Bitcoin has gained immense popularity over the last decade. This is to such an extent, that the President of El Salvador, has announced Bitcoin as a sovereign currency.
So, what is Bitcoin (BTC)? How has the journey been so far? And, what does the future hold? In this article, you will discover updated information about bitcoin.
Understand Blockchain First, Then Bitcoin.
To understand Bitcoin, we will have to take a step back and understand its core technology: Blockchain. Blockchain is a decentralized ledger where data is stored in the form of Blocks. As new blocks are formed, the blocks are linked in the same order that is created. It is hosted by multiple nodes throughout the world making it decentralized. This also makes bitcoin’s blockchain immutable.
We have a detailed article regarding blockchain that you can refer to.
History of Bitcoin
On 31st Oct 2008, an individual (or a group of individuals) taking the pseudonym of “Satoshi Nakamoto” published the now-famous Bitcoin’s Whitepaper, titled Bitcoin: A Peer-to-Peer Electronic Cash System.
While the words seem to be heavy, the basic idea was to create a system to transfer value within the blockchain without a third party involved. Bitcoin was introduced as a cryptocurrency that users will use for such transfers. The potential was immense, this was an entire monetary system with the potential of use for payments, cross border transfers.
Soon afterward, on 3rd Jan 2009, Satoshi Nakamoto launched the Bitcoin Network. He mined the first block, also known as the genesis block (Block 0). That first Block had 50 BTC as rewards. Now that the network was up and stable, the next step was to test its first use case: payments.
— SeedMint (@SeedMint21) January 25, 2022
Moreover, on 12th Jan 2009, Satoshi transferred 10 BTC to cryptographer Hal Finney. This was the first Bitcoin transaction and a true demonstration of Bitcoin as a transfer of value.
Later, Satoshi disappeared due to unknown reasons. He handed over the network to Gavin Andresen, and then it fell under the broader umbrella of the Bitcoin Foundation.
What is Bitcoin?
In short, Bitcoin is a “peer-to-peer version of electronic cash” that moves away from a trust-based financial model and embraces an electronic financial system based on cryptographic proof.
Apart from transfer value, one of the important utilities of Bitcoin is governance. The network pays the node operators (also called miners) rewards in the form of BTC, for each block mined.
The backbone of Bitcoin is the Bitcoin nodes. They are computers spread all around the world that confirm transactions and store information in the blockchain. Anyone can become a Bitcoin node by simply running the Bitcoin core client on a PC. The Bitcoin Core client is open source that anyone can download and run it.
On the other hand, “Satoshi” is the smallest unit of Bitcoin, and one “Satoshi” is equal to one-hundred-millionth of a Bitcoin (BTC).
Moreover, the Bitcoin Network development is currently funded by big names like Square Crypto, Blockstream, Gemini, Coinbase, BitMEX, etc. It’s important to mention that all transactions in Bitcoin can be monitored through Blockchain.com
Bitcoin’s Consensus Method: Proof of Work (PoW)
The Bitcoin Network is secured by individuals called miners. To keep the network decentralized the miners need to run nodes that validate transactions inside a block. Each block has an arbitrary number called “nonce” which is used only once in a cryptographic transaction.
Therefore, The role of the miners is to find this nonce by running an algorithm. This process is a hit and miss, and hence the more time the miner generates a possible number, the better is its chance to find the nonce. This is why hardware processing power is of utmost importance to find a nonce.
Moreover, once the miners find the nonce, the final hash of the block is generated and the system moves on to create the next block. The same process repeats. This process of achieving consensus in a decentralized manner is also called “Proof of Work”.
Also, because of the high processing power requirements, Bitcoin has been consistently criticized for not being environmentally friendly. However, recent blockchains have moved to the Proof of Stake consensus mechanism, where miners are using more renewable energy sources.
Therefore, for such reasons, it has been very difficult for a common user to mine Bitcoin from his/ her laptop. That’s why Bitcoin’s mining has become a big industry. The major players include Ant Pool, F2P Pool, Slush Pool.
#Bitcoin mining difficulty increased by +9.3% today, hitting a new ATH.
— glassnode (@glassnode) January 21, 2022
How can you use Bitcoin?
Using Bitcoin can be intimidating in the beginning. The main challenge lies in mentally moving from a traditional setup to a digital playground. You have to deal with new software and terminologies.
At a very basic level, a crypto user needs to learn how to:
- Fiat on and Off-Ramp: As crypto is internet native, you will need to learn the following topics:
- Buy bitcoin with Fiat currency. You can purchase Bitcoin using your Bank deposits, Credit Card, or P2P.
- Learn how to use an exchange to withdraw money to your bank account. Popular Bitcoin exchanges include Binance, Huobi, Coinbase, Crypto.com, etc. You can also convert to fiat using Bank Withdrawal, P2P, and also use it via crypto Debit Cards.
- Store Bitcoin: There are various ways you can store your Bitcoin. The easiest one is to store in Centralized exchanges we mentioned in the previous point. However, in such a case, the exchanges store your Bitcoin. If you want to hold it by yourself, you can download wallets like Bitpay, Crypto.com, or non-custodial wallets like Trust Wallet, Ledger, Trezor, etc.
- Trade Bitcoin: Most of the current crypto exchanges will allow you to trade Bitcoin. Apps like Crypto.com and Ledger Live also have swap functions that you can use. However, you will have to pay a small amount as fees.
- Transfer Bitcoin: You can transfer Bitcoin from all available exchanges, apps, and hardware wallets. Therefore, you need the receiver’s BTC address. We recommend you use a 2FA enabled security filter for transfers. Google Authenticator is a good app for this.
The total supply of Bitcoin is 21 Million, and now the circulating supply is 19M. Therefore, the pending 2 million bitcoins are yet to be mined. The supply is non-inflationary, so BTC holders have been using this feature to refer to Bitcoin as a non-manipulated, open transparent cryptocurrency. Very different from FIAT currencies that are printed based on non-technical decisions which generate inflation.
On the other hand, the Bitcoin block rewards are halved (an incident called Bitcoin Halving) every 4 years. The last halving was in May 2020. Miners currently get 6.25 BTC as block rewards.
I'am not an expert, this is only a point of view.
I'am pretty confident that the cycles will be always longer, we'll lose the idea that the Halving bring the top.
I suppose that the next Top is really near, June?Dec? Doesn't matter, the cycles will be always longer #Bitcoin #BTC pic.twitter.com/O3SbYqxutO
— ⚡ Stewie ⚡ (@Stewie2020Bull) January 19, 2022
All the remaining 2M (approx.) will be mined by the year 2040. This means that Bitcoin mining will not remain profitable. It is to be noted that the miners also receive the transaction fees in a block in addition to the block rewards. After 2040, they will have to be entirely dependent on transaction fees. This also means Bitcoin transaction fees should increase gradually for the miners to remain profitable.
Bitcoin adoption saw a major boost when on 7th Sep 2021, El Salvador adopted Bitcoin as a Legal Tender. This means that the citizens of that country can now legally buy goods and services with Bitcoin. Since then, the country has been accumulating its Bitcoin Reserve.
Also, big companies have started holding Bitcoin in their reserves. As per the recent Bitcoin Treasuries numbers, the below are the holdings:
- Microstrategy – 124,391 BTC
- Tesla – 43,200 BTC
- Marathon Digital Holdings – 8,133 BTC
- Square Inc – 8,027 BTC
The major Bitcoin trusts include
- Grayscale Bitcoin Trust – 654,885 BTC
- Coinshares – 69.730 BTC
- Purpose Bitcoin ETF – 30,000 BTC
As of the time of writing this article, 28,619 retail venues accept Bitcoin for transactions. This includes ATMs, Café, Food, Grocery, Shopping, Sports, etc.
Also, major companies have involved themselves with Bitcoin. Some of them are :
- Wikipedia: For donations
- Microsoft: For XBOX Store credits
- AT&T: Customers can pay their bills using Bitcoin
- Burger King: Burger King Venezuela accepts Bitcoin payments
- Overstock: For all purchases using their website
- Subway: Accepts Bitcoin payments in multiple outlets
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As per IntoTheBlock majority (56%) of Bitcoin’s holders are holding for a long time (>1 year). Large holders account for 11% of total holders.
The Future of Bitcoin
Bitcoin, as an asset, has given the highest returns in the last 10 years. However, for the last 1 year, its price has not increased exponentially. Compared to other altcoins, the price of Bitcoin has become relatively stable.
Bitcoin is unable to move from the narrative of payments to a broader narrative of ecosystem development and finding new utilities. Projects like Lightning Network have made Bitcoin transactions faster, however, Bitcoin still needs to be wrapped to be used in any decentralized applications. Nowadays, Stacks is developing that, but it just got started.
Finally, Bitcoin (BTC) remains a strong store of value, and being the first (almost) cryptocurrency, it will always hold value. It is strongly poised to compete with digital gold and take the narrative of “Digital Gold”. Whether it can get other utilities? We will have to observe. We will expect the price to grow slowly, steadily with lesser volatility in the future.
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