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What is Bitcoin? Your Beginners Guide to Crytocurrencies
Cryptocurrencies let you buy goods and services, or trade them for profit. Here's more about what cryptocurrency is, how to buy it and how to protect yourself.
In the article, I will answer questions like:
What makes Bitcoin different and unique?
What are its purposes?
What makes it a solid investment?
Let's Get Started!
“When you decide to learn about Bitcoin, you are making a choice to expose yourself to a different way of thinking.”
#1 Crypto 101 Basic
Cryptocurrency — also known as crypto — is a digital currency designed to work as a medium of exchange. It uses cryptography (the practice of securing communication under a third party) to secure and verify transactions, as well as to control the creation of new units of a particular cryptocurrency.
Essentially, cryptocurrencies are limited entries in a database that no one can change unless specific conditions are fulfilled.
Bitcoin is stored in digital addresses that are spread throughout the Internet, it is a cryptographic coin that is based on encrypted technology (blockchain). Because Bitcoin is decentralized, it is a currency that is not controlled by any central authority like a government or bank.
Since Bitcoin is an open-source project, many developers had contributed and continue to develop the code of Bitcoin on a daily basis.
Not that you know the basic principle of what Bitcoin is and how it works let indulge more into what Bitcoin is used for and who invented this modern-day era of Digital Money. If you would like to skip the History and how Bitcoin and other cryptocurrencies work, you can check out our How to get started Guide
#2 The History of Bitcoin and How it Works?
Who invented Bitcoin?
In 2008, during the global economic crisis, also known as The Sub-prime, a man or woman nicknamed Satoshi Nakamoto decided that it was the right time for the first digital decentralized currency.
On October 31, 2008, the Bitcoin idea was introduced with the release of a whitepaper titled Bitcoin, A Peer-to-Peer Electronic Cash System, written by Satoshi.
It’s worth noting that Satoshi Nakamoto is believed to be a mystery, and the true identity of the Bitcoin inventor remains unknown to this day. Although some people claim to be Satoshi Nakamoto, none of them have provided sufficient evidence.
In its first two years of existence, Bitcoin had almost no monetary value.
Nevertheless, it soon created strong and active communities of people who continuously improve the original code.
In 2010, Satoshi left the development of Bitcoin, and their last known communication was an email from April 2011.
In the following years, however, the community became bigger and stronger, as more and more improvements and use cases for Bitcoin started to take shape.
Who controls Bitcoin?
One of the beauties of Bitcoin is that, it was once thought that an entity such as a major bank or government must stand behind a currency and ensure the stability of its economy.
Only a few decades ago, however, the Debt Economy started to take shape. It’s the era we’re in today, in which the central bank of a country can print new bills at will without linkage to any tangible asset base (e.g., gold).
This mechanism creates inflation: continued price rises and the erosion of the value of the currency over time. It should be noted that before this era, money was not controlled by governments or central banks.
Bitcoin gives us complete control over the money that we hold.
#2.1 How it works
The Bitcoin protocol is built on blockchain technology. The blockchain represents a digital ledger that includes all of the transactions in Bitcoin’s history and is divided into blocks. Below explains very simply how blockchain works and its simplicity in the nature of its design:
Bitcoin’s blockchain derives its strength from the nodes which are scattered throughout the world. Anyone can create a node and help to preserve the blockchain.
Therefore it’s said that Bitcoin is decentralized – no single entity, be it a bank, a company, or a government, can co-opt the network.
Hence, Bitcoin can’t be shut down.
#3 Bitcoin creation: What is Bitcoin mining?
The process which makes the functioning of the Bitcoin network possible, while also creating new coins, is called mining. It’s the beating heart of the Bitcoin network.
When Joe wants to send Bitcoin to Annie, he creates a transaction and signs it with his private key and then broadcasts it to the network. Here come the miners.
Basically, the miners are the ones who validate and verify transactions, put them into the next blocks, and broadcast them to the public ledger, or the blockchain. This is where the word comes from – it’s essentially a chain of blocks.
When was the first Bitcoin mined?
On January 3rd, 2009, the first Bitcoin was mined to the world. Also known by “block number 0” or the Genesis block. The block carried a reward of 50 Bitcoins for the miners.
What is the miners’ reward?
There are two types of rewards that miners earn – the first is transaction fees for validating transactions, and the second is the block reward.
The miner who manages to solve the aforementioned cryptographic problem receives a block reward, which is the second type of miners’ reward.
As of writing these lines, every block has a reward of 12.5 bitcoins. According to the Bitcoin protocol, every four years there is a halving event, at which time the reward is cut in half. After the halving of mid-2020, the reward has become 6.25 bitcoins per block until the next halving event.
So why isn’t everyone mining?
Well, mining involves solving difficult mathematical cryptographic problems, based on the hash algorithm (the solution is the proof-of-work that gets added to the new block).
In the early years of Bitcoin, a personal computer could produce enough power to mine Bitcoin. But in these days, as competition grew, only huge mining companies such as Bitmain could take part in mining Bitcoin.
It’s worth noting that Bitcoin’s protocol only allows the creation of 21 million coins. Once this number is reached somewhere around the year 2140, no new bitcoins will be created, and miners will only be compensated with transaction fees.
This brings us to the next point regarding the advantages of Bitcoin over traditional FIAT currencies.