OVERVIEW

In the ever-evolving landscape of cryptocurrency, one name stands out as the pioneer that sparked a revolution: Bitcoin. Since its inception in 2008 by an individual or group using the pseudonym Satoshi Nakamoto, Bitcoin has grown to become the world's foremost digital currency, celebrated for its autonomy, security, and potential as a store of value.

Often referred to as 'digital gold’, Bitcoin has captivated the financial world. In this comprehensive beginner's guide, we delve into its fundamentals.

Key Takeaways

1. Bitcoin is a peer-to-peer (P2P) digital currency system that operates independently of any central authority.
2. It was launched in 2009 by an anonymous person or group known as Satoshi Nakamoto.
3. Bitcoin gained popularity for several reasons, including scarcity, security, privacy, and decentralisation.
4. Bitcoin uses blockchain technology to secure and verify transactions.
5. BTC, Bitcoin’s native coin, can be earned through mining or purchased on an exchange.
6. Freely available to anyone, Bitcoin wallets are typically used to buy, store, and send Bitcoin.
7. Bitcoin’s price volatility makes it attractive to certain traders.
8. An estimated 14% of all US adults own Bitcoin.

Introduction

Bitcoin is a digital currency that operates independently of any central authority, such as a government or bank. It was launched in 2009 by an anonymous person or group of people using the pseudonym Satoshi Nakamoto. Bitcoin is based on a technology called blockchain, which is a decentralised ledger that records all transactions made within the network.

Bitcoin is not physical, existing solely in digital form. It is used to buy goods and services online or exchanged for other cryptocurrencies. Each Bitcoin transaction is recorded on the blockchain, making it transparent and auditable.

There are several benefits Bitcoin offers, including faster and low-cost transactions, especially for international transfers. Currently, a large part of the global population remains unbanked, with no access to financial services, as they don’t qualify for bank accounts. Bitcoin is capable of providing financial inclusivity, as anyone with an internet connection can, in principle, access and use Bitcoin, regardless of their location.

Who Created Bitcoin?

In 2008, Satoshi Nakamoto introduced the world to Bitcoin and its underlying technology: blockchain. But the true identity of Bitcoin’s creator remains a mystery to this day. While there have been speculations and proposed candidates, no concrete proof of Nakamoto’s identity has been uncovered.

Regardless of their identity, Nakamoto’s impact and legacy in the cryptocurrency world are undeniable, and Nakamoto’s identity continues to be a topic of interest and discussion within the cryptocurrency community. It is estimated that Nakamoto may possess around 1.1 million BTC, equivalent to 5% of all bitcoins to be created.

How Does Bitcoin Work?

Bitcoin uses blockchain technology, and one of blockchain’s main features is the way it records data, which is:

1. Immutable
2. Transparent
3. Decentralised

Immutable means that no entity can modify the transaction records. Transparent implies that anyone can see and verify the transactions on a blockchain via the internet. Decentralised means it is very difficult for a single entity to govern the whole network (although 51% attacks, where a group obtains more than half of mining power, are theoretically possible).

Bitcoin was the first application to utilise blockchain technology (even though the term ‘blockchain’ was introduced after Bitcoin). There are two main stakeholders in the Bitcoin system: regular users, who can access the system to make transactions, and miners, who work behind the scenes to power and maintain the network.

Miners run computers, called ‘nodes’, with a lot of processing power in order to store data, handle and broadcast transactions, and solve a complex mathematical puzzle in order to mine new ‘blocks’ on the blockchain, which contain recent transactions. Every time someone sends a transaction to the Bitcoin network, miners pick up the transaction and complete the steps above behind the scenes.

Miners do not volunteer to maintain this decentralised network for free, however. They are incentivised to do so by receiving mining rewards and transaction fees upon completing the equation and validating transactions. Their reward for creating new blocks comes in the form of newly minted Bitcoin, which is why the process is called mining.

Bitcoin Blockchain Technology

Bitcoin is based on a technology called blockchain, which is governed by a consensus mechanism. In simple terms, a blockchain notes down all transactions in a digital ledger, which can be publicly viewed by anyone online.

Bitcoin is not governed by one centralised institution; rather, a group of stakeholders maintain the ledger (the blockchain) together to reach agreement on which transactions are right or wrong. This is called a consensus mechanism. Bitcoin relies on the Proof of Work (PoW) consensus mechanism, the first blockchain consensus ever created.

Learn more about Proof of Work and get more details about how Bitcoin works.

How Is Bitcoin Used?

Bitcoin can be used in various ways:

First, Bitcoin can be mined, where miners solve complex mathematical problems to validate transactions and secure the network. In return, they are rewarded with new bitcoins.

Additionally, users can buy and sell Bitcoin on cryptocurrency exchanges, with the goal of taking advantage of price fluctuations to make profits.

Third, Bitcoin can also be used for online purchases and transactions, providing convenience and expanding its utility.

Moreover, some individuals hold Bitcoin, hoping its value will increase over time, allowing them to sell at a higher price. This is not guaranteed, however, as Bitcoin is a highly volatile asset; these individuals are at risk of losing part, or the entirety, of the value of their initial purchase monies.

Who Owns the Bitcoin Network?

Unlike fiat currencies, which are issued and backed by governments, no one owns the Bitcoin payment network itself; it is entirely independent of any one person or organisation (miners work together to maintain the Bitcoin network). However, people and organisations can own BTC, the native currency of the Bitcoin network, and make software to buy, store, or transfer bitcoins.

How Many People Own Bitcoin?

In 2023, the number of Bitcoin owners has continued to steadily grow. According to a Morning Consult survey, 26% of millennials and 14% of all US adults own Bitcoin. Globally, it is estimated there are 516 million crypto owners, with over 267 million Bitcoin owners. These estimates translate to an average global crypto ownership rate of 6.5% as of June 2023.

How Has the Price of Bitcoin Changed Over Time?

Since its inception in 2009, Bitcoin has experienced significant price fluctuations, making it a highly volatile asset. In its early years, Bitcoin was traded for less than a cent per coin. In 2011, it reached its first milestone by surpassing the US$1 mark. BTC continued to gain traction, and in 2013, it reached a peak of $260.

Bitcoin’s first notable price surge came in 2017 when it reached an all-time high (ATH) of nearly $20,000. However, the price corrected sharply in the following months, dropping to around $3,000 by the end of 2018.

The cryptocurrency market as a whole experienced another major surge in 2021, with Bitcoin reaching over $60,000 in April of that year. However, it experienced a subsequent correction, and the price dropped to under $20,000 by November 2022.

As of October 24, 2023, Bitcoin’s price stands at over $33,000.

Conclusion

Bitcoin has come a long way since its early days, revolutionising the financial landscape and soaring in price to unprecedented heights. Despite its volatility, Bitcoin has shown resilience and a degree of potential as a decentralised digital currency. Its ability to operate without traditional financial intermediaries and provide secure, transparent transactions has captured the attention of individuals and institutions worldwide.

With increasing adoption and acceptance, Bitcoin’s future looks promising. As the cryptocurrency market continues to evolve, it’s clear that Bitcoin has the potential to reshape the way we think about money and finance. Whether crypto serious or curious — it’s hard not to be excited about the possibilities Bitcoin holds.

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