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Everything You need to know about Bitcoin! Beginners Guide

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Apr 2, 2022

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Bitcoin, the most discussed topic in the world of finance, since its meteoric rise in the year 2017! If you thought that is astounding!! HEAR ME OUT!! 

Bitcoin has been in the news for quite some time. It has become an entity that has delivered multi-bagger returns. Although, many industry leaders have had a wide range of opinions on Bitcoin.

Some strongly believe and back the idea that BTC and similar currencies are the future of freely moving economies. But some people reject the idea, describing it as a digital entity of questionable and uncertain value.

Although it is among the most discussed topics, it is still an enigma to many.

Let us mine our way into the world of bitcoin.

What is Bitcoin?

Bitcoin is a digital currency, which means it exists solely in electronic form. Unlike fiat currency, it isn’t controlled by the state or government, it doesn’t have a central issuing authority or regulatory body. 

Okay, but how does that work, though? 

Bitcoin is peer-to-peer digital money that functions without a central authority. It’s a computer code with a value that’s been encrypted with a strong crypto-algorithm to ensure its authenticity.

Bitcoin, like traditional currency, can be used to pay for goods and services if the service provider accepts it. 

Pondering, if it’s digitally placed what’s stopping someone from counterfeiting? 

Well, it isn’t anything to be underestimated, Bitcoin is backed by a huge, distributed ledger technology known as the blockchain

Blockchain records every bitcoin transaction that has ever happened in the digital and once stored cannot be undone or changed. It is decentralized, all the nodes(computers) of that network have access to the ledger but cannot manipulate it. 

As a result, any manipulated data is detected in a matter of seconds, as records are transmitted to everyone in the network. 

The tale behind bitcoin is intriguing because no one has ever met or been able to locate its founder. All the data we have is presented as follows. 

Who created Bitcoin?

Back in 2008,  the name Satoshi Nakamoto is believed to be a pseudonymous person or a group of people responsible for the invention of Bitcoin.  

The white paper by the name of Satoshi Nakamoto was published defining, “Bitcoin- A Peer-to-Peer Electronic cash system”. 

And the first transaction was made by Satoshi Nakamoto to Hal Finney. 

I’m curious as to why Satoshi felt compelled to create something so extraordinary.  Some speculation says the following. 

How and Why was Bitcoin created?

The goal behind the decentralized currency was to establish an ecosystem that would run parallel to the centralized economy, which is governed by government rules and requires citizens to trust the central bank.

While the other reason could be!

The global financial crisis  (GFC) was dubbed the period in 2008. The bankruptcy and international banking crisis wreaked havoc on financial institutions. Unsecured financial systems, third-party involvement, and loan distribution delays, to name a few. 

Despite being the accused, tax collected from the general public was used to save banks. This demonstrates the government’s discretionary powers. Many ordinary individuals lost their life savings and employment, resulting in severe economic downturns.  

All these reasons are believed to be the reason for the creation of this digital currency. 

Later in January 2009, Satoshi Nakamoto began mining Bitcoins once the code was released as open-source. 

Aren’t you excited to know how this digital currency is generated? 

Recent Developments in Bitcoin

Bitcoin received a big upgrade that allows its blockchain to handle more complicated transactions, potentially expanding the virtual currency’s use cases and making it more competitive with Ethereum in terms of smart contract processing. 

The Enhancement is called ‘Taproot’. Taproot is the first update to the bitcoin protocol since SegWit, which was implemented in July 2017.

After being proposed by core developer Gregory Maxwell in January 2018, Taproot was accepted by miners all over the world in June 2021. The various rounds of reviewing and testing account for the extended delay between proposal and activation. On November 14, 2021, the change became active.

The upgrade incorporates “Schnorr,” a new digital signature system that will make bitcoin transactions more efficient and private. Schnorr can also be used to enable bitcoin users to run more complicated smart contracts.

The Schnorr signatures can enable more complicated bitcoin transactions, such as those from wallets that require several signatures, which appear to be ordinary. Transactions become more private and secure as a result of this.

Three independent Bitcoin Improvement Proposals, or BIPs, are included in the upgrade, which aims to make the cryptocurrency’s network more private, safe, and scalable. 

The three BIPs include: 

  • BIP340 – substitutes the Elliptic Curve Digital Signature Algorithm with Schnorr Signatures, a cryptographic system that simplifies and secures complex bitcoin transactions.
  • BIP341 – increases bitcoin privacy while cutting transactions, which is built on the SegWit update. MAST is indeed introduced, allowing users to lock outputs to multiple scripts. 
  • BIP342 – restructures Bitcoin’s scripting language and introduces “Tapescript,” which alters the way signatures are assessed. It tends to make use of Schnorr signatures as well.

The upgrade also aims to better equip the world’s most valuable digital asset in terms of market capitalization to compete with assets like Ethereum, which is recognized for its programmable smart contracts.  

With this Bitcoin transactions will become more data-efficient, maximizing block capacity and resulting in cheaper transaction costs.

Working of Bitcoin

Bitcoin is the most widely used cryptocurrency in the world, we’ll be looking at how it works. 

A transaction is a signed element of the information module that allows network participants to transfer assets. 

Let me illustrate with an example, Bob wants to send 0.3 BTC to his friend Alice. 

Bob’s lookout to his bitcoin wallet to make a transaction. He scans Alice’s address and places the amount of 0.3BTC and sends it. 

To execute the transaction, the cryptocurrency owner who has access to the program’s private key must fill out the sending form in the electronic crypto wallet. The recipient’s address and the amount of money sent must be specified. 

When the bob verifies his intention to transmit money, the transfer information is placed in a specific meme pool and awaits processing by the miners

Each Bitcoin transaction is sent to all nodes in the network, which merge them into a new block. The block is delivered for verification when one of the miners finds a hash code. A transaction is considered successful in a Bitcoin network when blocks confirm its validity. 

The Blockchain’s transaction system includes two keys. The first key is private, accessible only to the asset owner, and it is kept confidential and never shared with anyone. Which Bob is making use of now and sends to Alice’s public key address from his public address. 

Yes, Public Key on the other hand is open to the public. It is required in order to carry out, verify, and trace Bitcoin transactions.

The ECDSA elliptical cryptography standard is used in tandem with the secp256k1 elliptic curve on the Bitcoin network. The signature is approximately 70 bytes long, with the private key being 32 bytes long, the public key being 33 bytes long, and the private key being 32 bytes long.

Alice being the recipient receives 0.3BTC. Her Bitcoin wallet confirms that the message was assigned by comparing the signature with his public key. 

Financial fraud is eliminated since peer-to-peer networks do not have a central node that governs the system’s operation.

Why is Bitcoin (BTC) valuable?

Bitcoin has a limited supply of 21 million coins. There will never be more than 21 million Bitcoins in circulation. Its value is primarily based on its restricted quantity, or scarcity. 

It is not possible to copy: No one can counterfeit a Bitcoin because it is based on the blockchain ledger. The blockchain records transactions and ensures that the system continues to run to Satoshi Nakomoto’s original regulations.

Bitcoin seems to be a very portable cryptocurrency. It’s simple to transfer from one exchange account to another.

Bitcoin users, on the other hand, do not need to trust one another. They only believe in Bitcoin’s technology, which has proven to be extremely trustworthy and secure, and whose source code is publicly available. Proof of Work is an open system that anyone can check and verify for themselves. 

Bitcoin is used as an analogy to Gold. Gold has historically been a long-term asset that has been used to protect against market downturns. Bitcoin is significantly more volatile than gold. Bitcoin speculators believe in it and are utilizing it to hold assets and protect themselves against market declines and recessions. 

How is Bitcoin (BTC) Generated?  

Well, Bitcoin is created through a process known as cryptocurrency mining.

Mining is the process of verifying transactions in order to earn rewards by forming a Block using a large amount of computational power. 

Mining” is done with high-tech hardware that solves a very difficult computational arithmetic problem. The first node to solve the puzzle obtains the next block of bitcoins, and the cycle repeats again.

In simple words, bitcoins are rewards for the process called mining done by miners. The new block of transactions is added to the blockchain after verification is done by miners. Miners are gifted bitcoins for this consensus mechanism known as Proof-of-Work.  

It takes 10 minutes to validate one transaction due to mining, which also intends to slow down the Bitcoin creation process.  The primary goal of mining is to validate and monitor Bitcoin transactions to ensure their legitimacy. 

Moving on, 

What is Bitcoin halving?

Miners are competing for the glory of being the first to upload new blocks to the blockchain. They are rewarded with a set number of fresh bitcoins for each block added. The block reward was set by Bitcoin’s creator to be cut in half at regular intervals.

Every 210,000 blocks added the reward for mining a block is cut in half is known as halving. Because it takes four years to add so many blocks, Bitcoin halving happens every four years. The most recent and third halving occurred in May 2020. The next one is scheduled for 2024.

The rate at which new Bitcoin is released is cut down into circulation, with the purpose of the system to be deflationary.

Bitcoin History: Timeline of Bitcoin’s Journey from 2008 to 2021

2008

The History of Bitcoin began with its invention and implementation by Satoshi Nakamoto in 2008. Introduced for the first time in 2008, it used peer-to-peer electronic systems and was originally aimed to be a transparent and decentralized asset. Bitcoin creator, Satoshi Nakamoto, in his whitepaper paper had proposed that cryptocurrency should not be regulated by any government.

2009

In January 2009, Satoshi Nakamoto, created 50 Bitcoins using the blockchain systems ensuring the initial 50 Bitcoins would always remain in the system. So, these 50 Bitcoins can never be used or spent.

In the world’s first P2P Bitcoin transaction, Satoshi Nakamoto sends 10 Bitcoins to Hal Finney, a computer scientist and early adopter of Bitcoin and he was the first person to tweet about Bitcoin.

2010

On May 22, 2010, the first retail transaction involving tangible commodities was completed by exchanging 10,000 mined BTC for two pizzas delivered from a local pizza shop in Florida, thereby establishing May 22 as Bitcoin Pizza Day. The value of a transaction was often negotiated on the Bitcoin forum at the time. 

The flaw was discovered on August 15th, when a single transaction spent 0.5 bitcoin to send just over 92 billion bitcoins to two separate addresses on the network. The transaction was discovered within hours, the bug was rectified, and miners branched the blockchain using an upgraded version of the bitcoin protocol.

2011 

The Electronic Frontier Foundation, a non-profit organization, began collecting bitcoins in January 2011, but ceased in June 2011, claiming a lack of legal precedence on new currency systems. On May 17, 2013, the EFF overturned its decision and began taking bitcoin again.

WikiLeaks and other groups began accepting bitcoin donations in June 2011

2012

The Bitcoin Foundation was founded in September 2012 with the goal of “accelerating the worldwide expansion of bitcoin through standardization, protection, and promotion of the open-source protocol.” Gavin Andresen, Jon Matonis, Patrick Murck, Charlie Shrem, and Peter Vessenes were the founders. 

BitPay said in October 2012 that its payment processing service had over 1,000 merchants accepting bitcoin. WordPress began accepting bitcoins in November 2012.

2013

Coinbase, a bitcoin-based payment processor, reported selling $1 million worth of bitcoins in a single month at a price of over $22 per bitcoin in February 2013. 

The University of Nicosia started in November 2013 that it would accept bitcoin as payment for tuition fees, dubbing it the “gold of tomorrow” by the university’s chief financial officer. 

BTC, a bitcoin exchange based in China, was founded in November of 2013. By trade volume, China has surpassed Japan’s Mt. Gox and Europe’s Bitstamp to become the world’s largest bitcoin trading exchange. 

2014

In January 2014, Zynga revealed that it was testing bitcoin for in-game asset purchases in seven of its titles. According to a USA Today article from the same month, the D Las Vegas Casino Hotel and Golden Gate Hotel & Casino sites in downtown Las Vegas said they would also begin accepting bitcoin. With this the network rate exceeded 10 petahash/sec. 

2015

The number of merchants accepting bitcoin surpassed 100,000 in February 2015.

When the MAK (Museum of Applied Arts, Vienna) bought van den Dorpel’s screensaver “Event listeners” in 2015, it became the first museum to buy art with bitcoin.

A proposal to add a code point for the bitcoin symbol was presented to the Unicode Consortium in October 2015. 

2016

The network rate exceeded 1 exahash/sec in January 2016.

The Japanese Cabinet recognized virtual currencies like bitcoin as having a purpose equivalent to real money in March 2016.

Bitfinex, a popular bitcoin exchange, was hacked in August 2016, and about 120,000 BTC (around $60 million) was taken.

2017

The number of businesses that accept bitcoin had increased. The number of online retailers accepting bitcoin in Japan has climbed 4.6 times in the previous year.

BitPay CEO Stephen Pair announced that the company’s transaction rate increased by 3% from January 2016 to February 2017, and that bitcoin is becoming more popular in B2B supply chain payments.

Legislators and traditional financial institutions are beginning to recognize Bitcoin as a legitimate currency. Japan, for example, has approved legislation allowing bitcoin to be used as a legal payment method, while Russia has stated that it will legalize the usage of cryptocurrencies like bitcoin.

2018

On January 22, 2018, South Korea enacted legislation requiring all bitcoin merchants to reveal their identities, thereby prohibiting anonymous bitcoin trading.

Stripe, an online payment company, said on January 24, 2018, that it would phase out bitcoin payments by late April 2018, citing diminishing demand, increased rates, and lengthier transaction times as causes.

George Soros referred to bitcoin as a bubble on January 25, 2018.

2019

In 2019,  BearWhale appeared, this time linked to the PlusToken fraud in China and Korea, which promised large returns in exchange for BTC/ETH.

President Trump’s Twitter Rant Against Bitcoin. Trump’s remarks raised concerns that he would issue an Executive Order banning bitcoin. 

Two Bitcoin Improvement Protocols (BIPs) were proposed the same year to address one of Bitcoin’s most pressing issues: privacy.

2020

Investors panicked and liquidated all they owned. Bitcoin fell by more than 40% in the first two weeks of March 2020.  All equity markets took an aggressive run down due to concerns about Covid-19 at that time. 

Bitcoin plunged by 57% in a week in mid-March, hitting lows of $3,867.

PayPal stated in October 2020 that its users would be able to buy and sell bitcoin on its platform but not to deposit or withdraw bitcoins.

Tesla, Elon Musk’s electric car company,  came to accept bitcoin payments. In January 2020, it purchased $1.5 billion (£1.1 billion) in the cryptocurrency Bitcoin, with the intention of accepting it as payment in the future.

2021

El Salvador’s President, Nayib Bukele, revealed plans to embrace bitcoin as legal cash on June 1, 2021, becoming El Salvador the first country in the world to do so.

Pro-government deputies in El Salvador’s Legislative Assembly adopted Ley Bitcoin, or the Bitcoin Law, on June 8, 2021, on the president’s initiative to make Bitcoin legal tender alongside the US Dollar. 

Some facts about bitcoin that one should know!

  • Fact number1: Bitcoin is the first-ever cryptocurrency developed.
  • Fact number2: Bitcoins minting is limited to 21 million. 19 million are already in circulation and the rest will be produced by 2140. 
  • Fact number3: It is well known as a hedge against inflation due to its limited supply. 
  • Fact number4: It is ranking at the first position in the crypto market.   
  • Fact number5: In late 2017, the value of bitcoin skyrocketed, With a price tag of around $20,000.  

Benefits of Bitcoin

  1. Decentralized: Bitcoin is distributed among all peers globally and cannot be controlled or administered by any central authority. The complexity of transactions in the present financial system, which relied on trust-based transactions via banks, was eradicated with Bitcoin.
  1. Ease: Blockchain also makes it easier to transact digital assets because there is less paperwork and transaction confirmation time. There are extremely few concerns connected to human errors because the majority of the operations are automated.
  1. Economical: Because the fiat money was centralized, there was no choice except to use banks or financial corporations such as PayPal, which charge a high percentage on transactions. The issue can be addressed by charging small transaction fees. 
  1. Secure: There are always dangers of fraud and unsecured transactions, regardless of how secure the banks claim their systems are because human intervention is required for verification processes. Bitcoin, on the other hand, uses multilayer crypto-algorithms to avoid the risk of illegally privatizing most digital asset networks. 
  1. Anonymity: The amount of information that financial institutions require in order to complete transactions is the reason for concern. Your financial information or other personal information could be stolen and used fraudulently. However, utilizing Bitcoin provides the benefit of anonymity, which many people value.

FAQ

Why Trust Bitcoin?

Bitcoin is a network based on three technological independent principles: decentralization, open source code, and real peer-to-peer technology. And is built on the pillars of blockchain, making data tampering impossible. 

Is Bitcoin Real Money?

Bitcoin is an virtual money. This implies you can buy and sell money online, and governments won’t be able to regulate it. It’s the first decentralized cryptocurrency. 

How is Bitcoin used? 

Bitcoin is largely used to buy and sell goods and services on the internet, as well as to send money to friends and family. Bitcoin can also be used to pay for things like hosting, and other goods and services available on a marketplace.

How hard is it to make bitcoin payments?

You can use your PC software, mobile application, or web wallet to make payments or request Bitcoins by simply entering your wallet address.

Is Bitcoin a Good Investment? 

If you’re searching for a quick profit, bitcoin’s high liquidity makes it an excellent investing vehicle. Due to their great market demand, digital currencies may also be a long-term investment. And Considered as a hedge against Inflation. 

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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