Bitcoin is the world’s first and oldest cryptocurrency. Since its creation in 2008, it has made headlines all around the world, for both good and bad reasons, but many people don’t understand exactly how it works and why it’s so special. Our essential guide to Bitcoin will attempt to explain what it is and why it is so revolutionary.
What is Bitcoin?
Bitcoin is a purely virtual currency. It can be traded on exchanges and traded for goods and services with other people, just like regular money. The main difference between Bitcoin and regular money – fiat currencies – is that you can hold regular money in your hand or store it in a bank. Bitcoin, however, is stored in a digital ‘wallet’, which comes in a variety of formats, both virtual and physical.
Key to Bitcoin’s ideology is the concept of decentralization, which is the basis upon which it was created. Bitcoin isn’t controlled by the government or any third party, so nobody can say, “no, you can’t have your money”. Bitcoin transfers are conducted without the need for banks, being verified by a pool of computers independent from each other.
Bitcoin – The History
Bitcoin was created in 2008 by a person or persons unknown but who went by the name of Satoshi Nakamoto. He/they worked with a group of computer programmers known as ‘cypher-punks’ to create a decentralized electronic cash, eventually publishing the Bitcoin whitepaper on October 31, 2008. Several people have claimed to be Satoshi Nakamoto, and there have been some cases of mistaken identity, but no one has come forward with convincing enough evidence to back up their claim.
In 2010, the first real-world transaction with Bitcoin happened when a man spent 10,000 BTC on two pizzas. Today, that transaction would be worth over $229,415,000 (at the time of this writing, BTC is trading at 1 BTC = $22.9K).
In 2013, the Bitcoin market had surpassed the $1 billion mark. As of 2022, Bitcoin continues to be the highest valued and most sought-after cryptocurrency in the world.
Bitcoin: The Shadow Conspiracy
There are some theories that the U.S. government created Bitcoin. These theories gained traction recently thanks to comments from CIA Director William Burns.
The theory goes that the NSA, CIA, FBI, or a combination of all three created Bitcoin as a kind of honey pot to draw in all the types of criminal minds that might find such a payment method useful – a huge, chunky worm dangled in the pond of the underworld. As expected, there is little evidence to support the government theory.
Of course, until we know who did create Bitcoin, we can’t say for 100% certain who didn’t, but the fact that the authorities were so slow to catch up with Silk Road, Hydra, and other dark web marketplaces suggests there’s no way they created Bitcoin.
How Does Bitcoin Work?
Bitcoin operates using blockchain technology, which is an independent and constantly updated ledger that reflects all the transactions going through the Bitcoin network. Blockchains are updated by a collection of independent computers (‘miners’ or ‘nodes’) that act together to verify each transaction that takes place on the chain, with rewards offered for each transaction verified.
Each Bitcoin transaction is publicly available on the Bitcoin blockchain, allowing anyone to check any transaction that has ever taken place, eliminating the need to trust a third party – you can see what happens to your bitcoin every step of the way, so your money can never get ‘lost’.
Is Bitcoin Anonymous?
The correct answer here is “yes and no.” The Bitcoin blockchain records every transaction made, and while it only reveals the 26-35 digit addresses involved (think email addresses replaced by very long sequences of letters and numbers), it is possible to trace funds through the chain of addresses. Identities can, and have, been worked out from Bitcoin addresses, helping to catch thieves, and blockchain analysis is becoming better and better.
What is Bitcoin Mining?
Bitcoin is ‘mined’ using a ‘Proof-of-Work’ algorithm,’ which is operated by pools of computers whose sole purpose is to solve increasingly difficult calculations and keep the blockchain moving. If Person A wants to send 1 BTC to Person B, the request is sent to the pool of miners and is allocated at random (the more computers you have in your pool, the higher your ‘hash rate’ and the more likely you are to be awarded the job). Every ten minutes, all the transactions awarded to that mining pool are bundled together and added to the blockchain as the latest ‘block’.
The computers in the pool conduct a series of complex mathematical calculations so complicated that other computers can’t guess the answer and take the reward. When the solution is found, the block is processed, and the mining pool is rewarded with some freshly minted Bitcoin for their work. The amount of Bitcoin miners get rewarded for adding the next block in the chain gets halved approximately every four years in a princess called ‘the halving.’
The transactions are then verified by other computers (six in Bitcoin’s case) as being correct, and Person B can now use their 1 BTC.
For a visual aspect of how Bitcoin mining works, we recommend this video from 99 Bitcoins: https://youtu.be/mrtSAgcpack
Should I Invest in Bitcoin?
Bitcoin is often referred to as a Ponzi scheme by those who form their opinions from newspaper headlines. It is not.
“A Ponzi scheme is an investment fraud where clients are promised a large profit at little to no risk.” Bitcoin is a traded asset, not a form of investment. And like all traded assets, there are calculated risks involved.
Furthermore, you can sell your BTC whenever you want and put the profits back into your bank account. There is no original investor to pay – that was you.
So, while there are potential risks to investing in Bitcoin, it can be said that the potential rewards exceed them.
How Do I Invest in Bitcoin?
When it comes to BTC, the question is “if” you should invest, but “how” to properly do so. The key to investing in Bitcoin is the old saying, “Slow and steady wins the race.”
There is strong evidence to suggest that Bitcoin is entering the ‘accumulation’ stage of its cycle, which means that the bulk of the selling is done and that buyers are stepping in to load up before the next move.
Steady bitcoin accumulation means you don’t have to bother about waiting for the perfect opportunity. Yes, you could be underwater for a bit, but when you’re thinking long term, this really doesn’t matter, and it’s far less stressful.
What Can I Buy with Bitcoin?
It’s obvious to the world that many people are making small – and not so small – fortunes thanks to the cryptocurrency revolution. Not only that, as we’re seeing at BitStarz, with the big wins falling left, right, and center, Bitcoin is making people rich across the board. Should you happen to have a wallet that’s bulging with BTC, you’ve come to the right place, as big spenders have some serious shopping choices.
Thanks to the likes of BitDials.eu you can add a high-class accessory to your wrist with Bitcoin. Featuring countless high-end watches, covering both countless and classic designs, if you have enough BTC and a love of watches, BitDials.eu will be the store for you.
Showing that BTC is the currency of the wealthy, those with stacks of digital cash can now pick up a supercar in just a few clicks. L’Operaio has opened its doors to those that have crypto to spend. And The White Company is a high-end product marketplace that deals in everything, promising to deliver its stocked items all around the world.
Other industries now accepting BTC include real estate, fashion, fine art, crypto casinos, and more.
What is a Bitcoin Wallet?
Whether you’re storing real money or cryptocurrency, the way you are going to do so is extremely important because money, any kind of it, is always susceptible to thievery. Similar to storing real money currencies, cryptocurrencies also have different types of wallets, and you should really handle these with even more care than your regular wallet or credit card.
To send or spend bitcoins, one must have access to both public and private keys. Private keys, especially, must be protected. Because you are not actually storing bitcoins, you are storing these keys, which are used to access your public bitcoin address and sign transactions.
This sensitive info is stored in a bitcoin wallet, which comes in one of five forms:
- Desktop wallet
- Mobile wallet
- Web wallet
- Hardware wallet
- Paper wallet
What Are the Risks to Bitcoin?
Some have argued that the recent dip in Bitcoin’s value has dented its reputation, but that argument has some pretty loose foundations when you consider the cryptocurrency’s history.
Bitcoin is notoriously resilient. Back in 2013, Bitcoin’s price skyrocketed by more than 80%, at a time when the world was up in arms regarding the financial and economic state of Cyprus. Its price might have fallen soon after, but it doesn’t take away from the fact that investors still looked for solace in Bitcoin when a notable European nation was struggling.
Unsurprisingly, when Greece encountered severe financial difficulty and a possible Eurozone exit, Bitcoin experienced another price resurgence. Dips in price haven’t stopped Bitcoin from being a safe haven commodity.
The obvious answer to why Bitcoin isn’t being boosted by economic turmoil anymore is that it simply isn’t the same cryptocurrency today as it has been in the past. Over the past few years, the liquidity of Bitcoin has changed dramatically as crypto has broken through into the mainstream.
During its formative years, very specific groups of investors – primarily Libertarians and technologists – snapped up Bitcoin due to its decentralized foundations. But, as the public interest in cryptocurrencies has surged, digital currency has become a mainstream investment in many ways.
The reality is that every aspect surrounding Bitcoin is changing, with the digital currency undergoing something of a mainstream makeover. Through a new investor base, developments in scalability, and a growing number of Bitcoin investment products (see the rise in Bitcoin ETFs), the change in Bitcoin has probably removed it from the safe-haven investment conversation.
Is Bitcoin Safe?
The news that the FBI managed to recover 85% of the ransom payment sent by Colonial to hacking group DarkSide over the Colonial Pipeline hack has led some to speculate that the Bitcoin blockchain is not as secure as had always been assumed.
However, such speculation misses out on one key fact – the FBI already had the private key to the Bitcoin wallet receiving the funds – and illustrates that a basic misunderstanding of Bitcoin and blockchain technology still persists outside of the space.
Of course, it is not impossible to break into a Bitcoin wallet – indeed, there are companies such as KeychainX that provide this as a service – but for the FBI to be able to crack a private key as opposed to a password is so remote it would need a supercomputer and specially coded software.
What Are the Negative Impacts of BTC?
The old line of “Christmas lights consume more power than Bitcoin mining does all year” gets thrown around more every year. First off, America alone consumes 6 terawatt hours (TWh) of power with festive lights alone.
The current Bitcoin network hash rate is at 133 million terahashes per second (TH/s). The Antminer S9 produces around 14 TH/s and consumes 38.4 kilowatts per hour (kWh). That works out at 9,500,000 Antminer S9 devices needed and a total consumption of 0.3648 TWh.
Unfortunately, this math cannot possibly give us the complete picture. There are a lot of variables that have not been taken into account, such as cooling, downtime of rigs, a combination of rigs etc. In reality, the actual figure is probably much higher, and a study conducted by Alex de Vries argues that Bitcoin consumes as much power as Ireland does annually.
But, if you take our word for it and you run 9.5 million Antminer S9 rigs without any cooling, you would consume less power than the whole of the US does on Christmas lights. Even if you take our calculation and multiply it by 10x to factor in some of these other factors, the results still come out on top for Bitcoin mining.
Bitcoin: The Pros and Cons
Like all things, Bitcoin has its pros and cons. But it’s important that you be able to separate the facts from some very misleading information out there. Stay up to date with all the latest hot info on BTC in our Bitcoin News section.
How do beginners buy Bitcoin?
As a first-time investor, you will need to purchase Bitcoin as you would any other cryptocurrency. This will involve setting up an account on a crypto exchange, verifying your account, placing your order, and securely storing your Bitcoin in a crypto wallet.
Is Bitcoin a good investment?
Most analysts believe that Bitcoin is a good investment, with some predicting a huge surge in value by the end of 2022. Just remember that with any type of investment, there is an element of risk.
Is Bitcoin a scam?
Bitcoin itself is not a scam. However, there are Bitcoin scams out there. Do not trust any site that operates like a Ponzi scheme, promising you extra Bitcoin upon your initial investment. Instead, you should only buy, sell, and trade on trusted crypto exchanges.