Anyone who is up to date with the contemporary world can attest to the surge in cryptocurrency. Crypto didn’t just spring up from nowhere. It has been in existence for 13 years. But one might ask: How exactly did cryptocurrency start? The first-ever cryptocurrency introduced was Bitcoin. It served as a trailblazer for other cryptocurrencies to follow suit through the years. This article will take you through the wonders of Bitcoin.
What is Bitcoin?
Bitcoin is a digital currency that acts as a means of exchange. A digital currency entails that you cannot see it physically but still use it through a digital medium like phones. Another key feature of Bitcoin is its decentralization. Decentralization in Bitcoin means that no entity regains ownership and authority over Bitcoin. We can see in traditional financial institutions like banks that the organization is responsible for recording and verifying transactions. The reverse is the case for Bitcoin. Instead, the blockchain is responsible for recording and verifying transactions. But don’t worry, we will address that soon.
Who created Bitcoin?
Satoshi Nakamoto is the pseudonymous founder of Bitcoin. Pseudonymous? Yes! You read that right. Nobody knows the identities of the true creators of Bitcoin. The writer of Bitcoin’s white paper that was later published in 2008 referred to himself (Satoshi Nakamoto) as the creator of Bitcoin. Bitcoin was later launched on January 3, 2009. It is believed that Satoshi would be a billionaire considering the price of Bitcoin at its inception compared to its price now. Satoshi Nakamoto remains a mystery in the crypto world and has long been a topic of discussion for crypto enthusiasts. Satoshi Nakamoto has been speculated to be different people over the years. But that is all it has been, mere speculation. The real identity of the creator of this masterpiece called Bitcoin remains hidden in the dark.
How Bitcoin works?
Bitcoin is built on a system called the Blockchain. Without the blockchain, Bitcoin operations won’t be successful. Blockchain refers to a distributed ledger that verifies and stores transactions, making it hard to hack. Earlier in this article, it was stated that Bitcoin lacks a centralized authority. This is owed to the Bitcoin blockchain. Instead of just a single body performing the transaction process, a distributed network is employed. Simply put, anyone can view and monitor transactions. Since so many eyes are on it, it is quite difficult to tweak.
Now we can move on to understand Bitcoin transactions. Bitcoin transactions are direct without the need for a third party. Third parties can be found in financial institutions like banks. They act as bridges between the sender and the recipient. In the case of Bitcoin, all you need for transactions is a crypto wallet. Contrary to popular belief, wallets do not store cryptocurrency. It stores public and private keys. These keys are necessary for sending, receiving, and accessing cryptocurrency. During a Bitcoin transaction, the sender requests the recipient’s public address. A public address is the location one’s cryptocurrency will be situated. Like the way you can send emails to an email address, you can also send crypto to a public address. When the blockchain verifies the transaction, the recipient can access it. But to access it, they need their private key. A private key is like a password or a code that enables you to access your crypto. It should be kept safe to prevent your wallet from getting compromised.
Consensus protocols are very crucial in the discourse of cryptocurrency. Proof of Work is the official consensus algorithm for Bitcoin. Proof of Work refers to providing evidence to the blockchain network that computational work has been done on the blockchain. The work in question is updating the blocks on the blockchain by solving computational puzzles. Perhaps this might sound a bit complex. Don’t fret, we will break it down in the next subsection.
Bitcoin’s supply plays a major role in its price. The supply of Bitcoin can be unstable because it was designed to produce new coins periodically. Hence, the supply of Bitcoin is more on some days than others. When Bitcoin is scarce, the price increases. This means that so much Bitcoin is being traded that there is not much left. Bitcoin’s price is low when there is too much of it available.
How does BTC mining work?
Bitcoin mining is referred to producing new Bitcoins by using computers to solve high computational puzzles. Bitcoin mining can be likened to conventional mining for minerals. You dig the ground for long periods in pursuit of valuable resources. Similarly, miners try to solve a puzzle with the help of Bitcoin mining machines to produce new Bitcoin.
In case you have wondered how to mine Bitcoin, let’s walk through the steps. Different miners compete to solve a given puzzle. The puzzles that highly-powered computers solve are called hash puzzles. There is already a certain answer to the puzzle which must be delivered by a computer. The miner of the computer that solves this puzzle will get rewarded with Bitcoin. The computational puzzles process occurs for Blockchain security and to prevent manipulation.
Satoshi Nakamoto ensured that the highest number of mineable Bitcoin is 21 million units. This begs the question: When will all Bitcoins be mined? According to cnbctv18, all Bitcoins will be mined by 2140.
Uses of Bitcoin
The following are the uses of Bitcoin:
- A payment method for businesses: Some big companies and SMEs use Bitcoin as a payment method for transactions as it is very convenient and beneficial. Since Bitcoin’s market size continues increasing, more businesses will adopt it as a form of payment, as it proves to be a seamless payment method with lower transaction costs. Also, business owners can avoid bank charges and other related charges.
Bitcoin as a payment gateway also breaks the geographical barrier of international transactions. Since incompatible payment methods are a big threat to international businesses and customers, Bitcoin provides a way to curb that problem.
- Anonymity during transactions: One of the biggest advantages of Bitcoin is that it allows you to be kept hidden during transactions. Users are identified by public keys rather than their actual identities. This provides utmost privacy, especially for security reasons. It is beneficial in situations like avoiding being tracked either by an oppressive government or even an abusive partner.
As advantageous as this is, it also has its downsides. Shady individuals can use it to carry out malicious acts like transactions of illegal drugs, money laundering, terrorism funding, etc. Although, some regulations like KYC and AML have been introduced to Bitcoin and Fiat transactions thereby reducing its anonymity. These regulations are put in place to check users with bad intent and reduce illicit acts.
- Diversification of investment portfolio: With its massive returns over the years, many investors now invest in Bitcoin to get those gigantic returns and diversify their investment portfolios. This is an alternate option to stocks and bonds, though it’s safer not to invest if you cannot cope with its volatility.
In countries with less stable currencies and increasing inflation, Bitcoin helps secure people’s money against inflation when they invest. It also provides more stability for transactions.
- Credit card transactions: Crypto cards are fast becoming common, and most of them are powered by Bitcoin. A crypto card is a credit/debit card that allows you to make transactions using cryptocurrency as a form of payment when making card transactions. As long as you have your debit/credit card, you can spend your Bitcoin anywhere.
- Low transaction costs: This is one of the most significant advantages of Bitcoin, as you can send any amount of money to any location in the world at a much-reduced fee. High transaction costs are eliminated, and waiting time for transactions to be verified is also reduced, as transactions are verified fast.
Bitcoin and the government
While countries like El Salvador have adopted Bitcoin as a legal currency for payments, several other countries are still skeptical about it, and some have even banned its use. As much as users like decentralization and anonymity, it also raises concerns for the government as there is no official regulatory body. The entire concept of Bitcoin is also against the traditional financial systems, which some governments consider to be a threat.
Some parts of the US and UK are creating ways to regulate its use; however, some countries have outrightly banned it and termed its use “illegal”. There are a few causes of this. Apart from the fact that Bitcoin is disrupting the traditional financial systems, it is also used for illicit transactions, which wreak more havoc in society. Certain countries might be open to its adoption, but many others don’t seem to warm up to the idea for now.
Since it was created in 2009 by Satoshi Nakamoto, Bitcoin has grown in popularity, use case and market size. Users can use it for many things, and countries like El Salvador have adopted it as a legal means of transaction.One obstruction to its massive adoption is that many governments have not warmed up to the idea, as it disrupts the traditional methods. However, some are warming up to it. As Bitcoin continues to be adopted and used in many areas, there is no doubt that it will persist in growing in value.
Ebiere Watchman is a prolific writer specialized in web 3.0 and finance. Ebiere’s experience includes research projects, sales copywriting, and storytelling. She prides herself in crafting impeccable content to drive mass adoption in cryptocurrency.