Whether prices are skyrocketing or falling, Bitcoin always seems to be in the news. Despite the thousands of cryptocurrencies that have entered the market since the inception of Bitcoin, it remains the most popular one. Not only was it the first cryptocurrency, but it’s synonymous with the very idea. Because of this, it’s the most used and valuable cryptocurrency in the world.
Bitcoin can seem like an excellent but confusing investment. In this article, we answer the question, “What is Bitcoin?” and break down how it works.
In April 2021, Bitcoin was worth over $60,000 – just a couple of months later, it’s a little more than 50% of that. This level of volatility is what makes Bitcoin so intriguing, leading people to wonder how it can be so valuable and how it functions. In this article, we’ve answered all these questions, from what Bitcoin is and how it is mined to how you can acquire it.
Bitcoin Definition: What Is Bitcoin?
Bitcoin is a cryptocurrency (digital currency) that is decentralized, i.e., works without any government or bank oversight. Instead of authorities making and verifying financial transactions, this is done through cryptography and peer-to-peer software. Hence, all Bitcoin transactions are recorded in a public ledger and are accessible by everyone. This transparency makes Bitcoin transactions difficult to fake and reverse.
History of Bitcoin
Bitcoin was first mentioned in 2008 and then mined in 2009. The domain bitcoin.org was registered by an unknown person or group of people on August 18, 2008. On October 31, 2008, Satoshi Nakamoto announced the creation of Bitcoin on metzdowd.com and published a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” detailing the theory and design of the cryptocurrency. This is still used to guide the operation of Bitcoin today.
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On January 3, 2009, the first Bitcoin block, Block 0, was mined. January 8 saw the bitcoin software first announced on The Cryptography Mailing list, with Block 1 being mined the very next day. The Bitcoin network has been in operation since January 9, 2009.
Who Is Satoshi Nakamoto?
Satoshi Nakamoto is the pseudonym used by a person or the group of people who announced Bitcoin, released the original Bitcoin whitepaper in 2008, and the Bitcoin software released in 2009. While many people have claimed to be Satoshi Nakamoto and others have been suspected of being the Bitcoin creator, there is no definitive answer to who Satoshi Nakamoto is. The individual or group remains anonymous to this day.
Peer-to-peer technology allows multiple people to participate in the bitcoin network at the same time. Bitcoin uses peer-to-peer technology to power the network, mine bitcoin, and allow transactions. As a result, everyone can participate in the Bitcoin network, including individuals and companies. Bitcoin “miners” are rewarded through payment in bitcoin.
What Is Bitcoin Mining?
Bitcoin mining refers to the process through which new coins are brought into existence, and the current network is maintained. Bitcoin miners are members of the peer-to-peer network that confirm transactions, create new bitcoin, and are rewarded with new bitcoin for their efforts.
The mining process involves using computers to solve puzzles and discover new blocks. When these blocks are added to the blockchain, the miners earn bitcoin. Mining maintains the network by adding and verifying records and using computer chips like Application-Specific Integrated Circuits (ASIC) and Graphic Processing Units (GPUs).
Because the Bitcoin supply is finite (only 21 million coins are available), rewards for mining them are reduced every four years. In addition to earning less bitcoin, mining is also made hard because of the highly sophisticated and expensive setup required.
How to Get Bitcoin
If you’re looking to invest in Bitcoin and are wondering how to get bitcoin, you should know that there are several ways to do so. Not only can you buy bitcoin with traditional money, but you can also accept payments in bitcoin or take up mining bitcoin.
It should be noted that Bitcoin doesn’t necessarily have to be bought as a whole – since Bitcoin can be divided down to eight decimal places, it can be sold in fractions.
Buying Using Money
Transfers and Accepting Payments
Sales and transfers are another way to get bitcoin. Sending bitcoin digitally is just like sending cash through the same channel – you can use desktop computers or mobile apps to do so. Many sellers also accept payment in bitcoin.
As previously mentioned, Bitcoin miners are rewarded with new bitcoins. Many individuals and companies use sophisticated equipment to earn bitcoin this way.
How to Store Bitcoin
No matter how you purchase Bitcoin, storing it requires a digital wallet. A digital wallet allows users to send and receive bitcoins, store their money, or use it to pay for goods and services. The two types of digital wallets include hot wallets and cold wallets. Both have their advantages and disadvantages and are explained below.
A hot wallet, also known as an online wallet, is stored in the cloud by either a provider or an exchange. Access is available through computers and smartphone apps. While hot wallets are seen as more convenient, they can be hacked.
A cold wallet, also known as a mobile wallet, is stored on an encrypted, offline device. While a cold wallet is safe from hacking, it has its own risks. If your digital wallet is on your computer, it may be accidentally deleted or corrupted by a virus. It’s important to note that hot wallets are required to download and store bitcoin in cold wallets.
Bitcoin Price and Value
Because Bitcoin is completely virtual, the pictures of physical gold and silver coins often seen online are a novelty. Additionally, individual bitcoins aren’t inherently valuable – their worth is influenced by several factors, including demand, supply, mining cost, exchanges, etc. The price of a single bitcoin was $0 in 2009, $1 in April 2011, $32 in June 2011, over $7000 in December 2019, and reached an all-time high of over $64,000 in April 2021. As of June 7, 2021, one bitcoin is worth $36,598.70.
Bitcoin can clearly be an excellent investment opportunity. However, its volatility also makes it a risky one – a 50% reduction in Bitcoin value in 2 months shows as much. That being said, highs and lows will continue to make news, and it’s up to individual investors to decide whether the risk is worth the reward. We hope this article on Bitcoin helps you do just that.