Bitcoin (BTC) – A Beginner’s Guide, Review & More
What is Bitcoin?
Bitcoin is a digital currency built on a distributed ledger, also known as the blockchain.
The network is entirely peer-to-peer, this makes transactions censorship-resistant. Transactions are directly between users and verified by miners that utilize a proof-of-work protocol. Subsequently, these transactions are relayed to all participating nodes and stored in an immutable and public viewable ledger.
No single entity controls the network, and the code is entirely open-source. This architecture makes sure that Bitcoin has no single point of failure and no attack surface. To this day Bitcoin remains the only digital asset that is truly decentralized and leaderless.
- What is Bitcoin?
- Who founded Bitcoin?
- What is bitcoin mining and how does it work?
- Why Bitcoin is different from traditional currency
- How much is Bitcoin worth today?
- What are the Countries that have made Bitcoin Legal?
- How many bitcoins are available in the market?
- Where can Bitcoin be bought?
- Future Development
- Verdict and Rating
Who founded Bitcoin?
On 31 October, a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System, written by Satoshi Nakamoto was distributed through a mailing list called “cryptography mailing list.” This mailing list was a community of cryptography enthusiasts cypherpunks. 2 months prior the domain bitcoin.org was registered.
The paper presented a peer-to-peer network with the main purpose of trustless electronic transactions. The first block of the network (Genesis) was mined on 3. January 2009 by Satoshi Nakamoto. Embedded in this first block was the text:
Six days later the first open-source bitcoin client was released. Satoshi Nakamoto stays anonymous to this day. It is unknown if there is only one man behind this pseudonym or a group. It is speculated that there are more than one people behind it, cause Satoshi Nakamoto had expert-knowledge in several fields, including computer science, cryptography, and economics.
The founder/s stayed anonymous and disappeared, leaving the evolution of the protocol entirely in the hands of the public. This tactic made sure that Bitcoin has no single point of failure and no attack surface.
The paper has sparked enthusiasm throughout the community, and several developers stepped up to help the protocol fulfill its potential. This community evolved into the vibrant ecosystem we see today.
What is bitcoin mining and how does it work?
Every bitcoin transaction must be validated and build into a block before it is appended to the blockchain. To avoid centralization, Satoshi Nakamoto decided that instead of determining who has the right to attach one block, it is sorted out through competition.
Everyone who wants to insert transactions into a block and append that block to the ledger has to compete against others who also wish to do so. This competition is realized through providing a scarce resource (computing power, also referred to as Hashpower) to find a random number (called Nonce).
The first who finds this number has the right to generate one block and get the reward in BTC. This mechanism is called Proof-of-Work (PoW).
The current block reward is 12.5 BTC, this reward halves every 210,000 Blocks (roughly four years), this mechanism is implemented to counter inflation and to prevent that too many BTC are mined in a shorter than ideal timeframe.
The difficulty of finding the nonce is consistently recalibrated so that the average time of finding the number is 10 minutes, to prevent that too much BTC is put in circulation when the better hardware is available. By generating a block several transactions are put together, and they are hashed with the hash of the previous block, and so on, this secures the ledger and makes it immutable.
The more computing power is in use for mining the more secure the ledger is. In the early days it was possible to mine BTC with a regular CPU, nowadays specific chips, that are built solely for this purpose, are used. These machines are called ASICs (application specific integrated circuit).
How Bitcoin transactions work?
Every person with a bitcoin wallet (software that contains your private key and signs transactions) can send payments to another person with a wallet.
Every bitcoin address consists of a public key, which is visible for the public and specifies your address to receive BTC, and a private key, which you use to claim ownership of that particular address and the balance in it and to send transactions (digital signature).
Lets look at a transaction in detail:
The first step of a transaction is publishing your intention to the nodes in the network. These nodes verify that you are in possession of the BTC you wish to send and that these specific coins haven’t been already sent to someone else. When this is confirmed, the transaction gets integrated into a block by the miners, and then this block gets attached to the blockchain.
Transactions are irreversible and cannot be withdrawn or altered in any way.
What differs Bitcoin from traditional currency?
BTC not only has the three characteristics of a currency (medium of exchange, store of value and unit of account) but also provides censorship-resistance and establishes digital scarcity.
Because of the decentralized nature of Bitcoin, there is no central authority; this means that large institutions or governments cannot easily manipulate it.
But this lack of oversight causes that the price of BTC is entirely calculated through supply and demand, this makes Bitcoin much more volatile than traditional currencies.
What differs BTC from traditional currency is that is not backed by governments or central banks, and it is not as accepted as conventional state-backed currencies like Dollar or Euro. You cannot buy with BTC at your regular convenience store.
The main advantage is:
- -BTC is not inflationary like government-backed currencies, means units are not infinitely put in circulation. There is a known amount of BTC that will be available, and this amount cannot be exceeded. Also, through the block reward halving every four years, there are fewer units newly generated. This mechanism makes BTC disinflationary and a store of Value, like Gold.
Bitcoin is, in fact, a better Store of Value than Gold because the maximum amount to ever exist is known. The immutable ledger that underpins Bitcoin has never been compromised since its inception in 2009. These attributes are essential because the primary attributes of a store of value are scarcity and security.
How much is Bitcoin worth today?
What are bitcoin transaction fees?
Transaction fees are paid to a miner to add your transaction to a block; they are included in every BTC transaction. The size of one block is currently limited to 1 MB.
The more transaction fee you bid, the more incentive the miner has to include your transaction fast into a block.
Virtual currency is currently seen as property from regulatory authorities.
Taxation for gains made from BTC trading or investments are subject to federal law and differ from country to country.
Can it be regulated?
Bitcoin itself and its transactions cannot be regulated or controlled by any entity or government. What can be regulated is the trading of BTC and exchanges can be forced to do KYC/AML (know-your-customer/anti-money-laundering) and to reveal user data for tax reasons. These regulatory aspirations are currently ongoing and will be handled by every country differently.
The Bitcoin protocol itself is entirely decentralized, and changes cannot be made without the approval of the majority of full nodes (computers which run the BTC software and store the entire blockchain).
What are the Countries that legalized Bitcoin?
BTC is legal in most of the countries, although there are some exceptions.
The following states have declared BTC illegal:
Algeria, Bolivia, Ecuador, Cambodia, Bangladesh, Nepal, Pakistan, Macedonia, Vietnam (legal to trade and hold, prohibited as a payment).
What is the total and the circulating supply?
The total amount of BTC available will never exceed 21 million. The last Bitcoin to be issued as a block reward to miners will be generated 2140. Currently, there are roughly 17 million Bitcoins already produced and in circulation.
But the real circulating supply is assumed to be lower due to BTC being lost or forgotten. It is estimated that the private keys to 2 million Bitcoins are permanently lost.
Where can BTC be bought?
You can buy BTC on online exchanges (Coinbase, Kraken, Gemini, Bitstamp) or person-to-person locally (Localbitcoins). Also, there are Bitcoin-ATMs in many big cities (find one near you with CoinATMRadar).
For starters, we recommend Coinbase because it is one of the most secure and easy-to-use cryptocurrency exchanges.
What can be bought with BTC?
Travel companies Expedia, CheapAir and Surf Air accept BTC to pay for flights and hotels. Virgin Galactic offers space travels in exchange for BTC. Microsoft accepts bitcoin in its app stores, and some musicians let you download their music in exchange for the cryptocurrency.
Sharps Pixley, APMEX and JM Bullion will take bitcoin in exchange for Gold. Also several private and public universities, as well as a couple of New York preschools, accept bitcoin.
Some legal and accounting firms also accept payment for their services in BTC.
You can donate BTC to charities or crowdfunding on sites such as BitHope, BitGive or Fidelity Charitable.
For a list of offline stores near you that accept bitcoin, check an aggregator such as SpendBitcoins or CoinMap.
Can BTC be sold for cash?
Yes. BTC can be sold for fiat-currencies (USD, EUR, etc..) through online exchanges (Coinbase, Bitfinex, Kraken, Gemini) or person-to-person locally (Localbitcoins).
Can BTC be stolen?
Yes. The underlying bitcoin blockchain itself has never been compromised. But Exchanges can be hacked (the most well-known example is the Mt.Gox theft) and private keys can be hacked or stolen. Whoever is in possession of a private key owns the assets attached to the account. You are responsible for keeping your private keys safe. We recommend using a Hardware Wallet (Ledger Nano S, Trezor) and storing the recovery phrase save and hidden.
Also never store BTC on exchanges for an extended period (hot wallet), instead send them to your hardware wallet and save them there (cold storage). For funds that are stored at exchange wallets make sure you use strong passwords and turn on 2Factor-Authentification.
Is Bitcoin in a bubble?
Everything and nothing is a bubble. All assets move in cycles or waves, and sometimes encounter phases of overpricing caused be speculation.
What follows is a correction to the real value. Due to the volatile nature of Bitcoin, this has happened several times in his history. These mechanisms are normal and healthy in the long term.
Many exciting developments are on their way. The Lightning Network is now live which enables payment channels with BTC, Rootstock will implement smart contracts on top of the bitcoin blockchain, and Drive Chain allows sidechains. Additionally, Schnorr Signatures and MimbleWimble will significantly improve privacy.
Bitcoins main goals are security and stability. Because of that, innovations and improvements are added only after years of testing and exploring. Everything needs to be fully understood before it is implemented into Bitcoin Core. Altcoins may be getting a short-lived technological edge by skipping the trial- and experimenting phase, but Bitcoin will catch up when it is time and will implement the best features.
Verdict and Rating
10/10 BTC grew from a price of under 1$ to over 8000$ and a market cap of over 130 Billion at the time of writing. And the opportunities are far from over, mass adoption is not yet reached, and there are several ETFs filled right now. ETF stands for Exchange Traded Fund, which is a financial asset that can be purchased on the stock markets and which holds the underlying asset. Once the first ETF gets approved, it is possible for investors to invest in BTC without going through the struggle of storing the asset themselves. When the first Gold ETF was installed, the price for an ounce of Gold went through the roof. And there are many technological developments under construction right now. There is more to come for BTC.
BTC is King and will remain King. The only fully decentralized and leaderless cryptocurrency and the only one which qualifies as a SoV (Store of Value). With many exciting developments on the way we expect BTC-dominance to rise and Bitcoin to cement its status as the most reliable and secure crypto asset.
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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