What is Bitcoin? The Latest Premier Guide 2024
Bitcoin (BTC) is a cryptocurrency, a form of virtual currency designed to act as money and a payment method not controlled by any individual, group, or entity, thereby eliminating the need for third-party involvement in financial transactions. It rewards blockchain miners for verifying transactions and can be purchased on multiple exchanges.
Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers under the pseudonym Satoshi Nakamoto.
Since then, it has become the world’s most well-known cryptocurrency. Its popularity has inspired the development of many other cryptocurrencies. These competitors either attempt to replace it as a payment system or serve as utility or security tokens in other blockchain and emerging financial technologies.
Satoshi Nakamoto and Bitcoin
In August 2008, the domain name Bitcoin.org was registered. At least for now, the domain is protected by WhoisGuard, meaning the identity of the person who registered the domain is not public information.
Announcement
In October 2008, an individual or group using the pseudonym Satoshi Nakamoto announced on the cryptography mailing list at metzdowd.com: “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” This now-famous white paper was published on Bitcoin.org, titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” which would become the foundational charter for how Bitcoin operates today. Metzdowd.com. “Bitcoin P2P e-cash paper.”
The First Block
On January 3, 2009, the first Bitcoin block was mined—block 0. This is also known as the “genesis block” and contained the text: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” which may serve as proof that the block was mined on or after that date.
Rewards
Every 210,000 blocks, the Bitcoin reward halves. For example, the block reward in 2009 was 50 new bitcoins. On May 11, 2020, the third halving occurred, reducing the reward for discovering a block to 6.25 bitcoins—a next halving is expected sometime in 2024, which will bring the reward down to 3.125 bitcoins.
Denominations
A bitcoin can be divided down to eight decimal places (one hundred millionth of a bitcoin), and this smallest unit is called a satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be divisible to even more decimal places.
Bitcoin’s Blockchain Technology
As a form of digital currency, Bitcoin is not overly complex or difficult to understand. For example, if you own bitcoins, you can use a cryptocurrency wallet to send a small portion of bitcoin as payment for goods or services. However, it becomes very complex when you try to understand how it works.
Blockchain
Cryptocurrency is part of the blockchain and the network needed to power it. The blockchain is a distributed ledger, a shared database that stores data. The data within the blockchain is protected through encryption methods.
When a transaction occurs on the blockchain, the information from the previous block is copied to a new block containing the new data and encrypted, and the transaction is verified by validators in the network known as miners. When the transaction is verified, a new block is opened, a bitcoin is created, and awarded to the miner who verified the data within the block—then they can freely use, hold, or sell it.
Transactions are queued and verified by miners within the network. Miners in the Bitcoin blockchain network all attempt to verify the same transaction at the same time. Mining software and hardware work to solve a nonce, a four-byte number contained in the block header.
The block header is hashed, or randomly regenerated by the miner, until it meets the target number specified by the blockchain. The block header is “solved,” and a new block is created to encrypt and verify more transactions.
Encryption
Bitcoin uses the SHA-256 hashing algorithm to encrypt the data stored in blocks on the blockchain. Simply put, the transaction data stored in a block is encrypted into a 256-bit hexadecimal number. This number contains all the transaction data and information linking to the block before it.
How to Mine Bitcoin
Various hardware and software are available for mining Bitcoin. When Bitcoin was first released, it could be competitively mined on personal computers; however, as it became more popular, more miners joined the network, lowering the chances of solving the hash value. If your personal computer has newer hardware, you can still use it as a miner, but the chances of solving a hash value on your own are slim.
This is because you are competing against a network of miners generating about 444 quintillion hash values (444 exahashes) or random numbers per second. Machines—called Application-Specific Integrated Circuits (ASICs), built specifically for mining—can generate up to 335 trillion hash values per second. In comparison, a computer equipped with the latest hardware has a hash rate of about 100 megahashes (100 million) per second.
To successfully become a Bitcoin miner, you have several options. You can use an existing computer with compatible Bitcoin mining software and join a mining pool. A mining pool is a group of miners who combine their computing power to compete against large ASIC mining farms.
Joining a pool can increase your chances of earning rewards, but the rewards are significantly reduced because they are shared.
If you have the financial means, you can also purchase ASIC mining machines. Typically, you can find a new one for around $10,000, but miners also sell used ones when upgrading their systems. If you purchase one or more ASICs, you will need to consider some significant costs, such as electricity and cooling costs.
There are various mining programs to choose from, and you can join many mining pools. Two of the most famous programs are CGMiner and BFGMiner. When choosing a mining pool, it’s important to understand how they pay out rewards, possible fees, and to read some pool reviews.
How Do You Buy Bitcoin?
If you don’t want to mine Bitcoin, you can purchase it using a cryptocurrency exchange. Since most people cannot afford to buy an entire BTC due to price reasons, you can buy part of a BTC on these exchanges with fiat currency (such as the US dollar). For example, you can buy Bitcoin on Coinbase by creating an account and funding it. You can fund your account using a bank account, credit card, or debit card. The following video explains more about buying Bitcoin.
Payments
To use your Bitcoin, you need a cryptocurrency wallet. Wallets are your interface with the blockchain and hold the private keys to the bitcoins you own, which must be entered when making a transaction. Many merchants, retailers, and stores accept Bitcoin as payment for goods and services.
Brick-and-mortar stores that accept cryptocurrency typically display a “Bitcoin accepted here” sign; transactions can be processed using necessary hardware terminals or wallet addresses through QR codes and touchscreen applications. By adding this payment option to other online payment options (credit cards, PayPal, etc.), online businesses can easily accept Bitcoin.
Investment and Speculation
As Bitcoin became more popular, investors and speculators became interested in it. Between 2009 and 2017, the emergence of cryptocurrency exchanges facilitated the sale and purchase of Bitcoin. Prices began to rise, and demand slowly grew until its price broke through $1,000 in 2017. Many people believed the price of Bitcoin would continue to rise and began buying and holding. Traders began short-term trading using cryptocurrency exchanges, and the market took off.
In 2022, the price of Bitcoin plummeted. In March 2022, it was as high as $47,454, and by November 2022, it was $15,731. Then, in 2023, it rebounded to $31,474 before falling back to under $30,000. Bitcoin’s decline occurred after other assets fell, partly due to inflation, rising interest rates, supply chain issues caused by the COVID-19 pandemic, and greater market turbulence related to the war in Ukraine. Additionally, some significant tokens in the crypto world and one of the major exchanges collapsed, raising concerns about the stability of digital currencies.
Investing in Bitcoin Risks
In recent years, the rapid rise in Bitcoin prices has attracted speculative investors. On December 31, 2019, the price of Bitcoin was $7,167.52, and a year later, it had appreciated over 300% to $28,984.98. It continued to soar in the first half of 2021, reaching a historic high of $68,990 in November 2021, then fell in the following months, hovering around $40,000. As mentioned above, its price has continued to fluctuate violently.
Therefore, many people buy Bitcoin because of its investment value, rather than its ability as a medium of exchange. However, the lack of guaranteed value and its digital nature mean that its purchase and use come with some inherent risks. For example, the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Consumer Financial Protection Bureau (CFPB) have issued numerous investor alerts on Bitcoin investments.
Regulating Bitcoin
As with any new technology, attempts to regulate Bitcoin are challenging. Current governments are trying to regulate Bitcoin but are also walking a tightrope, trying not to stifle a growing and economically beneficial industry.
Biden has stated that he will seek to prevent the illegal use of Bitcoin but will also support its development. The U.S. is particularly focused on regulating cryptocurrency and its criminal use abroad, such as sanctioning cryptocurrency exchanges and individual cryptocurrency wallets, as well as recovering cryptocurrency payments made to criminals.
As Bitcoin and the cryptocurrency world emerge, regulation will follow, and many changes and laws will occur over time.
How Long Does It Take to Mine One Bitcoin?
The mining network averages 10 minutes to verify a block and create a reward. The Bitcoin reward is 6.25 BTC per block. Calculated out, it takes about 96 seconds to mine 1 BTC.
Is Bitcoin a Good Investment?
Bitcoin’s investment history is short, and its price is highly volatile. Whether it is a good investment depends on your financial situation, portfolio, risk tolerance, and investment goals. Always consult the advice of a financial professional before investing in cryptocurrency to ensure it fits your situation.
How Does Bitcoin Make Money?
Bitcoin’s network of miners earns money by successfully verifying blocks and receiving rewards. Bitcoin can be exchanged for fiat currency through cryptocurrency exchanges and used to make purchases from merchants and retailers that accept Bitcoin. Investors and speculators can make money by buying and selling Bitcoin.
How Much Bitcoin Is Left?
The total number of existing bitcoins is 21 million. As of February 22, 2024, there are approximately 1.4 million bitcoins left to be mined.
Bottom Line
Bitcoin is the first cryptocurrency, intended to serve as a form of payment outside of fiat currency. Since its launch in 2009, Bitcoin’s popularity has soared, its uses have expanded, and many new cryptocurrency competitors have emerged.
While generating Bitcoin is complex, investing in it is simpler. Investors and speculators can buy and sell Bitcoin on cryptocurrency exchanges. As with any investment, especially a new and unstable one like Bitcoin, investors should carefully consider whether Bitcoin is suitable for them.
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