So, you want to know about Bitcoin. Is it a giant scam? Is Bitcoin here to stay? Is it safe? We will cover all this in the following sections. Here are 12 Things to Know About Bitcoin.
First, let’s start with a brief introduction to Bitcoin and precisely what it is. If we think of Bitcoin as a currency, we need to know the characteristics that make it a currency.
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- Durability: Bitcoin is stored on a peer-to-peer distributed ledger called the blockchain. Every networked computer in the world has to go down for the blockchain to be permanently lost.
- Portability: Bitcoin can be stored on hard disks in various forms such as USBs. Transporting it is as easy as sending it from one wallet ID to another. This is called cold storage.
- Divisibility: Bitcoin is divisible to the decimal. At the time of writing, each Bitcoin is worth $43,273.30 USD. You can buy 0.5 Bitcoin for $21,536 US, 0.05 BTCC for $2163.66 USD, and so on. Any denomination can be purchased, making it even more divisible than FIAT currency.
- Uniformity: Just like a $100 bill, all bitcoins are the same. One full bitcoin is identical to another bitcoin. This makes it fungible.
- Limited Supply: There is a hard cap on the amount of bitcoin that can be mined: 21 million bitcoins. Right now there are approximately 18.6 million bitcoins mined. The difficulty of obtaining new bitcoin increases as more is mined. Analysts predict we will not reach the bitcoin cap until the year 2140. Maybe at that point, we can use Bitcoin to buy real estate on Mars!
- Durability: Bitcoin is stored on a peer-to-peer distributed ledger called the blockchain. Every networked computer in the world has to go down for the blockchain to be permanently lost.
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So, Bitcoin is a currency. With this in mind, here are 12 things everyone should know about Bitcoin.
1) Why Is Bitcoin So Valuable?
First, we should ask why Bitcoin, as a currency, has any value at all. Gold and silver are backed by tangible assets: themselves. FIAT currencies such the EURO and USD are backed by their own respective governments and the agreement of all parties that use them.
Bitcoin, on the other hand, is backed by mathematics. A growing number of people see this as a much fairer way to value a currency, as the money supply is not controlled by a single central bank or person, but rather by the entire network.
In 2014, one Bitcoin was valued at about $300 USD. It is now valued at over $40,000 USD. That’s a return of over 14,000%. Why the drastic increase?
Bitcoin’s primary and arguably best trait is its design. A fixed protocol provides decentralization in the system from the ground up. Bitcoin makes up a cash system where those participating do not rely on intermediaries, like banks, to facilitate transactions. The Bitcoin system is evenly distributed, immutable, and composed of hundreds of thousands of miners worldwide.
Bitcoin miners process transactions and create blocks on the blockchain. They are awarded BTC. The way the system is designed allows for fund transfer without the use of centralized systems, while each block in the chain is verified by all other nodes (computers) that work on the block. So, instead of a top down system where the bank controls all movement of assets, Bitcoin allows a more direct exchange between parties and is verified by a nearly immutable set of characteristics.
So, the main reason for Bitcoin’s success is that it takes power away from a central authority. People compelled by this idea are investing in Bitcoin, driving up its value.
2) How Do You Move Bitcoin?
Bitcoin is a digital currency upon a decentralized network called a blockchain. Bitcoin can be transferred between Wallets quickly and with no third party.
Bitcoin represents digital rewards given to those who participate in updating the blockchain via mining. Bitcoins are mined with computers solving complex puzzles using algorithms. Once a puzzle is solved, a “block” or part of one is added to the chain, and the miner is awarded a certain amount of Bitcoin as an incentive.
This means that Bitcoins become rarer as time goes on, and the difficulty of creating new ones scales with technology.
Now, Bitcoin can simply be bought. Using an Onramping service such as Mobilum is a fast and secure way to purchase Bitcoin with FIAT currency.
3) How Was Bitcoin Made, and by Whom?
Satoshi Nakamoto wrote the 2008 White Paper titled Bitcoin: A Peer to Peer Electronic Cash System. This whitepaper explained how Bitcoin was going to function, what it would do, and why it was made. You should really read it if you wish to learn more about Bitcoin.
There is no consensus officially on the identity of Satoshi Nakamoto. It’s not even known whether they were a person or an organization. Australian computer scientist Craig Wright makes one claim, but the community believes certain evidence was backdated. Japanese engineer Dorian Nakamoto was “outed” as the creator due to his name and profession. He aggressively denied it. A third and more likely potential creator is Nick Szabo, who is credited with pioneering the concept of smart contracts in 1996.
Still, there is no definitive proof! Does this mean you can’t trust Bitcoin? No, it does not. It simply means that the person or persons behind the world-changing blockchain-based and first cryptocurrency wish to remain anonymous.
4) What’s the Difference Between Bitcoin and a Dollar?
Bitcoin vs. Centralized FIAT Currencies
The first form of FIAT currency originated in China around 1000 AD. The Song dynasty (960-1276) saw a boom in trade in Sichuan, resulting in a shortage of copper coins. For the past few hundred years, precious metals were becoming harder to come by so promissory or credit notes were already known to people. A monetary reserve was created and traders used credit notes based on it, making it the first-ever known form of legal tender, or FIAT money. The Yuan dynasty made paper money legal tender.
FIAT is a Latin term meaning By Decree. Our dollars have value as they are backed by trust in a government. Up until August 1971, the Gold Standard was used to measure the value of the US dollar. In that summer, Richard Nixon signed an executive order that made it so dollars could no longer represent divisions of physical gold, thus ending the gold standard.
The path away from the gold standard has led us into an uncertain future. The government itself is now liable for the value of the paper money. People continue to trade receipts that are backed by nothing but the government’s promise. It works because of trust. Even though there is no commodity backing the money, people trust the government.
That trust quickly erodes when a government prints so much money to cover expenses that it devalues the citizen’s currency. People may then resort to counting money by weight instead of denominations.
Now, the US dollar’s value is based on trust in the US government. With rising inflation, more people are turning to crypto as a possible alternative to store wealth.
A new monetary system is on the rise that is completely decentralized. It allows individuals to send funds to one another without the need for a third party to take a cut in order to facilitate the transaction. This new system started with Bitcoin.
5) When Was Bitcoin Started?
Bitcoin’s start in would have dramatic consequences on the financial world.
Now, instead of a centralized authority or bank regulating finance, we have an option to implement an unchangeable consensus mechanism to regulate the way we conduct business.
That’s why the recent official adoption of Bitcoin as the national currency of El Salvador was such big news. Now a government is officially backing this still-new and speculative asset that is very far away from being anything close to the safe haven that gold is.
6) How Many Bitcoins Are There and How Are They Made (What Is Bitcoin Mining)?
There are currently 18.4 million Bitcoins in circulation. There is a hard cap to how many bitcoins can exist, and it’s set at 21 million. This stop is what will regulate the value of Bitcoin long into the future.
A decentralized banking system allows users to transfer money between each other without middlemen. In the current system, the bank is the only one that has access to the ledger and can charge a fee. They can even cancel/disallow the transaction.
A decentralized system ledger works like this, in the Protocol: “Who wants to be a banker?” This means that transactions go directly between your wallet ID and the recipient if you wanted to make a transaction or send a bitcoin. There is no third-party bank that can be involved.
Anyone who wants to participate in updating the ledger, known as the blockchain, can update it. In the simplest terms, this requires participants to “guess” numbers or algorithms. This is of course done with computers, and the more powerful your processing power, the more calculations or guesses you can make. This leads us to the next thing you’ve probably heard about, how Bitcoin is made, or “mined.”
7) How Is Bitcoin Mined?
No, there are no sheepherders turned miners in a dark cave somewhere underground finding Bitcoin under a mountain.
Making “guesses” correctly and being able to update the blockchain is called mining. Participants engage their mining computer, and the mining software a miner uses will determine which group of transactions will be added to the block.
Mining is the process by which computers use processing power to guess the answer to a mathematical puzzle that gets harder and harder. As more of this puzzle is solved, Bitcoin is awarded to the “nodes” (computers/groups of computers) performing the mining.
Once your mining computer comes up with the right guess, your mining software determines which of the current pending transactions will be grouped together in the next block of transactions. Mining software is a program you install on your mining computer that allows that computer to mine on the network.
Compiling this block is your moment of glory. The block you create and your solution are sent to the entire network, which updates the ledger for everyone.
Mining is a guessing game. Mining is the process of using computing power to process transactions, secure the bitcoin network and keep it synchronized. Mining computers use software to “listen” to the peer-to-peer network and perform tasks to process and confirm transactions on the network.
Miners earn fees paid to them in Bitcoin for processing, and new bitcoins are issued into existence according to a formula.
After this stage, the system generates a fixed amount of Bitcoin as compensation. The block rewards the transaction fees for any transactions you put into the system. This is how “Miners” are rewarded. “Mining” when referring to bitcoin simply means updating the blockchain ledger.
The difficulty of mining is coded to be proportional to the number of bitcoin miners and how much power they have.
So you may be wondering: Is bitcoin mining profitable now in 2021? Well, the answer is somewhat weighted, but generally, it’s a no.
Unless you have a plan and enough start-up capital, it’s gone far past the days where you can earn a quick buck from mining. Bitcoin mining devices are quite expensive and the average bitcoin miner lifespan is just over 1 year.
While miners often pool their money together to share these devices, it is still difficult to make a good profit all things considered. Unfortunately, there is no way to have a free Bitcoin generator for your wallet. Earning Bitcoin takes time and money.
8) Bitcoin Is on a Blockchain. What Is Blockchain?
A blockchain can be thought of as a database. Traditional databases work in a centralized manner, with individual files being stored in one location. Multiple users are able to access it via servers from that one central location.
The blockchain is essentially a record of all transactions and accounts, or addresses that hold bitcoin. Each block is verified by others within that block and from other blocks, so no central authority or database has control over the entire network.
It is immutable, meaning that it cannot be tampered with to become centralized. Think of it like comparing a funnel to a net, the funnel being the centralized finance model and the net being blockchain.
Blockchain technology is not solely attributed to Bitcoin. It is the technology that has allowed for the creation of hundreds of other cryptocurrencies upon different blockchains. If Bitcoin is like gold, then Ethereum, or ETH, is like the silver of the crypto world.
Blockchain can affect the world in many ways beyond finance. Imagine a democratic voting system built on an immutable, self-verified blockchain network that can’t be controlled by a government or politician – this makes democracy sustainable and fair, especially in developing nations where this is a real issue.
9) There Is a Limited Number (Hard Cap) of Bitcoin
There is a hard cap on the number of Bitcoins that can exist. It’s set to 21 million. There are approximately 18 million Bitcoins that have been mined. Some of them were on USB drives that got lost in a dump! Imagine owning the coin in 2010 when it was in the hundreds of dollars, and then selling it now!
Imagine if I had 1 digital dollar. What’s to stop me from just copying it over and over into infinity? The central record is stored by the bank, that’s what! This reliance on a third party is the reason for bitcoin’s success!
10) Bitcoin Has Utility, and It’s Ramping Up!
El Salvador is officially the first nation to adopt Bitcoin as a currency. Corporations and investment funds are buying large amounts of BTC and holding them. Tesla sold cars for Bitcoin until Elon Musk decided to stop this due to the rising environmental impact of Bitcoin. This brings us to the next point…
11) Bitcoin Mining Takes a LOT of Electricity
How much electricity does Bitcoin consume? Recently, China banned all Bitcoin mining in the country. In China, coal is the primary producer of electricity. Bitcoin consumed more electricity than the entire country of Finland, or about 80 terawatt-hours of electricity annually. Imagine 23 coal-fired plants going full blast.
This is one major downside of Bitcoin for now, but as technology and power efficiency improves, we could see this number fall over time.
12) Bitcoin Can Be Moved Easily. It’s Almost Impossible to Counterfeit
Let’s talk about why Bitcoin solves the Double Spend problem. Instead of trust, we now have an uncompromisable, immutable (unchangeable), transparent ledger of transactions. The nature of blockchain technology makes Bitcoin impossible to hack or counterfeit!
HOWEVER, that’s not to say fraud is not a huge problem in the crypto world.
Final Thoughts
You should understand Bitcoin before you put any hard-earned money in. Once you’ve understood the basics you can go on to learn about more complex topics, like Bitcoin P2P lending, to get other ideas of how to invest in Bitcoin.
What Bitcoin did was cause a fundamental crack within an aging system. This might not just topple the current economic system, but replace it entirely. With cryptocurrency, it’s nearly impossible to predict what’s going to happen long-term.
Featured Image: Megapixl
