Before buying your first bitcoin, it is important to understand what bitcoin is.
What function does Bitcoin play? How is Bitcoin created and transacted? How do I create new bitcoin? What is Bitcoin Mining?
The origins of Bitcoin
Bitcoin was first launched in 2009 by an anonymous profile under the pseudonym Satoshi Nakamoto, whose true identity is still unknown today, as Bitcoin is supposed to be an independent and anonymous project without central authority.
While Bitcoin was founded in 2009, the ideals and concepts behind a digital and decentralized global currency existed long before the advent of Bitcoin.
Image credit: Blockgeek
The first existence of a cryptographic and electronic currency system originated in 1983 in the form of "ecash". Numerous other forms of cryptocurrencies soon followed, with the creations of "B-Money" in 1998 and "Bitgold" in 2005; Both were quoted directly by Satoshi Nakamoto as part of the concepts of Bitcoin.
While many of these earlier cryptocurrencies were conceptually flawless, they never materialized because the internet and its infrastructure then were nowhere near as powerful, sophisticated, and expansive as they are today.
Imagine starting a video conferencing company like Zoom in 2000. While you would ultimately have been a visionary way ahead of your time, in 2000 Zoom would inevitably have failed due to slow internet speeds, poor webcam technology and internet infrastructure.
The world and the internet in 2020 just weren't ready for a zoom. Fast forward to 2020 and it's a whole different story – here is Bitcoin today! In the infancy of something bigger.
Before investing in Bitcoin and becoming an integral part of understanding Bitcoin, I strongly recommend that you read the original Bitcoin whitepaper published by Satoshi Nakamoto himself.
It contains all of the thoughts behind the concept of Bitcoin and Satoshi's vision for the future. A very convincing read that is not too complex and yet relatively easy to understand.
What is a "Bitcoin"
In short, Bitcoin is a cryptocurrency that runs on a peer-to-peer network with no central point of authority (decentralized), but instead is run and verified by users of the network (peer-to-peer).
There are many properties of Bitcoin that make it unique and unprecedented in the history of money. Some of these characteristics are that Bitcoin is:
1. Limited offer (There will only ever be 21,000,000 bitcoins in circulation.)
2. Decentralized (This makes Bitcoin a safer and safer currency.)
3. Unlimited cheaper and faster (A Bitcoin transaction worth millions can be sent quickly anywhere in the world for cents.)
4. Immutable (Impossible to fake or fake)
5. Transparent (Every transaction is recorded on the blockchain.)
6. Private (It is almost impossible for an outside person to identify the owner of a Bitcoin wallet. This is an often misunderstood property.)
If you are interested in a more in-depth article on Bitcoin, this article (Everything You Need to Know About Bitcoin) explains many of the above points in a clear and analogous way.
While the properties of Bitcoin remain broadly the same, an increasing number of uses and applications for Bitcoin are being designed exponentially.
What functions does Bitcoin play?
Since it was first conceptualized in 2009, the use of Bitcoin has had numerous "stories" and well-known uses. Up to the present point in 2020, we can assume that Bitcoin has worked in more than 7 different use cases at different times. Nic Carter and Hasufly describe this very astutely in his article "Visions of Bitcoin" from 2018.
The different use cases since their introduction include (chronologically recognized):
- E-Cash Proof of Concept
- Inexpensive P2P payment network (first obvious use case of Bitcoin for the general public as well as the most widely used)
- Censorship-resistant digital gold
- Private and anonymous darknet currency (known for its use in illegal purchases on the Silk Road until 2013)
- Reserve currency for the cryptocurrency industry (Bitcoin remains the standard currency for altcoin trading to this day)
- Programmable shared database
- Uncorrelated financial asset (increasingly important and critical use case given volatile traditional market conditions and macroeconomic health)
How blockchain works. Image credit: Blockgeeks
What is Bitcoin Mining?
Bitcoin mining is not that different from gold mining
This is quite a complex topic, but luckily it can be broken down into a few key and simplified points that make the process of mining Bitcoin and its purpose much easier to understand.
Image credit: Bitpanda
In summary, Bitcoin miners serve as a starting point for the following purposes:
1) Review transactions on the blockchain to ensure the integrity of transactions and prevent double spending. * Now remember that the blockchain is a decentralized network. Who controls and operates the blockchain and its transactions? Miners! It's the collective force of thousands of miners on the blockchain.
2) A bitcoin is the reward for a miner to be part of the network and check its transactions. The miner is the new owner of the bitcoin, and he usually either holds it or sells it in the open market to offset his mining costs. .
3) how much bitcoin does a miner earn? Right now – 6.25 bitcoins for each block. However, the mining reward halves every 210,000 blocks (i.e. 3.125 in ~ 2024). This is known as the Bitcoin Halving Event, a significant event that occurs roughly every 4 years. As an investor, supply and demand are more important, as halving the supply of Bitcoin drops by 50% while demand generally remains the same. Bitcoin halving events in the past have generally been very bullish events for price.
4) How does mining actually work? This is where things get extremely technical and this information is beyond the knowledge of this website. I encourage (for those of you who are interested) to read more about bitcoin mining here. I will not delve into this topic too deeply as I personally do not consider understanding the nuances of Bitcoin mining (other than those discussed above) to be a crucial part of knowing how to invest in Bitcoin.
This article originally appeared on Everything About Bitcoin.
