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The Ultimate Guide To The King Crypto- Bitcoin

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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Mar 16, 2022

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Bitcoin, the first kind of digital money has been one of the most discussed topics in the world of finance since its meteoric rise in 2017. It has become an entity that has delivered multi-bagger returns to its investors. It runs for the people and by the people.

What makes it so special is that it is run by a secure global network that grows by the day, and requires no intermediary to regulate transactions and payments- making it completely autonomous.

However, industry leaders often differ in their outlook towards it.

Some strongly believe and back the idea that Bitcoin and other cryptocurrencies are the future of freely moving economies. On the other hand, some people reject the idea, describing it as a digital entity of questionable, uncertain value.

All in all, Bitcoin is still an enigma to many.

Read on for a detailed guide as we “mine” our way into the world of Bitcoin to understand it better.

What is Bitcoin?

Bitcoin is a digital currency, which means it exists solely in electronic form. Although, unlike fiat currency, it isn’t controlled by the state or government and 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. Instead, it’s a computer code with a value encrypted with a solid 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. Bitcoin is backed by a vast, distributed ledger technology known as the Blockchain. 

Want to go back to the basics? Take out 3 minutes to read our Beginner’s guide to Blockchain Technology, before reading further.

Bitcoin’s immense success has inspired several other cryptocurrencies to enter the sphere, which is collectively changing the way the world views finance technology.

Despite being the king of cryptocurrencies, the world knows surprisingly little about their origin and creator.

Back in 2008, someone (or some group) by the name of Satoshi Nakamoto was believed to be responsible for the invention of Bitcoin. A white paper was published by this name, defining “Bitcoin- A Peer-to-Peer Electronic cash system”, and Satoshi Nakamoto made the first transaction to Hal Finney.

Learn more about this legendary and anonymous developer!

How and Why was Bitcoin Created?

The primary 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.

However, there are other reasons. For example, 2008 was the year of The global financial crisis (GFC). This bankruptcy and international banking crisis wreaked havoc on financial institutions in the form of unsecured financial systems, third-party involvement, and loan distribution delays, to name a few.

The tax collected from the general public had to be used to save banks, demonstrating the government’s discretionary powers. As a result, many ordinary individuals lost their life savings and employment, resulting in severe economic downturns. All these reasons are believed to be the reason for creating this digital currency.

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

How Does Bitcoin Work?

Bitcoin is the most widely used cryptocurrency in the world, let’s see how it works. 

Let’s illustrate with an example. Bob wants to send 0.3 BTC to his friend Alice. 

Bob looks to his Bitcoin wallet to make a transaction. First, he scans Alice’s address, 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. In addition, the recipient’s address and the amount of money sent must be specified. 

When 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 successful in a Bitcoin network when the blocks confirm its validity. 

The Blockchain’s transaction system includes two keys. The first key is private, accessible only to the asset owner, and is kept confidential and never shared with anyone.

On the other hand, the public key is open to the public and is required to carry out, verify, and trace Bitcoin transactions.

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

Alice is the recipient and 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.

How is Bitcoin (BTC) Generated?  

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

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

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

In even 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 creation process. The primary goal of mining is to validate and monitor Bitcoin transactions to ensure their legitimacy. 

What is “Bitcoin Halving”?

Miners compete for the glory of being the first to upload new blocks to the blockchain, as 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.

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

The mainstream population is often confused as to why Bitcoin is valued so highly in the market. However, the answer is simple.

Bitcoin has a limited supply of 21 million coins. Therefore, its value is primarily based on its restricted quantity or scarcity.

Additionally, it is impossible to copy: No one can counterfeit a Bitcoin 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. On the other hand, Bitcoin users do not need to trust one another. They only believe in Bitcoin’s technology, which has proven extraordinarily trustworthy and secure, and whose source code is publicly available. Furthermore, proof of Work is an open system that anyone can check and verify.

Bitcoin is often compared to gold. Gold has historically been a long-term asset that has been used to protect against market downturns, but Bitcoin is significantly more volatile than gold.

Nevertheless, Bitcoin speculators believe in it and are utilizing it to hold assets and protect themselves against market declines and recessions.

Recent Developments in Bitcoin

Bitcoin received a significant 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 smart contract processing. 

The Enhancement is called ‘Taproot’. Taproot was 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 worldwide in June 2021. The various review and testing rounds account for the extended delay between proposal and activation. Finally, 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, aiming 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, 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 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.

Features 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.
  2. 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 most operations are automated.
  3. 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. 
  4. 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. 
  5. Anonymity: The amount of information financial institutions require to complete transactions is the reason for concern. Your financial information or other personal information could be stolen and used fraudulently. However, utilizing Bitcoin benefits anonymity, which many people value.

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 in 2008, it used peer-to-peer electronic systems and was initially aimed to be a transparent and decentralized asset. Bitcoin creator Satoshi Nakamoto, in his whitepaper paper, proposed that any government should not regulate cryptocurrency.

2009

In January 2009, Satoshi Nakamoto created 50 Bitcoins using the blockchain systems, ensuring the initial 50 Bitcoins would remain in the system. So, these 50 Bitcoins can never be used or spent. In the world’s first P2P Bitcoin transaction, Satoshi Nakamoto sent 10 Bitcoins to Hal Finney, a computer scientist and early adopter of Bitcoin. He was the first person to tweet about it as well.

2010

On May 22nd, 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, establishing May 22nd 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 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. However, on May 17th, 2013, the EFF overturned its decision and began retaking Bitcoin.

WikiLeaks and other groups began accepting Bitcoin donations in June 2011

2012

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

BitPay said in October 2012 that its payment processing service had over 1,000 merchants accepting bitcoin. In addition, 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 to 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 2013. China has surpassed Japan’s Mt. Gox and Europe’s Bitstamp to become the world’s largest bitcoin trading exchange by trade volume. 

2014

In January 2014, Zynga was testing bitcoin for in-game asset purchases in seven of its titles. In addition, 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. 

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

Stripe, an online payment company, said on January 24th, 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 25th, 2018.

2019

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

President Trump’s Twitter Rant Against Bitcoin 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. As a result, Bitcoin fell by more than 40% in the first two weeks of March 2020. In addition, 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, intending to accept it as payment in the future.

2021

El Salvador’s President, Nayib Bukele, revealed plans to embrace bitcoin as legal cash on June 1st, 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 8th, 2021, on the president’s initiative to make Bitcoin legal tender alongside the US Dollar. 

FAQ

Why Trust Bitcoin?

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

Is Bitcoin Real Money?

Bitcoin is a form of 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 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 are 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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