Bitcoin is a cryptocurrency and a payment system that was first proposed in 2008 by an anonymous person or group of people under the name Satoshi Nakamoto. Bitcoin is decentralized and not subject to government or central authority control.
The first bitcoins were created in 2009. Nakamoto is estimated to have mined about one million bitcoins before disappearing in 2010 when he handed the network alert key and control of the code repository over to Gavin Andresen, who later became the lead developer at the Bitcoin Foundation, the nonprofit organization in charge of developing and promoting the Bitcoin network.
Bitcoin is secured with a Proof-of-Work (PoW) mechanism, and transactions are verified by a network of nodes and recorded in a publicly distributed ledger called a blockchain.
As the world's first cryptocurrency, the Bitcoin price has always stood higher than other crypto assets. To date, it continues to be the largest cryptocurrency in the world by market capitalization, outranking Ethereum (ETH) and Tether (USDT). Bitcoin is also responsible for mainstreaming blockchain technology, which has found several other use cases with time.
How does Bitcoin work?
The Bitcoin network operates as a blockchain, a public ledger of all bitcoin transactions. It constantly grows as "completed" blocks are added to it with new sets of recordings.
Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere, a practice known as double-spending.
Ownership of the Bitcoin network is decentralized, meaning that no single person or entity controls or decides what changes or upgrades will be made. Its software is also open-source, allowing anyone to suggest changes to or make a different version.
What is Bitcoin mining?
New Bitcoins are created through a computationally-intensive process known as mining. When miners verify and record transactions on the blockchain, they are rewarded with bitcoins.
Miners use special software to solve math problems and are issued a certain number of bitcoins. This incentivizes people to mine and helps ensure that new bitcoins are created predictably and fairly.
The amount of bitcoins awarded for each block decreases over time as the network adjusts the rate at which new blocks are added to the bitcoin blockchain. Currently, miners are rewarded with 6.25 bitcoins for each block they mine.
What is Bitcoin's energy consumption?
The Bitcoin network consumes a considerable amount of energy as running the computers that verify and record transactions on the blockchain takes a lot of power. As more people use Bitcoin and more miners join the network, the amount of energy required to maintain the Bitcoin network will continue to grow.
Critics argue that this consumption is not sustainable and will eventually damage the environment. However, miners can switch to alternative energy sources such as solar or wind power. In addition, some experts believe that the Bitcoin network could eventually become more efficient as it grows and matures.
What is the Bitcoin Foundation?
The Bitcoin Foundation is a nonprofit organization that promotes the use of bitcoin and blockchain technology. The foundation was founded in 2012 to "standardize, protect, and promote the use of bitcoin cryptographic money for the benefit of users worldwide."
The foundation is supported by companies and individuals involved in the bitcoin industry, including exchanges, wallets, payment processors, and software developers. It also offers grants to support projects that further its mission.
Four principles guide the Bitcoin Foundation's work: user privacy and security; financial inclusion; technical standards and innovation; and responsible stewardship of resources.
BTC price and tokenomics
Bitcoin's demand is driven by three key factors: its use as a store of value, a valuable asset for any portfolio, and a payment system.
Bitcoin has a max supply of 21 million. This limited supply makes Bitcoin a deflationary asset. However, this also means that there will only ever be 21 million bitcoins, making Bitcoin different from fiat currency, which can be created at any time by central banks, but more similar to assets with a fixed supply like gold.
Over the years, a significant amount of bitcoins have been lost. It is estimated that around 20% of all bitcoins are lost. This is due to various factors, including users losing their private keys, forgetting their passwords, or dying without passing on their information. This reduces the bitcoin supply in circulation, which, as some speculate, could increase its value.
Bitcoin Halving
Bitcoin's code is designed, so that block generation rewards gradually decrease over time. As a result, the amount of Bitcoin awarded to miners for block addition is halved every 210,000 blocks or roughly every four years. As of this writing, Bitcoin had three halving events: November 2012, July 2016, and May 2020.
These halvings are done to gradually reduce the number of BTC entering the circulating supply. With only 21 million BTC ever created, there is a scarcity effect that positively impacts the BTC price.
No new BTC rewards will be available once all 21 million BTC have been minted and distributed. After that, miners' only source of income will be transaction fees.
The current block reward is 6.25 BTC. The next Bitcoin halving will take place in early 2024, bringing this reward down to 3.125 BTC.
About the founders
Bitcoin was founded by an individual or a group of individuals going by the pseudonym Satoshi Nakamoto. Satoshi released the Bitcoin whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" on October 31, 2008, amid a global financial crisis, six weeks after Lehman Brothers declared bankruptcy.
On January 3, 2009, Satoshi mined Bitcoin's genesis block and birthed the world's first decentralized, non-sovereign, digital money. The price of Bitcoin was $0 at the time of its launch, and new BTC could be easily obtained by mining them through moderately powerful computing devices like personal computers.
Satoshi handed over the Bitcoin network's alert key and the control of its code repository to Gavin Andresen. Gavin became the Bitcoin Foundation's lead developer at a later date. The Bitcoin's Github repository lists over 750 contributors, including Jonas Schnelli, Gavin Andresen, Marco Falke, and Wladimir van der Laan.
Bitcoin highlights
El Salvador adoption
In 2021, the government of El Salvador made a bold move to adopt Bitcoin as legal tender, becoming the first country in the world to do so.
President Nayib Bukele announced the initiative during his address at the Bitcoin 2021 Conference in Miami, saying that the digital currency would help to boost the nation's economy. Bukele has asserted that using Bitcoin will reduce the annual remittance commissions by about $400 million and thus spur yet larger transfers of funds.
The new law requires all businesses to accept Bitcoin as payment. Meanwhile, the Salvadoran government will contribute $150 million to a trust to facilitate dollar conversions. Additionally, the government has developed a digital wallet called Chivo, the Salvadoran slang word for "cool," and will give a $30 Bitcoin bonus to citizens who download it.
Salvadorans can withdraw funds in cash from 200 ATMs and 50 other locations. The Salvadoran government also purchased 400 bitcoins, valued at the time of acquisition at about $21 million.
Central African Republic adoption
In April 2022, the Central African Republic moved to adopt Bitcoin as a legal tender after the unanimous adoption of a bill, following in El Salvador's footsteps, which declared its adoption the previous year. The move would make CAR the first African country to adopt cryptocurrency as a legal tender.
Widespread interest
Bitcoin has seen growing interest from retail and institutional investors, spurred partly by interest from vocal celebrities and a favorable market.
Such public figures include tech mogul Elon Musk, CEO of Tesla. However, in 2021, Musk announced that Tesla would stop accepting Bitcoin, citing environmental concerns.
Jack Dorsey, a co-founder of Twitter and payments company Square, has also expressed his favorable stance on Bitcoin, promoting it at events and even launching an initiative in collaboration with entertainment mogul Jay Z, known as BTrust, aimed at the development of Bitcoin.
Other notable figures such as Mark Cuban and Snoop Dogg have expressed support for Bitcoin and are thought to own a considerable amount of it.
Lightning network
The Bitcoin lightning network, developed by Lightning Labs, is a Layer 2 network added on top of the Bitcoin network that aimed to solve Bitcoin's scalability issue by allowing for much faster and cheaper transactions. It was launched in March 2018 and was perceived by some in the Bitcoin community as a game changer.
While it has achieved the goal of speedier transactions and has grown in usage, it still faces cost and security issues that have hampered adoption.
