Bitcoin has come a long way since the release of its whitepaper in 2008. It has overcome many obstacles on its road to a market cap of over $100,000,000,000.
In this essay, you'll gain a deeper understanding of Bitcoin, one of the most revolutionary technologies to have been conceived in the 21st century.
Introduction To Bitcoin
Bitcoin was introduced to the world in October 2008, via its whitepaper. It was the first glimpse that many people got into this revolutionary technology.
The whitepaper describes Bitcoin as peer-to-peer digital money, which is capped at 21 Million and allows for online payments without an intermediary.
The first peer-to-peer transaction in this network was witnessed in January 2009, when the mysterious founder Satoshi Nakamoto sent Hal Finney 10 Bitcoins.
From there on out as adoption started to grow, so did the price of Bitcoin. For the first time, its market cap exceeded $1,000,000 in November 2010.
With the rise in popularity, came an evermore distant Satoshi. To this day, there hasn't been any official confirmation as to the identity of the founder. It's something we may never know, as Satoshi Nakamoto faded away from the community in 2011.
Since the departure of Satoshi, Bitcoin continues to be supported by a group of developers including Gavin Andresen. Bitcoin continued its rough incline in value until it came crashing back down in 2018 eclipsing the famous dot-com bubble.
Bitcoin regained momentum in 2019, breaking the $100,000,000,000 market cap.
How Does Bitcoin Work?
It can become overwhelming to try and understand how Bitcoin works due to the amount of technical jargon. However, to understand how Bitcoin works from a macro-level, you need to know how miners, exchanges and users cooperate.
Miners are powerful computing equipment designed to solve the increasingly complex mathematical equations of a block or a chunk of transactions. The network is so powerful that it exceeds Google, Amazon, and Microsoft combined.
Once miners have solved a block that gets added to the blockchain, it produces Bitcoins as a reward—these Bitcoins sent to those responsible. The block reward started at 50 Bitcoins upon its inception and has been halving every four years since.
Without miners, there wouldn't be a Bitcoin ecosystem as we see today. They are responsible for processing transactions and minting new Bitcoins.
Exchanges which often double up as Bitcoin Wallets (Coinbase) offer an entry point for individuals to get involved with Bitcoin; you can look upon as bank accounts.
Exchanges offer a convenient way to buy, sell and hold Bitcoin. Often with the caveat of fees for every transaction that is made, with charges varying for each exchange.
Those who buy, sell or hold Bitcoin are classed as users whether that be a Bitcoin trader, a merchant who is accepting Bitcoin as payment, a hoarder of Bitcoin or else.
Without each party playing a role, the Bitcoin ecosystem wouldn't be able to function. Consider the scenario where miners created all the Bitcoins, but nobody used them. In such a case, Bitcoin would be utterly worthless.
What Is The Blockchain?
The term 'blockchain' confuses many people. In the case of Bitcoin, it's merely a public ledger of all the transactions that have taken place.
It adheres to the Proof-of-Work consensus algorithm, which is what makes it immutable. Meaning changes to the data once written, are practically infeasible.
The blockchain is an ever-growing ledger, with new blocks added to the chain approximately every 10 minutes by a decentralised network of miners.
"The traditional way of sharing documents with collaboration is to send a Microsoft Word Document to various recipients, asking them to make revisions to it.
The problem with that scenario is that you need to wait until you've received the final copy before you can make any other changes. That's how databases work today; various owners can't update the same record at once.
Alternatively, with Google Docs, various parties have access to the same document at the same time. The single version of that document is always visible to all of them. This scenario is similar to a shared ledger, but it's a shared document."
Characteristics Of Bitcoin
Bitcoin differs from traditional currencies in many ways, some of which include:
A single entity does not control Bitcoin; it's supported by a distributed network of developers, miners, exchanges, educators, users and more.
Unlike traditional currencies, Bitcoin has a supply cap of 21 Million. It's controlled by an algorithm, with new Bitcoins created as blocks are solved.
At its core Bitcoin doesn't require users to identify themselves when completing a transaction. However, it is not entirely anonymous as most exchanges require users to complete identity checks before using their platform.
As there's no central body, it's not possible to reverse transactions. While this may seem scary, it does stop activity on the Bitcoin network from being tampered.
You can break Bitcoin down in much the same way you can with traditional currencies. With Bitcoin, you can break it down to Satoshis, the smallest denomination of a Bitcoin being One-Hundredth Million of a Bitcoin (0.00000001).
Legality Of Bitcoin
Bitcoin is legal in most developed countries, and it has faced criticism in some emerging markets. All of which tends to factor into the price fluctuations.
It's not the legality of Bitcoin which catches many people off guard; it's more so the taxation. They treat Bitcoin as property in many countries, rather than currency.
It's best to get the advice of a tax expert in your jurisdiction.
What's Next For Bitcoin?
Bitcoin continues to be supported by some of the best developers in the world, allowing the ecosystem of miners, exchanges, and users to keep flourishing.
The level of innovation we're witnessing is exciting, yet still, no one truly knows how Bitcoin will evolve. We will have to continue watching this experiment play out.