitcoin remittance payment centers are a perfect example of how this cryptocurrency has helped benefit the world.
Bitcoin is not tied to any government and therefore is not beholden to any sanctions or other restrictions imposed on fiat currencies. People can spend their Bitcoin without politics in mind. The decentralized nature of Bitcoin’s blockchain network makes it impossible for governments to shut down.
History of Bitcoin (BTC)
The official history of Bitcoin begins on August 18, 2008. That’s when Satoshi Nakamoto, Bitcoin’s anonymous creator registered the domain Bitcoin.org. Two months later, he published a link to his now-famous Bitcoin whitepaper. The paper was titled “Bitcoin: A Peer-to-Peer Electronic Cash System” in a Cypherpunk mailing list. The Cypherpunk community believes that privacy is crucial in today’s digital environment.
Bitcoin’s Genesis block was mined on January 3, 2009. This was the start of Bitcoin’s blockchain. As such, it’s also referred to as Block 0. Nakamoto also collected a reward of 50 Bitcoins for mining this first block. The same month the first open-source Bitcoin client entered the market via a post on SourceForge.
In Bitcoin’s early days, the excitement was limited to just the virtual currency development sector. Notably, the well-known computer programmer, Hal Finney was the first person to receive a Bitcoin transaction. Hal had been in close contact with Nakamoto throughout the early days of Bitcoin. He received 10 Bitcoins from Nakamoto on January 12, 2009.
There are some other first supporters to the project that are still active today in the sector. Wei Dai, the creator of Bitcoin predecessor b-money was a big part of these early days of testing. Also, Nick Szabo, the creator of another Bitcoin predecessor, Bitgold, was one of the first persons to take part in these decentralized transactions.
Nakamoto Mining and Disappearance
Nakamoto was very active in Bitcoin’s early days. He communicated often with the aforementioned developers and others in the space. He discussed his concept in various posts that are still up today.
During these days, he was actively made modifications and posted technical information on the Bitcoin forum as well. He also mined around 1 million Bitcoins according to expert studies. Then, without warning, he suddenly vanished. In his last post, he discusses some final changes he made to the “safe mode” feature and leaves a link to the builds.
He never states anything about leaving. However, in a post previous to the final one, he states that “It would have been nice to get this attention in any other context. WikiLeaks has kicked the hornet’s nest, and the swarm is headed towards us.” Ever since Nakamoto disappeared, developer Gavin Andresen has taken up the role of the lead developer at the Bitcoin Foundation.
On May 22, 2010, a Bitcoin enthusiast by the name of Laszlo Hanyecz purchased two large Papa John’s Pizzas for 10,000 BTC. The transaction took place on the Bitcoin forums. In the posts, Hanyecz offers 10,000 BTC to whoever will pick up pizzas, pay for them, and deliver them to his house. Hilariously, he states he needs two pizza’s so he can “nibble” on some the next day.
A British man took up the offer and within the next hour, Hanyecz was munching on some delicious pizza and the delivery man was off with his 10,000 BTC. At the time, 10,000 BTC was only worth around $41. Today, these BTC are worth over $100,000,000.00.
In early August 2010, an attack vector became evident to the Bitcoin core developers. The coding error caused block verification issues to occur. Hackers could exploit these issues because they allowed users to bypass Bitcoin’s economic restrictions. In turn, a hacker could create an infinite number of Bitcoins.
Only a few days later, these risks became reality as 184 billion Bitcoins were generated in a single transaction. These newly minted coins were sent to two addresses on the network. Luckily, developers were already aware of the vulnerabilities. They choose to reverse the transactions and fork Bitcoin’s blockchain over to the updated secure version.
At the time, Bitcoin use was still exclusive to developers, so it wasn’t the issue it would be today. Critically, this was the only time that a Bitcoin transaction was reversed. No other security flaws have come to light since.
Crypto Market Emerges
The following year saw the introduction of other cryptocurrencies. This was the birth of the crypto market officially. Also, select firms began to accept Bitcoin as payment for services. The very first organization to do so was the Electronic Frontier Foundation. WikiLeaks was also among the first firms to accept Bitcoin donations.
In 2012, Bitcoin received its first cameo on a national television series. The cryptocurrency appeared on a CBS legal drama called The Good Wife. This year also saw the Bitcoin Foundation launch. The founders of this group were Gavin Andresen, Jon Matonis, Patrick Murck, Charlie Shrem, and Peter Vessenes.
Their goal was to drive Bitcoin adoption to new heights. To accomplish this task, developers sought to push for more standardization, protection, and promotion of open-source protocols in the market. Today the Bitcoin Foundation still plays a vital role in Bitcoin’s expansion.
In October of 2012, the popular Bitcoin Payment processor, BitPay celebrated a major milestone. The firm reached 1,000 merchants accepting Bitcoin. The same year, one of the largest hosting platforms in the world, WordPress started accepting Bitcoin payments. These developments would lead to an amazing next year for Bitcoin.
In 2013, Bitcoin made major strides. This was the year that the payment processor, Coinbase reported the successful sale of $1million BTC at an average of $22 per coin. It was also the year for Bitcoin’s first major market crash. In March, there was a massive sell-off as the Bitcoin community split for around six-hours.
The technical mishap left the world with two separate Bitcoin blockchains for hours. The developers made the call to halt all transactions to figure out the problem. This caused investors to lose faith in the fledgling project. A selloff occurred with Bitcoin shedding value in minutes. Developers were able to stabilize the situation when they had all miners upgrade to version 0.7 as the new standard.
Bitcoin (BTC) Regulatory Concerns
This was also the year that regulators began to take notice of Bitcoin’s activities. Specifically, the Financial Crimes Enforcement Network (FinCEN) made a public statement in which it stated that miners selling their BTC rewards for fiat needed to register as Money Service Businesses or face consequences. This announcement caused a slight ripple through the market but it was just a drop in the bucket of what was to come.
In April, Bitcoin experienced a major crash unlike any it had before. The crash was brought on by increased processing delays experienced by the world’s largest exchange at the time, Mt.Gox, and the world’s premier Bitcoin payment processor, BitInstant. The crash saw Bitcoin prices free fall from $266 to $76.
This year was also the first time a government agency claimed to have seized Bitcoin. Specifically, the US Drug Enforcement Administration listed the seizure of 11.02 Bitcoins in a United States Department of Justice notice. At around the same time, authorities seized multiple accounts related to the Mt.Gox exchange.
Bitcoin went through some regulatory issues during this time as well. The Foreign Exchange Administration and Policy Department in Thailand made Bitcoin illegal in the country. Also, US Federal Judge Amos Mazzant of the Eastern District of Texas of the Fifth Circuit made a controversial ruling that Bitcoin is “a currency or a form of money.” Lastly, Germany’s Finance Ministry acknowledged the cryptocurrency as a financial instrument.
In October 2013, the FBI seized roughly 26,000 BTC from the website Silk Road. This was the largest Bitcoin seizure up until that time. The man behind the operation, Ross William Ulbricht, was found guilty of drug trafficking and sentenced to life in prison for his role in the creation of this decentralized marketplace. Many believe this sentence was too harsh and that he was charged as the dealers and not as the market place developer.
Bitcoin ATMs began to pop up around the globe at this time also. Robocoin and Bitcoiniacs launched the world’s first Bitcoin ATM in October 2013. This historical ATM resides in Vancouver, Canada. The same month, the Chinese internet giant Baidu allowed clients of website security services to pay their invoices using Bitcoins. Also, BTC China overtook the Japan-based Mt. Gox as the largest Bitcoin trading exchange by trade volume in the world.
In December, executives from the popular online retailer Overstock.com announced plans to accept Bitcoin in the coming weeks. Shortly after, the market experienced another major loss. This one was brought on partly because the People’s Bank of China prohibited Chinese financial institutions from using Bitcoin. At the time, China controlled the majority of Bitcoin’s trading volume.
Bitcoin Comes to Vegas
In 2014, Bitcoin continued along its path to institutional adoption. This year saw both The D Las Vegas Casino Hotel and Golden Gate Hotel & Casino properties in downtown Las Vegas announced they would start accepting the cryptocurrency. This news helped bolster Bitcoin’s price. However, the boost was short-lived.
In February 2014, Bitcoin experienced the notorious Mt.Gox Hack occurred. The platform saw the loss of 744,000 Bitcoin during the attack. Less than a month later, the world’s largest Bitcoin exchange filed for bankruptcy. The market shed value following this revelation.
In September, the market started to rebound. This was the month that the TeraExchange received approval from the CFTC to start offering various Bitcoin-based services. Specifically, the firm began to offer an over-the-counter swap product based on the price of a Bitcoin. This occurrence was a monumental achievement for the entire market because it was the first time a U.S. regulatory agency approved a Bitcoin financial product.
Bitcoin (BTC) Goes Mainstream
The year ended strong for Bitcoin as well. The computer giant, Microsoft began to accept Bitcoin from users in December. You can buy Xbox games and Windows software using Bitcoin. Also, the first Bitcoin documentary, The Rise and Rise of Bitcoin, was released.
By 2015 the Bitcoin market was starting to gain momentum. In January of that year, Coinbase raised $75 million in seed funding. That year also saw the popular exchange Bitstamp stop trading for a week due to a hack. According to company documents, the firm had 19,000 Bitcoins stolen during the incident. Impressively, the platform reopened and no users lost funds only days later.
The following year saw Bitcoin’s network expand to new heights. The network reached a record network rate of over 1 exahash/sec. In March 2016, the Cabinet of Japan recognized virtual currencies as forms of payment. This helped to push market value and development in the region. Sadly, in August 2016, another major Bitcoin exchange, Bitfinex, was hacked and around 120,000 BTC were lost.
Bitcoin is Recognized in Japan
2017 saw Japan pass more Bitcoin-friendly legislation. In this go-around, Bitcoin was officially recognized as a legal payment method. This stance helped to push trading volumes to new heights. The market exploded. For example, between January and May 2017, the exchange Poloniex reported an increase of more than 600% active traders on its platform.
These record highs led to more investors entering the market. All of these users created an enormous amount of congestion on the network. Soon, Bitcoin transactions were costing more and taking much longer to complete. The problem reached a boiling point when the Bitcoin community split over how to handle the problems. In the end, a new cryptocurrency named Bitcoin Cash emerged.
In 2018, South Korea took major action against Bitcoin when it banned anonymous transactions. This year also saw the off-chain payment solution, the Lightning Network take flight. The Lightning Network relies on private payment channels to prevent Bitcoin market congestion.
Bitcoin banking solutions began to enter the market as well this year. This time is when the emergence of Bitcoin debit cards and bank accounts began to gain popularity. Also, Bitcoin ATMs started to spring up in more locations as their prices dropped significantly and more manufacturers entered the sector.
By 2019, Bitcoin was already a household name. There were thousands of cryptocurrencies and the market was expanding. Additionally, this is the time that other major crypto projects began to spoke regulators. Specifically, Facebook’s Libra coin had regulators on edge.
This year, Bitcoin began to mature. You can do nearly anything with Bitcoin nowadays. You can pay taxes, travel, or even by food or gift cards. Additionally, the expansion of the DeFi sector has provided Bitcoin users with even more options in terms of Bitcoin storage and passive income streams.
Who Invented Bitcoin (BTC)?
While the name behind the Bitcoin whitepaper states Satoshi Nakamoto, there has been no one to step forward and prove they are indeed Bitcoin’s creator. Numerous individuals have stated they were Nakamoto, but no one has yet been able to move any of those original 1 million BTC mined by the developer in its early days. This lack of substantial evidence has led conspiracy theories to run a rift.
In one particular instance, a computer programmer and early Bitcoiner by the name of Craig Wright came forward claiming that he was Nakamoto. He even attempted to file a Copywrite on the Bitcoin name. However, when it came time to prove he was Nakamoto, he was unable to provide any evidence that linked him to those unmoved million BTCs.
There have also been instances where someone was mistaken for Nakamoto. Newsweek took a man’s life through the ringers after it incorrectly published that he was the creator of Bitcoin. This man, Dorian Nakamoto denied having anything to do with the project. Today, his face stands as a symbolic image representing Satoshi Nakamoto.
How to Buy Bitcoin (BTC)
You can get Bitcoin at any exchange. Binance offers direct Bitcoin fiat currency pairs. You just need to register for an account. Once your account is valid, you can load it with fiat currency. Luckily, Binance just added instant account loading this month. It used to take three days to load.
Once your fiat currency is on the exchange, you can simply select the BTC/USD trading pair and you are good to go. The entire process only takes a minute and is very straight forward. Notably, Binance is the world’s largest exchange.
How to Store Bitcoin (BTC)
Storing your Bitcoin is easy. There are more options available to Bitcoin investors than ever thanks to the popularity of this coin. The easiest way to store BTC is on a mobile app. Mobile apps are easy to navigate and can be downloaded in seconds. Best of all, most are free to use.
Mobile BTC wallets such as JAXX have come a long way since the early days of the market. Today’s wallets are easy to use and can store a multitude of different cryptocurrencies. These platforms make it easy for you to diversify your investments and keep track of your portfolio.
If you want a more secure option than a mobile wallet, you can always go with the Bitcoin desktop client. The desktop wallet is more secure because your computer is usually more secure than your Smartphone. Additionally, since the desktop wallet was developed by the core developers of the project, you know it’s a safer option to consider.
For those of you that intend to HODL large amounts of Bitcoin, or for anyone who believes security is the primary investment concern, a hardware wallet is the best move. Hardware wallets keep Bitcoin stored safely offline. This strategy keeps your crypt away from hackers and other malicious codes.
If you seek to make a major investment in BTC or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Bitcoin (BTC).
The Future of Bitcoin
Bitcoin’s future looks bright. The world now recognizes the power of blockchain technology. Bitcoin continues to expand both its user base and functionalities. Analysts agree that it’s only a matter of time before Bitcoin becomes the world’s premier reserve currency.
David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com