What is bitcoin?
Bitcoin is a digital currency -- also called cryptocurrency -- that can be traded for goods or services with vendors that accept Bitcoin as payment. With Bitcoin, holders can buy, sell and exchange goods or services without a central authority or bank as an intermediary.
Bitcoin is one of the most well-known virtual currencies today, with its value rising dramatically since its launch in 2009. Satoshi Nakamoto, the pseudonym of Bitcoin's creator, stated the purpose of Bitcoin is as an electronic payment system that is based on cryptographic proof, instead of trust. Some holders buy bitcoin as an investment, wanting it to increase in value, while individuals and businesses use or accept payments as currency. PayPal, for example, currently supports Bitcoin transactions, and the country of El Salvador has accepted Bitcoin as a currency.
Bitcoin-to-bitcoin transactions are made by digitally exchanging anonymous, heavily encrypted hash codes across a peer-to-peer (P2P) network. The P2P network monitors and verifies the transfer of bitcoin between users. Each user's bitcoin are stored in a program called a digital wallet, which also holds each address the user sends and receives bitcoin from, as well as a private key known only to the user.
In the U.S., bitcoin are controversial because they can be used to anonymously transfer illicit funds or hide unreported income from the Internal Revenue Service. Bitcoin policy now requires transactions that involve traditional, government-backed currencies to be attached to an identity.
By design, bitcoin supply is limited to 21 million coins of which 18.77 million have already been mined. This makes bitcoin scarce and controls the inflation that might occur if there was an unlimited supply of the cryptocurrency. According to the Gadgets 360 article titled "Bitcoin mining: How Many Coins Can Be Mined in Total and How Does It Impact Pricing?" 83% of all the bitcoin that will ever exist has already been circulated.
History of Bitcoin
Bitcoin has dramatically risen in value since its inception, but its history is filled with much volatility.
- Bitcoin was introduced in 2009 by a person under the pseudonym Satoshi Nakamoto. The identity of Satoshi Nakamoto still has not been verified to this day. Nakamoto did, however, post a whitepaper called "Bitcoin: A Peer-to-Peer Electronic Cash System." The whitepaper laid out the concept of Bitcoin.
- In 2009, blockchain was launched. Bitcoin still had no monetary value. The first block in the blockchain was nicknamed the Genesis block.
- On May 22, 2010, the first economic transaction of bitcoin took place. Two Papa John's pizzas, valued at $25, were bought with 10,000 bitcoin. As of late 2021, 10,000 bitcoin is worth over $600 million. Thanks to this purchase and later purchases, bitcoin could start to be compared to the U.S. dollar.
- In 2011, other networks like Ethereum began to improve the code behind bitcoin's blockchain.
- That same year, bitcoin was valued at $1 in April and rose to $32 by June 2011.
- In 2013, bitcoin traded at $13.40, which rose to $220 by April, but by mid-April, the value dropped to $70.
- From March 25 to Dec. 17, 2017, the price of bitcoin rose from $975.70 to $20,089.
- In June 2019, the value passed $10,000 before falling to $7,112.73 by December.
- In November 2020, bitcoin was trading at $18,353.
- In March 2021, bitcoin was valued at over $61,000.
How you can mine bitcoin?
Each Bitcoin is a digital asset that can be stored at a cryptocurrency exchange or in a digital wallet. Each individual coin represents the value of Bitcoin’s current price, but you can also own partial shares of each coin. The smallest denomination of each Bitcoin is called a Satoshi, sharing its name with Bitcoin’s creator. Each Satoshi is equivalent to a hundred millionth of one Bitcoin, so owning fractional shares of Bitcoin is quite common.
Blockchain: Bitcoin is powered by open-source code known as blockchain, which creates a shared public history of transactions organized into "blocks" that are "chained" together to prevent tampering. This technology creates a permanent record of each transaction, and it provides a way for every Bitcoin user to operate with the same understanding of who owns what.
Private and public keys: A Bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions. This unlocks the central function of Bitcoin — securely transferring ownership from one user to another.
Bitcoin mining: Users on the Bitcoin network verify transactions through a process known as mining, which is designed to confirm that new transactions are consistent with other transactions that have been completed in the past. This ensures that you can’t spend a Bitcoin you don’t have, or that you have previously spent.
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