Bitcoin

Bitcoin is a digital currency without a central authority, first detailed in a 2008 whitepaper by an unknown individual or group using the pseudonym Satoshi Nakamoto. It officially launched in January 2009.

This cryptocurrency operates on a peer-to-peer network, allowing users to transact directly without needing a middleman to authorize or process the transaction. According to Nakamoto, Bitcoin was designed to enable "online payments to be sent directly from one party to another without going through a financial institution."

While there were earlier concepts for similar types of decentralized digital money, Bitcoin is the first cryptocurrency to be successfully implemented and used.

The original creator of Bitcoin is known by the alias Satoshi Nakamoto. As of 2021, the real identity—whether a person or an organization—remains undisclosed.

Nakamoto released a detailed whitepaper on October 31, 2008, explaining how to build a peer-to-peer digital currency. They suggested using a decentralized transaction ledger grouped into batches (called "blocks") secured with cryptographic algorithms—this system is now known as "blockchain."

On January 3, 2009, just two months later, Nakamoto mined the first block of Bitcoin, known as the genesis block, thus kicking off the world's first cryptocurrency. Initially, Bitcoin's value was $0, and most coins were mined using moderately powerful computers, such as personal computers, along with mining software. The first known commercial Bitcoin transaction took place on May 22, 2010, when programmer Laszlo Hanyecz swapped 10,000 Bitcoins for two pizzas. At mid-September 2021 prices, those pizzas would have been valued at an incredible $478 million. This transaction gave rise to what is now celebrated as "Bitcoin Pizza Day." Bitcoin began trading in July 2010, at prices ranging from $0.0008 to $0.08.

Although Nakamoto was Bitcoin's inventor and developed its initial implementation, they transferred the network alert key and code repository control to Gavin Andresen, who eventually became the lead developer at the Bitcoin Foundation. Over the years, a significant number of people have contributed to upgrading the software by fixing bugs and adding new features.

The Bitcoin source code repository on GitHub shows over 750 contributors, with notable ones including Wladimir J. van der Laan, Marco Falke, Pieter Wuille, Gavin Andresen, Jonas Schnelli, among others.

Bitcoin's primary distinction is that it was the first cryptocurrency introduced to the world.

This innovation fostered a worldwide community and sparked an industry of millions who are dedicated to creating, investing in, trading, and using Bitcoin and other cryptocurrencies daily. The initial creation of Bitcoin set the stage both conceptually and technologically for the birth of thousands of competing projects.

The cryptocurrency market, now valued at over $2 trillion, is built on Bitcoin's pioneering idea: currency that can be freely sent and received by anyone, anywhere, without needing trusted intermediaries, like banks or financial service providers.

Due to its trailblazing role, Bitcoin has remained a dominant force in the market more than ten years after its inception. Even though its market share has declined, it continues to be the largest cryptocurrency, with its market capitalization surpassing $1 trillion in 2021 following a peak price of $64,863.10 on April 14, 2021. This growth is greatly supported by increasing institutional interest in Bitcoin and the widespread availability of platforms offering multiple use-cases for BTC, such as wallets, exchanges, payment services, and online games.

Bitcoin's total supply is capped at 21 million coins due to its software design. New bitcoins are created through "mining": as transactions flow through the network, miners collect and package them into blocks, which are then secured using complex cryptographic calculations.

Miners are rewarded for their computational efforts by receiving new bitcoins for every block they add to the blockchain. When Bitcoin started, the block reward was 50 bitcoins; this reward is halved approximately every four years or every 210,000 blocks. By 2020, the reward had been reduced three times, bringing it down to 6.25 bitcoins.

Unlike some cryptocurrencies, Bitcoin was not premined, meaning no coins were mined or distributed to its creators before it was publicly available. However, in its early years, the low competition among miners enabled early participants to accumulate substantial amounts through regular mining. Satoshi Nakamoto alone is thought to own over a million bitcoins.

Mining can be highly profitable, depending on factors like current hash rates and the Bitcoin price. As of mid-September 2021, the reward stands at 6.25 BTC after the 2020 halving, roughly translating to $299,200 at current prices.

The Bitcoin network is safeguarded using the SHA-256 algorithm, which is part of the SHA-2 family of hashing algorithms. This same algorithm is utilized by Bitcoin Cash (BCH) and several other cryptocurrencies.

Bitcoin stands as the first decentralized, peer-to-peer digital currency, playing a significant role as a decentralized value store. This means it can be owned as a tangible asset or as a measurement unit. However, the value-storage capability has been a topic of debate. Many crypto enthusiasts and economists suggest that widespread adoption of Bitcoin could usher in a modern financial era where amounts will be measured in smaller units.

The smallest Bitcoin unit, 0.00000001 BTC, is called a Satoshi (or Sat for short), in honor of its mysterious creator. With current Bitcoin prices, 1 Satoshi is about $0.00048.

Many regard Bitcoin as akin to gold, more as a value store than an everyday currency. This perception of Bitcoin as a digital reserve rather than a medium for transactions leads many people to purchase and hold it over the long term (or HODL), rather than spending it on everyday goods, treating it like digital gold.

A hard fork involves significant protocol changes that make previously invalid blocks and transactions valid, necessitating upgrades from all users. For instance, if users A and B disagree on the validity of a transaction, a hard fork could render it valid for both but not for user C.

Hard forks are protocol updates that are not backward compatible. This requires every node (a computer connected to the Bitcoin network that validates and relays transactions) to upgrade before the new blockchain with the hard fork becomes active, rejecting any blocks or transactions from the older blockchain. The old blockchain will still function and accept transactions, though it might not be compatible with newer Bitcoin clients.

A soft fork, on the other hand, alters the Bitcoin protocol by making only previously valid blocks or transactions invalid. Because older nodes will still accept the new blocks as valid, a soft fork is backward-compatible. This type of fork only requires a majority of miners to upgrade and enforce the new rules.

Some notable cryptocurrencies that have undergone hard forks include Bitcoin's split that led to Bitcoin Cash and Ethereum's split resulting in Ethereum Classic.

Bitcoin Cash has also experienced hard forks since its inception, creating Bitcoin SV. You can read more about the differences between Bitcoin, Bitcoin Cash, and Bitcoin SV here.

Taproot is a soft fork that includes BIP 340, 341, and 342, aiming to enhance the blockchain's scalability, efficiency, and privacy by adding new features.

The notable changes are the introduction of the Merkelized Abstract Syntax Tree (MAST) and Schnorr Signatures. MAST enables both the sender and receiver of a transaction to collectively approve its settlement. Schnorr Signatures allow consolidating multiple signatures into one for a transaction. This means that multi-signature transactions resemble standard ones. The new address format also reduces transaction fees as even complex transactions appear simple and single-signature.

Though long-term holders may not see immediate effects, Taproot could become pivotal in equipping the network for smart contracts. Specifically, Schnorr Signatures could lay the groundwork for more sophisticated applications on the current blockchain, as users begin adopting Taproot addresses. If widely adopted, Taproot could, over time, foster the network's own DeFi ecosystem, potentially rivaling those on other blockchains like Ethereum.

The Lightning Network is an off-chain, layered payment protocol that operates with bidirectional payment channels, enabling instant transactions with immediate reconciliation. It allows private, high-volume, trustless exchanges between any two parties. The Lightning Network increases transaction capacity without the costs related to transactions and interventions on the main blockchain.

Not long ago, the notion of public companies holding Bitcoin as part of their assets was considered absurd. The leading cryptocurrency was deemed too volatile for serious business adoption. Prominent investors, like Warren Buffett, even called it a "bubble waiting to pop."

However, this perception shifted when several corporate giants started buying Bitcoin in 2020. Notably, MicroStrategy, a business intelligence firm, led the charge by purchasing $425 million worth of Bitcoin in August and September of that year. This trend was followed by others, including electric vehicle producer Tesla.

MicroStrategy has the largest Bitcoin holdings of any publicly-listed company. It made Bitcoin its primary reserve asset, buying aggressively in 2021 and 2022. By August 30, 2022, the company held 129,699 Bitcoins, amounting to over $2.5 billion.

Other significant corporate Bitcoin holders include Marathon Digital Holdings with 10,054 BTC, Coinbase with 9,000, Square Inc. with 8,027, and Hut 8 Mining Corp. with 7,078.

Bitcoin is increasingly entering the political arena, especially after El Salvador embraced it as legal tender. President Nayib Bukele made this decision unilaterally, despite criticism from his citizens, the Bank of England, the IMF, Vitalik Buterin, and others. With Bitcoin becoming official currency in September 2021, Bukele also unveiled plans for Bitcoin City, envisioned as a city powered by Bitcoin mining using geothermal energy from volcanoes.

There have been rumors that countries like Mexico and Russia might also accept Bitcoin as official currency, but so far, El Salvador stands alone in this move.

Conversely, countries like China have imposed strict restrictions on Bitcoin mining and trading activities. In May 2021, China announced that all cryptocurrency transactions were illegal, leading to a severe crackdown on mining operations. This forced many crypto businesses to relocate to more favorable regions.

Surprisingly, this stance has not stifled the industry. According to the University of Cambridge, China remains the second-largest contributor to Bitcoin's global hash rate, trailing only the United States.

Bitcoin's price is highly dynamic, constantly fluctuating throughout the day. As a global asset, its value has skyrocketed from less than one cent to the current figures you see today. The price of cryptocurrencies is very volatile, meaning that perceptions of Bitcoin's value change by the minute. Depending on geography, exchanges may display varied prices, so understanding Bitcoin's value often depends on one's location.

Bitcoin is almost synonymous with cryptocurrency, so it's available on nearly every crypto exchange. You can buy it using fiat money or exchange it for other cryptocurrencies.