Table of Contents
Bitcoin has been a great topic of discussion amongst investors, finance professionals, media outlets, investment commentators, bloggers, etc. The cryptocurrency has been called by a lot of names.
Some of them are ‘the next financial revolution’, internet currency, decentralized money, digital gold, gold 2.0. But what is it exactly?
Bitcoin primarily consists of two things. The token and the protocol that powers the token. In 2009, anonymous creator(s) Satoshi Nakamoto mentioned both, as a ‘Peer-to-Peer Electronic Cash System’ in the white paper.
Represented by the symbol BTC, bitcoin is a medium-of-exchange. By design, there is a cap on the total supply of bitcoin. Only 21 million bitcoins will ever be available.
No individual or centralized authority controls bitcoin’s creation and circulation. BTC leverages cryptography for supply, issuance, and transaction verification. That’s why Bitcoin is a cryptocurrency https://wazirx.com/blog/what-is-cryptocurrency/
On a protocol level, Bitcoin is a distributed network of computers that maintains a record/ledger of all BTC transactions. This network is called the Bitcoin blockchain.
Every network participant has a copy of the ledger, which makes it difficult for hackers and infiltrators to gain access and alter the network data. To understand how this all happens visually, check out the video below:
Why Bitcoin Came into Being?
In the year 2008, The United States housing market crashed. It was a reality check for people putting their complete faith and ‘trust’ in legacy financial systems.
The Great Recession was a result of the failure of trust-based systems. Trust is not bad but it creates inefficiencies and fissures in operational models. It also significantly increases the cost to operate such operational models.
2008’s economic slowdown illustrated the need to democratize finance, to give users the control of their money, to let people be their own banks.
Bitcoin’s idea took shape when Satoshi intended to minimize trust, through the use of cryptographic proof, decentralized network design, and open-source software.
He/She/They designed the protocol in such a way so that bitcoin transactions
- Could happen without permissions and beyond borders
- Are trustless, pseudonymous
- Can happen without anyone blocking or freezing a transaction of any amount
- Takes place faster than usual banking transactions and without being reversed
- Keep happening 24 hours a day, 365 days per year.
When Bitcoin was finally revealed to the public, erstwhile developer and one of Satoshi’s closest associates, Hal Finney posted this tweet:
How Does Bitcoin Work?
Bitcoin leverages a public-key cryptography system, peer-to-peer networking, and mining to process and verify payments.
Network participants or miners engage in a competition to verify transactions using advanced computing hardware designed to solve complex mathematical problems.
The miner who solves the problem verifies the transaction and adds it to a block. This goes on for a while until the block is full. The block then gets added to the longest chain. Miners win an appropriate number of bitcoins generated by the protocol, for quickly adding blocks to the chain. The reward system is called ‘proof-of-work’.
This is how new BTC is created, and subsequently becomes a part of the Bitcoin economy as miners sell these newly minted bitcoins to cover their operational costs.
The addition of transaction information to the blockchain eliminates a ‘double spending’ scenario.
How to Buy Bitcoin, and From Where?
What is the Future of Bitcoin?
Bitcoin has come a long way, since its inception in 2009. It is now supported by a multi-billion dollar BTC mining industry and billions of dollars worth of spot and futures trades that have ballooned Bitcoin’s value over the years. With a market cap of around $170 billion, it is no longer a DIY project for hobbyists.
Just recently, famed billionaire hedge fund investment heavyweight Paul Tudor Jones favored Bitcoin and said that he would give a section of his portfolio to BTC. According to his market outlook, ‘The Great Monetary Inflation’ Mr. Jones drew similarities between bitcoin and the 1970’s gold market.
He said that the first cryptocurrency, just like gold stands to gain a lot on the investment front.
Apart from investment, tremendous progress is happening on the development front. Developers are working tooth and nail to speed up bitcoin transactions. Bitcoin development firm, Blockstream, and off-chain scaling solution Lightning Network deserve notable mentions in this regard.
Bitcoin also stands to become a great smart contract development platform. As per a CoinDesk report published last year, prominent Bitcoin programmer Pieter Wuille, unveiled a new language called ‘Miniscript’ that could find a use for programming Bitcoin-based smart contracts and decentralized applications.
Frequently Asked Questions
Bitcoin is the first application of the concept of "cryptocurrency," first articulated in 1998 on the cypherpunks mailing list by Wei Dai, who proposed a new form of money that relies on cryptography rather than a central authority to manage its creation and transactions. Satoshi Nakamoto published the initial Bitcoin specification and proof of concept on the cryptography mailing list in 2009. Satoshi exited the project in late 2010, with little information about himself available. Since then, the community has evolved, with numerous people working on Bitcoin. Satoshi's anonymity has sparked unfounded fears, many of which may be traced back to a misunderstanding of Bitcoin's open-source nature.
Bitcoin is a digital currency that was initially released in January 2009. It is based on ideas offered by Satoshi Nakamoto, a mysterious and pseudonymous figure, in a whitepaper. The name of the person or individuals who invented technology has not been revealed. Bitcoin promises lower transaction fees than other online payment systems, and unlike government-issued currencies, it is decentralized.
Check out the current price of Bitcoin on the WazirX exchange. Bitcoin's value is primarily determined by its supply and demand in the market. Other elements have an impact on its worth. Its intrinsic value can also be calculated by calculating the average marginal cost of producing a Bitcoin at any given time, based on the block reward, electricity price, mining hardware energy efficiency, and mining difficulty.
Bitcoin is based on the blockchain, a distributed digital ledger. As the name implies, blockchain is a connected database made up of blocks that hold information about each transaction, such as the date and time, total value, buyer and seller, and a unique identifier for each exchange. Entries are linked in chronological sequence, forming a digital chain of blocks. Blockchain is decentralized, meaning a centralized institution does not own it
The source code of Bitcoin stipulates that it must have a restricted and finite quantity. As a result, only 21 million Bitcoins will ever be generated. These Bitcoins are added to the Bitcoin supply at a predetermined rate of one block every ten minutes on average. The supply of Bitcoins will be depleted once miners have unlocked this number of Bitcoins. It's possible, however, that the protocol for Bitcoin will be altered to allow for a higher supply.
The blockchain is the foundation of Bitcoin. It is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can't be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare.
Bitcoin mining is not just the process of putting new Bitcoins into circulation, but it is also an essential part of the blockchain ledger's upkeep and development. It is carried out with the assistance of highly advanced computers that answer challenging computational math problems. Miners are rewarded for their efforts as auditors. They are in charge of ensuring that Bitcoin transactions are legitimate. Satoshi Nakamoto, who is the founder of Bitcoin, innovated this standard for keeping Bitcoin users ethical. Miners help to prevent the "double-spending problem" by confirming transactions.
Bitcoin mining isn't free, but it can be tried on a budget. Bitcoin mining is an essential part of the blockchain ledger's upkeep and development and the act of issuing new Bitcoins. It is accomplished by the use of cutting-edge computers that tackle complicated computational arithmetic problems. The effort of auditor miners is rewarded. They're in charge of ensuring that Bitcoin transactions go off without a fuss and that they're legal.
Bitcoin Cash is a hard fork of Bitcoin formed in 2017 to address Bitcoin's scalability and challenges. Bitcoin Cash seeks to make global transactions faster, cheaper, and more secure. Bitcoin Cash is now accepted by thousands of online and offline businesses all over the world. Studied correctly, Bitcoin Cash may be an investment worthy of consideration.
In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.