If you follow at least a bit of the financial market, you should have already known about bitcoin: what it is and how it works. Bitcoin is the best-known digital currency globally and represents one of the financial assets that most attract small, medium, and large investors.

It is the most prominent virtual currency, which has been around for over ten years, has gained prominence in recent times, and has become an option for many investors.

The biggest highlight of bitcoin (BTC) occurred in 2017 when it appreciated by almost 1500%. The following year, a fall in the value of the BTC lit the alert about the stability of the currency, bringing uncertainty to investors.

However, despite the drop, bitcoin has been recovering since 2018 and reached the US$ 40,000 mark in 2020. Industry experts expect the currency to continue rising in 2021, although it is impossible to forecast precisely.

In addition to the appreciation against the traditional currency, the main attractive feature of the BTC is the fact that the government does not control it. So, are you curious to know more about Bitcoin and why there’s a need for it? Then stick to your screen and read this article to learn more!

Satoshi Nakamoto and the rise of Bitcoin

Satoshi Nakamoto is the pseudonym used by the creator of Bitcoin and the name doesn’t necessarily represent an individual, as there are rumors that a group of people actually developed the project. There are several mysterious theories about Satoshi Nakamoto really, but so far, all are merely speculative.

The first appearance of the Satoshi figure was in 2008, in a discussion group called ‘The Cryptography Mailing’. There, Satoshi introduced Bitcoin and shortly after launched it.

At that time, Bitcoin was a complex and considerably innovative concept, even for those working in technology. Few people had any idea that the coin could have any real value. For many people, Bitcoin would be a digital currency with value in the exclusively digital world.

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One of the first Bitcoin transactions is surprising with the understanding we have today on the subject. In 2010, a bitcoin owner exchanged about 10,000 BTC for two large pizzas, which at the time cost US$25. In other words, the price of 1 bitcoin in this transaction was US$0.0025.

Another interesting thing is that Satoshi’s first name became one of the identifications for fractions of Bitcoin. It works like this: a bitcoin has eight decimal places, and a satoshi is the smallest fraction of the coin. This means that one bitcoin is equivalent to 100,000,000 (100 million) Satoshi. This fraction serves precisely so that the currency also has a divided value.

How Bitcoin works

This is a frequently asked question and one that is often confusing. So, to not keep you yawning, let’s quickly check it out!

In technical terms, Bitcoin is a mere registry. It works through a shared, public, and digital logbook called a blockchain. It is by changing the values ​​of these registers that the Bitcoin network makes its transactions.

Records are shared between multiple computers – from supercomputers to personal computers – worldwide, connected to a large network, reflecting the results of transactions.

It is noteworthy that all transactions are cryptographically signed. The validity of a transaction can be easily verified, while the chances of forgery of the encryption are practically nil. In other words: it is almost impossible to cheat the Bitcoin blockchain.

Main features of Bitcoin

Decentralization

The most notable feature of Bitcoin is its decentralized nature. The Bitcoin Network is not controlled by any institution. It is managed by an open network of specialized computers distributed worldwide and is maintained by a group of volunteer coders. This convinces individuals and groups dissatisfied with the power or control that banks or government institutions have over their money.

Also, Bitcoin solves the problems related to double spending of electronic currencies (in which digital assets can be easily copied and reused) through an ingenious combination of cryptography and financial incentives. In traditional currencies, this function is fulfilled by banks, allowing them to control the entire banking system. With Bitcoin, on the other hand, the integrity of the transactions is maintained through a distributed and open network; owned by no one and protected by advanced cryptography.

Pseudonym

While senders of traditional electronic payments are generally identifiable (for verification purposes and comply with anti-money laundering and other laws), bitcoin users, in theory, operate in semi-anonymity. Users do not need to identify themselves when sending Bitcoin to another user because there is no central ‘validator.’

So, whenever a transaction request is sent, the protocol examines all previous transactions to ensure that the sender possesses the required Bitcoins and the authority to send them. And therefore, the system does not need to know about the user’s identity.

Immutability

Bitcoin transactions cannot be reversed, unlike classic electronic transactions. This is because there is no central “adjudicator” that can say, “okay, pay it back.” If a transaction is registered on the network, and if more than an hour has passed, it is practically impossible to modify it.

While this makes some people uneasy, in practice, it means that no one can alter the transactions made on the Bitcoin network. This immutability is excellent and highly reliable from various security aspects.

Future of Bitcoin

Experts are very optimistic about the appreciation of bitcoin in 2021. However, as it is not exactly a currency and thus, it is not possible to make accurate predictions. 

The Citibank analyst Tom Fitzpatrick believes Bitcoin could reach the $318 thousand mark by the end of 2021. Moreover, the estimated appreciation of around 800% makes experts believe that this is a good time to invest in bitcoin. Another factor that can collaborate is the end of halving, which occurs every four years and reduces the reward for the miners.

Some analysts already have million-dollar predictions for the future of Bitcoin, possibly in the upcoming years. And why not? As possibilities are higher, predicting anything negative would be imperative. Moreover, chances are high, and investing in Bitcoin won’t be a wrong decision either. So, think wisely and invest smartly in Bitcoin to earn profit in return.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.