Heard all the talk about Bitcoin but don’t know much about what it is or how it works? In this blog we will simply define and explain it.

A Simple Definition Of Bitcoin

Bitcoin is the world’s first decentralized cryptocurrency. This means that no government or bank controls it.  It is digital money which can be bought and sold on the blockchain where transactions are cryptographically secured – a scientific method of encoding and decoding data.

The Origins Of Bitcoin

Bitcoin rose from the ashes of the Global Financial Crisis in 2008. It was launched in 2009 by a mystery person or persons who used the pseudonym Satoshi Nakamoto. It became the world’s first cryptocurrency and while there have been many more since, Bitcoin remains the largest in terms of value and volume traded. Bitcoin was created as a way of sending money over the internet as well as an alternative to traditional fiat money. Nakamoto released a white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. In it, he wrote: “The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” Bitcoin cannot be artificially inflated or manipulated because there will only ever be 21 million bitcoin released – a number yet to be reached. As of April 2022, only two million bitcoin had yet to be mined. Nakamoto has not publicly spoken of Bitcoin for many years and his or her identity has never been discovered.

How Bitcoin Works

There are many cryptocurrency marketplaces where Bitcoin can be traded and accessed. Some of the most well-known marketplaces include Coinbase, Binance, Gemini and Uphold. Every transaction that is made must be verified by a “consensus mechanism” called Proof of Work. It requires validators, known as “miners”, to solve a complex mathematical puzzle in order to verify transactions and discover a new “block” to be added to the chain. This requires vast amounts of computing power and energy. In exchange for their efforts, miners are rewarded with associated fees as well as an amount of newly minted bitcoin. The transaction is then added to the blockchain which cannot be altered but can be viewed by anyone with an internet connection and a computer.

How Do You Store Bitcoin?

Bitcoin is stored and traded with a bitcoin or crypto wallet. A bitcoin wallet is a software program that can be accessed on a computer or similar device that allows users to send, receive and secure bitcoin. The wallet itself does not store the bitcoin but merely holds the cryptographic keys – an elaborate password – that authenticates the user. Both a private key and public key are required to facilitate bitcoin transactions.

Benefits Of Bitcoin

• it serves as a payment for goods or services
• it acts as an investment, similar to gold
• It can be used to transfer money around the world
• It operates without a centralized agency taking a fee and slowing down the transfer
• It is legal to hold, trade or spend on anything
• Bitcoin’s decentralized nature and cryptographic features make it secure and impregnable to hackers. The network has never been successfully hacked.
• Unlike many online payment systems, Bitcoin transactions are irreversible, reducing the risk of fraud.
• Every Bitcoin transaction is published removing any opportunity for manipulation
• Bitcoin is private with nothing in the blockchain identifying any personal information

Challenges Of Bitcoin

• Mining (verifying transactions) uses vast amounts of energy which proves expensive with some environmentally conscious governments considering banning the Proof of Work consensus mechanism
• It’s current volatility means that users could pay vastly different prices for the same goods from one day or even one hour to the next
• While there are a growing number of opportunities to pay with Bitcoin, many merchants may still not accept it

The History Of Bitcoin

2008 – The concept is crystallized by a mystery person or group of people who used the assumed name Satoshi Nakamoto.

2008 – The name bitcoin.org is registered.

2008 – Nakamoto publishes the first white paper on bitcoin titled Bitcoin: A Peer-to-Peer Electronic Cash System, describing the launch of the world’s first digital cryptocurrency.

2009 – The world’s first Bitcoin transaction takes place. The coin’s initial price was $0.

2010 – The first Bitcoin purchase takes place buying two pizzas.

2011 – Bitcoin gains parity with the US dollar, reaching $1.00 in February.

2013 – Bitcoin’s price reaches $1,242 in November.

2017 – November proves a big month again as Bitcoin crashes through the five-figure barrier reaching $10,000.

2021 – An all-time high of $66,974.77 is reached on 20 October.

2022 – World market volatility hits cryptocurrencies with Bitcoin falling to below $18,000 in June.

A Pizza With The Lot

The world’s first economic transaction with Bitcoin took place in 2010 when a Florida man negotiated with Papa John’s pizzas to deliver two pizzas, valued at $25, in exchange for 10,000 BTC. That in effect established the value of Bitcoin as a quarter of a cent. The value of that 10,000 BTC later spiraled to north of $300 million. May 22, the day of that infamous transaction, has come to be known as Bitcoin Pizza Day.

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