Anyone who’s been on the internet – or any form of digital media – in the past decade will likely have heard of Bitcoin before. If you’re new don’t worry – consider this your introduction to Bitcoin.
What started out as an obscure, cryptic form of digital currency has now arguably taken the centre stage for what is dubbed to be the next evolution of currency.
This article will provide a brief overview of the key points to know for understanding Bitcoin, including:
- Overview of what Bitcoin is, how it works, its significance, and the purpose that it serves.
- A highlight of the history and the idea behind the creation of Bitcoin.
- Brief overview Bitcoin’s fundamentals.
- Outlook and market value of Bitcoin.
Brief history of Bitcoin
Bitcoin, or BTC, was created back in 2009 at the tail end of the recession as a way to facilitate direct peer-to-person transfer of value.
The whitepaper for Bitcoin – a sort of blueprint document for its purpose and design – was proposed by an anonymous pseudonym Satoshi Nakamoto. That being said, Bitcoin is widely regarded as the first cryptocurrency and the one that started it all.
How Bitcoin works
As mentioned above, the idea behind the creation of Bitcoin was to facilitate the transfer of value without relying on centralised intermediaries.
The process of transferring value happens digitally without the need of third party intermediaries, such as banks or governments – by means of blockchain technology, which introduces the concept of decentralisation.
To understand how Bitcoin works, we first need to be familiar with a few concepts listed below.
Blockchain technology
Blockchain technology is a decentralised digital ledger that is used to record and validate transactions across many computers.
This design makes blockchain inherently immutable, preventing information to be retroactively altered, making it secure and also transparent.
Simply put, you can think of blockchain as a database of computers all working together to record, validate, and share information within a global network.
Blockchain is what enables users to securely send, receive, and exchange cryptocurrencies globally, including Bitcoin.
When a user sends Bitcoin, the transaction information is sent on the network, that includes the amount of Bitcoin along with the wallet address of the sender and recipient.
This information is compiled together with other transactions and are then validated by computers called nodes, which then validates and records that information on the blockchain.
This whole process of validating and recording transactions on Bitcoin’s blockchain follows a protocol called Proof-of-Work.
It takes a considerable amount of computing power to validate a block on the blockchain, therefore these computers are then rewarded Bitcoins for successfully doing so.
Other blockchain networks such as Ethereum and Cardano use a different type of protocol to validate the blocks on their networks.
Crypto wallets
Cryptocurrencies, including Bitcoin, are stored in crypto wallets. These wallets contain two sets of keys, a public and a private key.
You can think of public keys like your email address, where anyone with that information can send and receive emails.
Private keys are the unique identifying credentials that allow a user to access that email address – or in this case, your bitcoins.
With that being said, bitcoins are sent and received through the address associated with your wallet keys.
Each time a user sends or receives bitcoin, the sender and receiver address are recorded in Bitcoin’s blockchain, along with the amount transferred.
Additionally, there are several types of crypto wallets available out there. But the common distinction among crypto wallets are hot wallets and cold wallets.
- Hot wallets: the most popular storage method for Bitcoin and cryptocurrencies; requires an active internet connection to manage and access your assets. Easily accessible and user-friendly, and takes the form of applications on your mobile phone or computer. Examples of hot wallets include: Trust Wallet and Exodus Crypto Wallet.
- Cold wallets: the most secure method of storing Bitcoin and cryptocurrencies, but requires an additional hardware that serves as an authentication device. Less accessible, but offers maximum protection for those who intend to invest or trade in large volumes. Examples of cold wallets include: Trezor and Ledger.
Current market value of Bitcoin
Being the first cryptocurrency, Bitcoin has a unique position in the crypto ecosystem. The value of Bitcoin is frequently used as a rough measurement of the sentiment of the crypto market.
This is probably due to the fact that Bitcoin is likely a crypto that most users will have in their wallet, and therefore commands a lot of influence in the market.
The price of Bitcoin itself is tied to its scarcity, with only 21 million Bitcoins to ever be minted on the blockchain.
According to CoinMarketCap, the current circulating supply as of this publication is 19,362,868.
It’s projected that the closer this circulating number is to its max supply, the higher the value of Bitcoin will be – making Bitcoin a uniquely appreciating crypto asset.
That being said, as of this publication (May 4th, 2023) the value of Bitcoin (BTC) currently hovers around USD $28,968 with price fluctuations of around ~1.98% to 2% on a 24h basis.
It’s important to keep in mind that cryptocurrencies in general are highly volatile assets. Double digit percentages in movement are common in the crypto market.
Factors that influence their price also vary, ranging from government regulation, advancements in the technology, movement of large volumes of coins from one wallet to another, geo-political events, to the adoption of the coin itself in society, amongst others.
Use cases of Bitcoin (BTC)
Now that you’re familiar with the fundamentals of Bitcoin (BTC), you’re probably wondering what are some of the things you can do with Bitcoin?
Well, just like traditional fiat currency (like US Dollar), cryptocurrencies such as Bitcoin have many applications and use cases.
Store of value
Perhaps the most obvious one, Bitcoin and all cryptocurrencies share the same common denominator – and that is to function as a store of value
Bitcoin in particular has a unique characteristic in that it’s the first cryptocurrency, which makes it the most popular coin and also the crypto with the largest total market cap.
Governance
Governance may sound like a technical term, but what it really means is that by holding Bitcoin (and many other crypto) you are entitled to have a say or vote in the decisions made for the blockchain.
Remember, cryptocurrencies are decentralised by design – that means updates and changes to the blockchain network are done through a consensus in the community, and participation in this consensus is what is defined by governance.
Remittances
As mentioned above, Bitcoin and all cryptocurrencies are decentralised by design. That means transferring Bitcoins and crypto from one address to another is seamless, fast, and affordable due to the fact that it requires no involvement of any third parties.
In fact, cryptocurrencies are often used for international remittances globally due to it being easy, fast, and accessible as long as you have a secure internet connection.
Crypto staking
Crypto can be used to make passive income through staking. Bitcoin, Ethereum, Polygon, and many other crypto can be staked or locked for circulation by an exchange, and reward the staker with a percentage of the coin that are staked.
The concept is similar to a long-term deposit at a bank, or when you make a deposit in a mutual fund, where you are rewarded for keeping your assets with their institution.
Crypto gambling
Crypto gambling is another use case you can do with Bitcoin. Bitcoin gambling are increasingly gaining traction in recent years. Their popularity is on the rise due to many of the inherent advantages of using cryptocurrencies for gambling.
For instance, cryptocurrencies offer privacy, anonymity, and a fast-seamless method of transferring funds for gambling purposes. Additionally, gambling with crypto such as Bitcoin virtually grants you accessibility to gamble from wherever your want.
Related: What is a bitcoin casino?
Worth noting, when it comes to gambling with cryptocurrencies it’s important to always keep in mind of your limits as well as have an understanding of the volatility of crypto. Be sure to do your own research, and understand the risks involved.
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Takeaways
To conclude, Bitcoin (BTC) is a cryptocurrency that holds a special place in the crypto ecosystem and commands a large following and influence. Many consider Bitcoin as the digital version of gold, due to its historical appreciation of value.
Nevertheless, the introduction of Bitcoin paved the way for other cryptocurrencies to be created, and continually inspires the innovation of blockchain technology to this day.
On a closing note, it’s important to keep in mind that cryptocurrencies are highly volatile assets, whose value can fluctuate greatly depending on the market sentiment, geo-political events, institutional backing, community adoption, and more. Past performance does not guarantee future market movements.
Always do your own research to understand the context and gain insight to make more informed decisions before investing in crypto, or any investment endeavour.
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