Bitcoin

Bitcoin (BTC) is a decentralized digital currency that was first outlined in a 2008 whitepaper by an individual or collective operating under the pseudonym Satoshi Nakamoto. The network went live shortly thereafter, in January 2009.

Functioning as a peer-to-peer system, Bitcoin enables transactions to occur directly between independent users on the network, eliminating the need for any middleman to authorize or process them. As stated by Nakamoto, the goal was to permit “online payments to be sent directly from one party to another without going through a financial institution.”

While earlier ideas for decentralized electronic money existed, Bitcoin is recognized as the first cryptocurrency to be successfully implemented and used.

The creator of Bitcoin operates under the pseudonym Satoshi Nakamoto. As of 2021, the actual identity of this individual or group remains a mystery.

Nakamoto released the Bitcoin whitepaper on October 31, 2008, outlining a method for a peer-to-peer digital currency. The proposal involved a decentralized transaction ledger organized into batches called “blocks” and protected by cryptographic methods, a structure later named “blockchain.”

On January 3, 2009, just two months after the whitepaper, Nakamoto mined the network’s first block, known as the genesis block, thereby launching the initial cryptocurrency. At its launch, Bitcoin had a price of $0, and users primarily acquired it through mining using moderately powerful hardware like PCs and specific software. The first recorded commercial use of Bitcoin happened on May 22, 2010, when programmer Laszlo Hanyecz exchanged 10,000 Bitcoins for two pizzas. Based on Bitcoin’s value in mid-September 2021, those pizzas would be valued at $478 million. This occasion is now referred to as “Bitcoin Pizza Day.” Trading for Bitcoin began in July 2010, with prices fluctuating between $0.0008 and $0.08 during that period.

Although Nakamoto invented Bitcoin and wrote its first implementation, they transferred control of the code repository and the network alert key to Gavin Andresen, who subsequently served as lead developer at the Bitcoin Foundation. Since then, many individuals have enhanced the software by fixing vulnerabilities and introducing new capabilities.

The GitHub source code repository for Bitcoin shows more than 750 contributors. Prominent figures among them include Wladimir J. van der Laan, Marco Falke, Pieter Wuille, Gavin Andresen, and Jonas Schnelli.

Bitcoin’s primary distinction lies in its status as the inaugural cryptocurrency to enter the market. It has fostered a worldwide community and sparked a new industry comprising millions of individuals who create, invest in, trade, and utilize Bitcoin and other digital currencies daily. As the first of its kind, it established the conceptual and technological foundation that motivated the creation of thousands of rival projects.

The whole cryptocurrency sector, currently valued at over $2 trillion, rests on the concept Bitcoin actualized: funds that any person can transmit and accept globally without depending on trusted middlemen like banks or financial service firms.

Due to its pioneer status, BTC stays at the forefront of this dynamic market after more than ten years of operation. Although Bitcoin no longer holds absolute dominance, it remains the biggest cryptocurrency by market capitalization. This cap exceeded the $1 trillion threshold in 2021, following the asset’s reach of an all-time high price of $64,863.10 on April 14, 2021. This position is largely attributed to rising institutional attention toward Bitcoin and the widespread availability of platforms offering BTC utilities, including wallets, exchanges, payment solutions, online games, and others.

Bitcoin’s code caps the total supply at 21,000,000 coins, a limit that will never be surpassed. New units enter circulation through “mining,” where miners secure the network by solving complex cryptographic puzzles to package transactions into blocks. In return for this computational effort, miners earn rewards for each block added to the blockchain.

At launch, the reward stood at 50 bitcoins per block. This amount halves every 210,000 blocks, an interval that takes approximately four years. By 2020, the reward had been halved three times, resulting in a payout of 6.25 bitcoins.

There was no premine; founders did not distribute or mine coins before public availability. Nevertheless, low early competition allowed initial participants to accumulate large holdings through standard mining. Satoshi Nakamoto is believed to possess over a million Bitcoin.

Mining profitability fluctuates with hash rate and Bitcoin’s price. As of mid-September 2021, following the 2020 halving, the block reward remains capped at 6.25 BTC, valued at roughly $299,200 based on the Bitcoin price at that time.

The Bitcoin network relies on the SHA-256 algorithm for its security. This hashing method is part of the SHA-2 family and is also utilized by Bitcoin Cash (BCH), a fork of Bitcoin, along with various other cryptocurrencies.

Bitcoin (BTC) holds the distinction of being the initial decentralized, peer-to-peer digital currency. A primary function it serves is acting as a decentralized store of value, granting ownership rights similar to those of a physical asset or a unit of account. Nevertheless, this specific role as a store of value remains a subject of debate. Numerous economists and crypto supporters argue that widespread adoption of this leading currency will usher in a new modern financial era where transaction values are expressed in smaller denominations.

The tiniest fraction of Bitcoin is 0.00000001 BTC, known as Satoshis (or Sats for short), named after the pseudonymous founder. At the current Bitcoin price, 1 Satoshi equals approximately $0.00048.

Many view the top cryptocurrency as a store of value comparable to gold, rather than as a medium of exchange. This perception of Bitcoin as a value reserve instead of a payment tool leads many individuals to purchase and hold the asset for the long term (often referred to as HODL), treating it like digital gold rather than spending it on goods as one would with a dollar.

Upgrading Bitcoin’s technology involves two primary methods: hard forks and soft forks. A hard fork represents a drastic protocol alteration that renders previously invalid blocks or transactions valid, necessitating that every user upgrades their software. For instance, if users A and B dispute the validity of a transaction, a hard fork might validate it for them while leaving it invalid for user C. Because this upgrade is not backward-compatible, every node—defined as a computer on the network using a client to validate and relay transactions—must update before the new blockchain activates. Once active, the new chain rejects blocks or transactions from the old version. The original blockchain persists and continues accepting transactions, though it may become incompatible with newer Bitcoin clients.

In contrast, a soft fork modifies the protocol by making previously valid blocks or transactions invalid. Since older nodes still recognize these new blocks as valid, soft forks are backward-compatible. This type of upgrade only requires a majority of miners to adopt the new rules to enforce them.

Notable examples of cryptocurrencies that have experienced hard forks include Bitcoin, which split to create Bitcoin Cash, and Ethereum, which resulted in Ethereum Classic. Additionally, Bitcoin Cash has undergone further hard forks since its inception, leading to the creation of Bitcoin SV.

Taproot is a soft fork that combines BIP 340, 341, and 342. It seeks to enhance the blockchain’s privacy, efficiency, and scalability by adding new capabilities.

The upgrade centers on two primary innovations: Schnorr Signature and the Merkelized Abstract Syntax Tree (MAST). MAST enables transaction senders and receivers to jointly approve settlement conditions. Schnorr Signature permits the combination of multiple signatures into a single one for a transaction. Consequently, multi-signature operations appear identical to standard or more intricate transactions. With this new address format, users may reduce transaction costs because complex transfers resemble simple, single-signature ones.

While HODLers might not see an immediate major effect, Taproot represents a significant step toward bringing smart contract features to the network. Specifically, Schnorr Signatures provide the basis for constructing sophisticated applications on the current blockchain, especially as users increasingly adopt Taproot addresses. If widely accepted, Taproot could eventually help the network cultivate a DeFi ecosystem capable of competing with those on other chains such as Ethereum.

The Lightning Network functions as a layered, off-chain payment protocol utilizing bidirectional channels to facilitate immediate transfers and reconciliation. It supports trustless, private, and high-volume exchanges between any two participants. By handling these interactions off the main ledger, the network increases transaction throughput while avoiding the fees and on-chain interventions required by the underlying blockchain.

Not long ago, the notion of a public company keeping Bitcoin on its balance sheet was widely ridiculed. The leading cryptocurrency was viewed as too unstable for serious commercial adoption, with prominent investors like Warren Buffett dismissing it as a “bubble waiting to pop.”

That skepticism seems to have faded, as several major corporations began acquiring Bitcoin in 2020. Business intelligence provider MicroStrategy led this trend by purchasing $425 million worth of the asset in August and September 2020. Other firms, such as electric vehicle maker Tesla, subsequently joined in.

MicroStrategy holds the largest Bitcoin reserve among publicly traded companies. Having made Bitcoin its primary reserve asset, the firm bought aggressively throughout 2021 and 2022. As of August 30, 2022, it held 129,699 Bitcoin, valued at slightly more than $2.5 billion.

Other significant corporate holders include:

• Marathon Digital Holdings (10,054 BTC)
• Coinbase (9,000 BTC)
• Square Inc. (8,027 BTC)
• Hut 8 Mining Corp. (7,078 BTC)

Bitcoin is increasingly entangled in politics, a trend accelerated by El Salvador’s adoption of the asset as legal tender. President Nayib Bukele executed this move largely on his own authority, ignoring objections from locals, the Bank of England, the IMF, Vitalik Buterin, and various other critics. Following the enactment of the legal tender law in September 2021, Bukele revealed intentions to construct Bitcoin City, a municipality powered entirely by volcanic geothermal energy for Bitcoin mining.

While nations such as Russia and Mexico have been cited as potential candidates for similar adoption, El Salvador remains the only country to have officially implemented it.

Conversely, China has taken a strict approach against Bitcoin trading and mining. In May 2021, the government labeled all cryptocurrency transactions illegal, initiating a severe suppression of mining activities that compelled numerous industry firms to relocate to more welcoming jurisdictions.

Despite these prohibitive measures, the sector has remained resilient. Data from the University of Cambridge indicates that China currently holds the position of the second-largest contributor to the global Bitcoin hash rate, trailing only the United States.

Bitcoin’s value fluctuates continuously, operating as a truly global asset around the clock. Since beginning at under one cent per coin, BTC has increased by thousands of percent to reach the figures displayed above. Because cryptocurrency prices are highly volatile, an individual’s perception of Bitcoin’s worth can shift every minute. Additionally, prices may vary across different exchanges and countries, meaning the specific value of Bitcoin often depends on a person’s location.

Because Bitcoin is nearly interchangeable with the concept of cryptocurrency itself, you can purchase it on almost every crypto exchange using either fiat currency or other digital assets. Major platforms offering BTC trading include:

• Binance

In recent decades, people have grown more aware of their personal energy use and impact on climate change. As reports emerged about the potential negative environmental effects of Bitcoin’s power usage, concern and criticism grew. One study determined that a single Bitcoin transaction consumes 1,173 KW hours of electricity, enough to “power the typical American home for six weeks.” Another analysis estimates that Bitcoin’s yearly energy demand exceeds the total annual hourly energy consumption of Finland, a nation with 5.5 million residents.

This news has drawn reactions from tech founders, environmental campaigners, and politicians. In May 2021, Tesla CEO Elon Musk announced that Tesla would stop accepting the cryptocurrency as payment because of worries about its environmental impact. While many critics have moved on, some have sought solutions to improve Bitcoin’s energy efficiency, while others argue the issue is overstated.

Currently, miners depend significantly on renewable power, with estimates indicating that 40-75% of Bitcoin’s energy comes from renewable sources. Critics, however, contend that diverting renewable energy to Bitcoin reduces supply for other sectors such as hospitals, factories, and homes. The mining community counters that growth in mining could encourage the development of new wind and solar farms.

Supporters also point out that the gold and banking industries each use twice as much energy as Bitcoin, rendering comparisons unfair. They add that Bitcoin’s energy use is transparent and traceable, unlike these other sectors. Defenders further argue that the intensive validation process enhances security, justifying the power cost.

Proponents note that Bitcoin’s energy figures are comprehensive, covering creation, security, usage, and transport. In contrast, calculations for systems like Visa often exclude energy used for printing cash, running ATMs, powering bank branches, security vehicles, and smartphones.

Regarding government and nonprofit efforts to lower Bitcoin’s energy footprint, a U.S. congressional hearing took place earlier this year. Politicians and tech leaders discussed the future of domestic crypto mining, focusing on fossil fuel use and the trend of converting coal plants in New York and Pennsylvania into mining facilities.

Beyond legislative discussions, private initiatives like the Crypto Climate Accord and Bitcoin Mining Council aim to address environmental concerns. The Crypto Climate Accord, for instance, outlines a goal to eliminate all greenhouse gas emissions by 2040. Given Bitcoin’s innovative capacity, achieving such ambitious targets appears plausible.

Popular cryptocurrency storage options include both hot and cold wallets. Hot wallets connect to the internet, whereas cold wallets store large coin holdings offline.

Leading cold wallet brands include Trezor, Ledger and CoolBitX. Top hot wallet choices feature Exodus, Electrum and Mycelium.