What is Bitcoin?

Cryptocurrencies (Cryptos) are now synonymous with our daily lives. It’s almost unthinkable to spend ten minutes on the internet before being bombarded with ads and promos about digital coins. If there’s one virtual currency you need to learn about, it’s Bitcoin. You can call it the ancestor of cryptos. It has fast grown into the most held and valuable coin and some advocates think it could one day take over the fiat economy. So what exactly is Bitcoin and why is it such a big deal? Come let’s find out together.

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Titbits

  • Bitcoin is the world’s most established virtual coin by market capitalization.
  • In just a short time, Bitcoin has experienced some of the most volatile cycles ever seen in currencies.
  • You can’t hold Bitcoin in your hands as you do with fiat
  • A host of other coins have been developed with inspiration from Bitcoin

Introduction to Blockchain

Bitcoin is a digital form of settlement built on a technology referred to as the blockchain. Despite the name “bitcoin,” it’s not a real coin that you can carry. It operates like emails. Just like you use your email address to digitally send, receive and store letters, you can also have a bitcoin wallet that sends, receives, and stores money for you. Bitcoin is decentralized in nature meaning, no single authority has autonomy over it. It’s not regulated by any government or central bank and can’t be manipulated. Let’s first demystify crypto and blockchain to help you understand Bitcoin much better.

Cryptocurrencies and Blockchain

Cryptocurrency comes from Crypto and Currency. The word crypto originates from the Greek word ‘kryptos,’ which means hidden. So in a layman’s language, cryptocurrency is a hidden or secret currency. Not literally though, but because the transactions have a high level of encryption making them secure. It’s digital and free from central government controls. It’s a virtual coin that runs on blockchain technology.

On the other hand, a blockchain is a public list or chain of records called blocks. These blocks carry cryptographic hashes of each other along with transaction information. The data can’t be modified or manipulated as each block stores information from the previous block immutably.

The blocks that make the blockchain system were originally meant to verify transactions. This has however evolved as other blockchains have been developed with additional features. The Bitcoin blockchain still maintains its original functions, but there are others such as the Ethereum blockchain that not only verify transactions but can also store other blocks of information such as marriage certificates, and land titles, and even facilitate the implementation of contracts.

Bitcoin’s system is distributed across a network of computers also referred to as miners or nodes. These nodes run the bitcoin blockchain and store transaction information.

Understanding Bitcoin Network and How it Works

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Now that we have a hang of crypto and blockchain, let’s get back to Bitcoin. The Bitcoin network runs on blockchain and such is a collection of many computers that run its codes. Its blockchain is mainly full of lists of transactions. Kevin sent Joram 2 bitcoins, who sent Linah 0.5 bitcoin etc. As technology advances and the internet of things grows, these transactions do not necessarily need to be between humans. The world is advancing to a more automated age where taxis, vending machines, and different service providers would have bitcoin wallets, and the service would not be rendered unless the client would send bitcoin to the service provider’s wallet and it’s received.

Anyone with a computer can view any transactions in the Bitcoin network, although the users remain anonymous. In a nutshell, the Bitcoin blockchain works like this

A user makes a bitcoin transaction (receiving, sending, or exchanging). The transaction information is broadcast to a network of many computers (nodes) which compete to validate the information. The validation process, also called mining, is done by systems or people with large computing power, and in return, they earn small bits of bitcoins for every block of information that they verify.

Every Bitcoin transaction undergoes three verification stages, the sender, the receiver, and the rest of the Bitcoin network. This happens automatically so you don’t need to worry about learning the entire process. The transaction is complete after the third verification and the bitcoins are free to use by the receiver

How to get a Bitcoin

Early History of Bitcoin

18th August 2008

A domain name is registered- Bitcoin.org.

31st Oct 2008

Satoshi Nakamoto releases the Bitcoin white paper on the Bitcoin.org website and announces meltzdowd.com

3rd January 2009

Block O also called the genesis block, is the first Bitcoin block to be successfully mined. The first Bitcoin block is mined.

8th January 2009

The first Bitcoin software released and announced to the Cryptography Mailing list.

9th January 2009

The second Bitcoin, block 1, is mined successfully ushering in a period of Bitcoin mining.

May 2010

The First Bitcoin exchange, Bitcoin Market, was established in February. Two months later in May, Laszlo Hanyecz, a Florida-based programmer buys two pizzas for 10,000 BTC with a combined value of $25. In July, a second exchange Mt. Gox, popped up, followed by a mining pool, Slush. A mining pool is where several miners put together their resources to produce powerful computing power for verifying transactions and earning bitcoin in return. Bitcoin was now becoming popular and by November of the same year, it had surpassed the $1 price mark for the first time.

2013

By 2013, Bitcoin was already trending with speculators betting on it to earn quick returns. By the end of the year, the value had broken the $1000 mark.

2017

This was the biggest year in the history of Bitcoin. It was not mainstream and many investors started considering it as an alternative store of wealth. It traded above $3000 in June. The asset has since then gone through multiple cycles of bursts and crashes while maintaining an upward trajectory. As of writing this, the current price of BTC is at $38,537 and has reached an all-time peak of $68,000 in November 2021.

Why is Bitcoin such a Big deal? Why do people want it?

  • Security: Transacting with Bitcoin is safe and se First, users don’t share their personal information when dealing in BTC. So there are zero chances for fraudsters to use your info to carry out out illegal activities. Secondly, the technology is not hack-able. No one will know how much you’re holding in BTC unless you disclose, and even if you do, your money can’t be stolen.
  • Digital Gold: Bitcoin is also referred to as digital gold because it’s scarce, just like real gold, and immutable. It’s already finding a place in diversified portfolios. The value of Bitcoin is high and investors are expected to reap high
  • Investment and Speculation: Early Bitcoin investors made unbelievable returns. Many known Bitcoin millionaires raked in over 100 times their initial investment from Bitcoin. The virtual coin is still volatile and with projections of it hitting the $100,000 mark, speculators are keen to bet on it.
  • No manipulation: Bitcoin is not controlled by any government authority or bank. Transactions can’t be altered, and the value is purely a factor of market forces. This aspect also raises the security of the payment network.
  • Anonymity: Bitcoin transactions are public, but buyers and sellers remain anonymous. This gives transacting parties privacy, something that has attracted the interest of many people who want to move their funds silently. On the other hand, governments are concerned that this avenue could be used to finance illicit activities.

What are the Problems of Bitcoin?

  • Unstable Value: As a currency, Bitcoin fails to be a reliable store of value and means of deferred payments. The value of the coin changes by about 1-3% almost daily, and occasionally by up to 5%. This value easily goes to as high as 10% a month several times in a year. Such volatility is advantageous when the price of an asset is rising, but poses serious threats when the value is declining. As of writing this, the price of BTC was $38, 537. This is about $27,000 less than the price of the same digital currency a year ago. If you were trading in futures and you sold commodities at two Bitcoins, valued at $65,000 each, and you got paid today, we would be counting more than $50,000 in losses due to the volatility of BTC.
  • Government Criticism: If it’s not China cracking down on Bitcoin mining rigs, it’s the US that’s coming up with new policies to regulate the digital coin. Governments across the world are concerned that Bitcoin poses severe security threats. It’s the most ideal form of funding terrorism and promoting money laundering activities as it offers anonymity. Some governments still look at BTC investments as gambling, especially after their citizens lost millions of dollars in crypto-related scams. Additionally, tax authorities are concerned that virtual currencies could be used by their citizens to try and evade taxation. Of course, these are genuine issues that need to be addressed, but the flip side of it is that they fuel not only objections from regulatory bodies, but also create a hostile environment for the adoption of Bitcoin.
  • Energy Requirements: Away from criticism and instability, BTC’s cost of mining is absurd due to its energy requirements. Cambridge University estimates that energy spent in mining Bitcoin every hour at over 100 terawatt, which is equivalent to a third of the energy consumed in the whole of the United Kingdom. The future of this kind of technology might not be so bright in this era where global warming is a key concern.

Parting Shot

Bitcoin has been declared useless many times by critics but it does not stop growing stronger. Just like Facebook or Netflix, Bitcoin is a child of the “Network Effect.” Early investors reaped big but it’s not yet late to learn about this futuristic currency. There are a lot of free resources all over the internet where you can study from beginner to professional level. dAppGambl is also committed to giving you the best educational material, so stick around and learn from us too.

FAQs

1. How do people get Bitcoin?

There are three ways to get Bitcoin. You can buy them, sell anything and request to be paid in Bitcoin, or participate in mining to earn bitcoins for every successful verification.

2. How many Bitcoins exist?

Only 21 million Bitcoin will ever exist. As of writing this, approximately 18.9 million had been mined, meaning there are still 2.1 million Bitcoins awaiting mining. We recommend Binance and Coinbase platforms for buying bitcoin

3. How does Bitcoin mining happen?

Mining is the process of solving complex mathematical equations to extract Bitcoin. Even the most powerful computers find this process so complex. It was created so to make the bitcoin payment network secure and trustworthy as every transaction must be verified to be deemed complete.

The invention of Bitcoin also revolutionized the online gambling industry and since then more and more Bitcoin Casinos have been popping off the ground.

Learn more about Crypto

If you want to learn more about crypto and DeFi, check out the following blogs:

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Eugene Abungana
Written by Eugene Abungana verified symbol Investment Analyst, Financial Analyst, and Institutional Trader
107 Articles

Eugene is an investment analyst, MQL developer, financial trader and an expert in blockchain technology. He is a graduate in economics and holds additional studies in sustainable retirement investments. In addition, he has a background in literary journalism and experience in private fund management, institutional trading, and online broker setup. Eugene is a specialist at breaking down complex finance and investment topics into a simple read for everyone.

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Reviewed and Fact Checked by Kevin O'Brien , Web3 & DeFi Writer