Bitcoin is probably the hottest keyword in the 21 century that ignites “the crypto fever” and “the digital gold rush”. It is on all social media platforms and the internet. Everyone talks about it. “What is Bitcoin?”, “What’s so attractive about Bitcoin?”.
And in this article, everything about Bitcoin, the underlying value, and the fuss around it will be broken down in detail to help you get the true sight of Bitcoin.
What is Bitcoin?
Initially released in January 2009, Bitcoin is the first decentralized cryptocurrency. It was invented by Satoshi Nakamoto who is still a mystery nowadays. Bitcoin opened an entirely new era, building a decentralized world.
Bitcoin uses a peer-to-peer network for sending transactions, eliminating the need for any intermediary or single administrative entity. In simple terms, Bitcoin transactions will be carried from one person to another directly without any third party, for example, banks in the real world.
History of Bitcoin
In 2008, the Bitcoin cryptocurrency was invented by an unknown person under the name Satoshi Nakamoto, inspired by the notion of decentralization.
On Aug 31st, 2008, Bitcoin was first mentioned in a whitepaper named “Bitcoin: A Peer-to-Peer Electronic Cash System” published by Satoshi Nakamoto on Bitcoin.org. The Bitcoin.org domain was registered two weeks before the Bitcoin whitepaper release.
On Jan 12, 2009, the first Bitcoin transaction was conducted when Satoshi Nakamoto sent 10 BTC to a cryptographer named Hal Finney.
On May 22, 2010, Laslo Hanyecz bought two pizzas for 10,000 BTC ($41 at the purchase time), marking the first real-life payment application of Bitcoin.
In October 2013, the biggest darknet market “Silkroad” using BTC as payment was shut down by the FBI since the platform had illegal activities related to drug traffics and illegal services.
Bitcoin is gradually shifting to an asset for storing value rather than a medium of exchange. Multiple US-based investment companies take up Bitcoin in their portfolios such as Grayscale and MicroStrategy.
As time goes on, whether Bitcoin will have a value like gold?
Features of Bitcoin
As mentioned, Bitcoin is a cryptocurrency that is different from other digital currencies and fiat money such as USD, EUR, GBP, etc. There are various key features making the differences.
In a traditional centralized financial market (CeFi - Centralized Finance), fiat money is fully controlled by the central bank or government of the country.
Bitcoin is decentralized since nobody can control the Bitcoin network; furthermore, it’s open-source and open-access for everyone.
Bitcoin has a very high-security level as the Bitcoin network is distributed automatically over the world with computers. It’s impossible to breach the network. If hackers want to do so, they have to have access to all the computers in the network.
Moreover, the BTC token has a limited supply of 21,000,000 BTC, which means it cannot be minted and can only be mined. Mining BTC means that you can earn BTC rewards when participating in verifying transactions on the Bitcoin network with high-performance computers.
Every transaction is written on the blockchain so that everyone has access to look upon the internet. So it’s impossible to change the transaction history since everything is on the blockchain network.
Low transaction fees
For example, if users transfer money internationally via VISA or Mastercard, they will be charged with a few percent of the transaction. This means the fee will depend on the total amount of the transaction.
However, Bitcoin uses a peer-to-peer protocol that eliminates the intermediaries in the transaction process. Therefore, the transaction fee of Bitcoin is variable depending on the network status, not the transaction amount. This means the transaction fee will be a variable number ranging from $1 to $50 depending on the network status.
The two spikes in the above graph show that the number of transactions was high causing the tx fee to skyrocket.
The transaction data is saved on the Bitcoin blockchain so that it’s transparent for everyone to see on the internet. Nobody can modify the data on the blockchain. Especially, if the transaction is conducted, it can not be reversed. So remember to double-check your transactions before sending them.
Transparency: Everyone can track transactions on the blockchain explorer.
Anonymity: Nobody can know the exact owner of the crypto wallet.
How does Bitcoin work?
The working principle of Bitcoin can be broken down into two main components:
- Blockchain technology.
- Distributed ledger.
Blockchain is a combination of “block” and “chain”. Blocks have some storage capacities and they are serially connected “chain” together, creating a series of blocks storing data called the blockchain.
Blockchain technology is considered one of the most innovative technologies in the 21st century. It leverages the financial system and real-life applications.
Blockchain is a distributed ledger of multiple different computers called nodes (decentralized) on which data is saved and can not be modified (transparent). Each network node stores a copy of the blockchain to verify transactions on its own. Every transaction and data on the Bitcoin network is verified by connected computers so that no individual can overwrite or delete the data on the blockchain.
Therefore, blockchain was invented to prevent data modification.
The data can be written on the blockchain whenever all the nodes validate the transaction. Even if one part of the node network is having problems, the blockchain is still running normally.
Distributed Ledger Technology (DLT) is a database that stores blockchain data without any centralized database. This removes third-party organizations from the storing process. DLT is decentralized so it’s basically immutable.
DLT can store a huge amount of data ranging from money transactions to real estate records. It reduces the time-consuming paperwork of financial processes.
Detailed information about BTC
- Token Name: Bitcoin.
- Ticker: BTC.
- Blockchain: Bitcoin.
- Token Type: Utility.
- The smallest unit of BTC is Satoshi, 1 BTC = 100,000,000 Satoshi.
- Max Supply: 21,000,000 BTC.
- Circulating Supply: 18,830,662 BTC.
Is Bitcoin a scam?
Why Bitcoin is considered a scam? Since there were numerous immoral and illegal activities disguised in Bitcoin or blockchain technology, the community was frauded by scammers.
The nature of Bitcoin is technically described in the whitepaper. However, many use Bitcoin as an advertising medium for a quick-rich scheme, they gain trust from the community and then manipulate it for their own benefits.
Bitcoin has opened a new era of decentralization since the adoption of blockchain technology in real-world applications. Furthermore, multiple large traditional investment companies and tech companies are shifting their portfolio to acquire Bitcoin and other crypto assets.
Countries to Bitcoin
The most influential country in the world - the United States - has a positive perspective on Bitcoin though they are trying to prevent illegal transactions. It was taxed by the IRS (Internal Revenue Service).
In October 2021, SEC (U.S. Securities and Exchange Commission) extended four Bitcoin ETF deadlines by 45 days. If the SEC approves those proposals, it will be a game-changer for the Bitcoin price, indicating the Bitcoin mass adoption all over the world.
In Vietnam, Bitcoin or other crypto-assets don’t have any regulations issued by the government. However, only Vietnam Dong is permitted for payment, so if you pay Bitcoin for something, it will be a problem. Buying crypto, P2P transactions, etc. are not protected by the government. As a result, some Vietnamese investors in crypto have made wealth in the crypto world.
El Salvador and Ukraine are the first countries in the world to legalize Bitcoin as a form of payment. This shows that Bitcoin adoption is inevitable and some countries are already pioneers.
El Salvador president Nayib Bukele has been constantly talking about Bitcoin on his Twitter. He is the first president of a country to publicly speak about cryptocurrency.
China has an extremely negative view of Bitcoin and crypto-assets. They banned trading, transactions, and everything related to crypto. All China private banks are prohibited from Bitcoin transactions. All Bitcoin miners have to move their mining systems aboard or shut everything down. China used to ban Facebook, Google, and others from its territory, which happened the same with Bitcoin and other altcoins.
However, it’s doubtful that China is going to build their own crypto assets as they did to other tech companies in the past. Maybe it will make a clear way for the digital yuan issued by the Chinese government.
BTC is considered as an asset, similar to gold, stocks, and real estate that is suitable for investment. There are many ways you can generate profits from BTC, and Coin98 Insights will introduce some general methods for BTC investment.
This investment method helps you generate an amount of BTC based on the performance of your computer nodes to validate the transaction on the blockchain. Participating in Bitcoin transaction validations is called the “Bitcoin mining” process.
Technically, any normal computer device can start “mining” BTC on the blockchain, but ASIC (Application-Specific Integrated Circuit) is special high-performance equipment that is built for the sole purpose of validating Bitcoin transactions.
Before starting mining Bitcoin, you should know how Bitcoin works and take the financial efficiency of system costs into account.
Consensus algorithms are specially designed to make sure the transactions on the blockchain are valid and distributed over the network. There are four peer-to-peer algorithms recommended to know:
- Proof of Work: Bitcoin, Ergo blockchain, Ethereum, etc.
- Proof of Stake: Polkadot, Tezos, Cardano, Ethereum 2.0, etc.
- Delegated Proof of Stake: Cardano, EOS, TRON, etc.
- Byzantine Fault Tolerance: Most blockchains.
Referring to Bitcoin mining, there are several recommended mining devices such as Antminer S9, Antminer S7, AvalonMiner 761, WhatsMiner M3, and AvalonMiner 821, etc. They have some notable technical specifications, including:
- Hash rate indicates the computing power in the blockchain network that is calculated by the formula: the estimated hash rate H = 2 32 D / T where T is the average time between mined blocks, D is the difficulty. The bigger the hash rate, the bigger the blockchain network is, the more security it has.
- Power consumption is the key metric to evaluate the efficiency of Bitcoin mining since the computing process requires energy-intensive hardware. This controversial problem of Bitcoin is accused of negatively contributing to the nowaday climate crisis.
- Noise is caused by fans working hard to keep the whole mining system cool. This often leads to noise complaints from the surroundings.
On the internet, there are also free Bitcoin mining services that require only your available computers or mobile devices. However, this is regarded as an inefficient method, let alone a useless one since you have to share the computing with the service providers.
This second investment strategy is so popular and effective that everyone in the crypto space is intending to apply it. Holding requires no technical-analysis expertise.
Investors buy Bitcoin at a low price and sell them after a long period of time. This process is called holding. The buy and sell decisions depend on fundamental analysis, market sentiment, and a little technical analysis.
After buying BTC, investors usually transfer them to their blockchain wallets for long-term storage.
Trading Bitcoin generates short-term profits, usually in a minute, hour, and daily timeframe. Bitcoin Trader uses the price chart to analyze and predict the next price movement. They buy low and sell high, and vice versa.
Disclaimer: Trading is considered risky, which can cause capital losses.
There are popular trading methods used by most traders as follows:
- ICO (Initial Coin Offering) is a fund-raising activity via coin/token issuing led by projects in the crypto world. To participate in ICO, investors have to own other coins/tokens to exchange for others.
- Derivatives trading is adopted in the crypto market since multiple trading platforms are available with billions of trading volume. Namely, dYdX has been emerging as a prominent project as it’s dominating the derivatives market in the crypto space.
- Margin Trading leverages your available funds with lending services provided by exchanges. It means investors use their funds as collateral to borrow more funds to build up their positions. Borrowers are charged with an amount of interest based on their loans.
How to buy BTC Token
You can get BTC on various exchanges such as Binance, Okex, Coinbase, etc.
What is Bitcoin Wallet?
Have you ever wondered “Bitcoin is a cryptocurrency, so how to store it in a crypto wallet?”. Similar to other tokens on other blockchains, Bitcoin is stored in a Bitcoin wallet with a unique address.
You can call a Bitcoin wallet a bank account as follows:
- A Bitcoin address (similar to a bank account number) is public on the blockchain. Others can send Bitcoin to your wallet address permissionlessly.
- A private key (similar to a bank account password) implies the ownership of a wallet. Whoever has this private key is the owner of the wallet.
Therefore, if you lose your private key, you will lose ownership of your wallet. Remember to keep your private key and don’t disclose it to anyone.
3 Types of Bitcoin Wallets
Hot wallets or Non-custodial wallets are places to store coins/tokens online, where users have to keep the private keys to protect their own crypto assets. There are some popular wallets for storing crypto assets, namely: Coin98 Wallet, Trust Wallet, Metamask, etc.
Cold wallets exist in the physical shape (usually as a USB) that require multiple security steps. Investors often use cold wallets for long-term coins/tokens storage. This complexity enhances the security of the wallet in return. Some popular cold wallets are Ledger, Trezos, etc.
Wallets on exchanges or Custodial wallets, basically, users don’t own any private key, they access their funds by password kept by the exchange. Since investors store their crypto assets on exchanges, there are potential risks of scams and shutdowns. Binance, Okex, and Coinbase are the most popular centralized exchanges.
Bitcoin's Potential Risks
Before investing in anything, it’s important to acknowledge all the potential risks.
Bitcoin Bubble - Crisis Eras
Bitcoin Bubble is the event when the price of Bitcoin has been skyrocketing in a short time.
For example: At the beginning of 2017, BTC was $1,000. However, the price surpassed $11,000 then inclined to $9,000 in just 24 hours.
In the transition of 2017 and 2018, the Bitcoin price was up to $20,000, and the bubble bursted. The price had over ten consecutive inclines, which made investors lose trust in Bitcoin.
The crypto market is regarded as a high-volatility market that is currently still small compared to other traditional financial markets.
Bitcoin Halving is the event whenever 210,000 Bitcoin blocks (approx. 4 years) are mined, the Bitcoin rewards from mining 1 block will be halved (1/2).
As a result, the maximum supply of Bitcoin can’t reach the exact number of 21,000,000.
- 1st Bitcoin Halving: From January 3, 2009, to November 28, 2012, there were 10,500,000 BTC created, that is, 50 BTC was mined every 10 minutes on average.
- 2nd Bitcoin Halving: From November 28, 2012, to July 9, 2016, there were 5,250,000 BTC created, which is an average of 25 BTC every 10 minutes.
- 3rd Bitcoin Halving: From July 9, 2016, to mid-2020, there will be 2,625,000 BTC created, which means 12.5 BTC is mined every 10 minutes on average.
- 4th Bitcoin Halving: And from 2020 to 2024, there will be 1,312,500 BTC created which means on average every 10 minutes only 6.25 BTC will be mined.
- 64th Bitcoin Halving: No more Bitcoins will be mined.
Bitcoin Dominance is a metric that measures the Bitcoin market cap relative to the market cap of other existing cryptos. It indicates the cash flow is going to Bitcoin or other altcoins.
Crypto traders often use this metric to anticipate the altcoin season to gain the most optimized profits.
Bitcoin ATM is a machine that allows users to directly conduct Bitcoin transactions with the machine. These machines are now available in many countries around the globe, contributing to the mass adoption process of Bitcoin and other crypto-assets.
Some Bitcoin ATMs allow withdrawals of fiat money with a maximum fee of 7%.
Information Source for Bitcoin
The crypto world is evolving at a fast pace, news is published daily so it’s not easy to catch up with. It’s easy for any website to copy and publish the same news with little editing. To serve the community, Coin98 Insights recommend some sources that we use to get updated daily.
- News: Telegram, Twitter, Facebook.
- Market news: Coindesk, Coingecko, Coinmarketcap.
- Insight information: Coin98 Insights, Messari, The Block Crypto, Delphi Digital, Medium, Binance Research.
Bitcoin has the longest history of development in the crypto world. In the beginning, it was just a medium of transaction. However, as time goes on, investors tend to store Bitcoin as a long-term investment asset. As a result, Bitcoin is the first and the prime leader of the crypto world.
This article has pointed out the most important information about Bitcoin. I hope you’ve gained helpful insights to understand the potential behind Bitcoin.
If you want to know further about Bitcoin, please leave a comment below and join Coin98 Community for further discussions about Crypto.