Even if you’re brand new to the world of cryptocurrency, there’s a good chance you will have heard of Bitcoin. It is the biggest, most valuable, and most recognizable cryptocurrency in existence today. It was also the world’s first cryptocurrency when it officially launched to the public in 2009, and it often gets mentioned in mainstream media, with its value seen as an indicator of the current state of the cryptocurrency industry as a whole.
Even if you don’t plan to invest in Bitcoin, it’s worthwhile to spend a little time understanding what it is. Bitcoin laid the core foundations that are used by almost every cryptocurrency today, and though it has been through several boom and bust cycles over the past 13 years, it is still considered one of the safest, most stable cryptocurrencies.
So, what exactly is Bitcoin, and where did it come from?
Bitcoin started the whole cryptocurrency movement when it launched right in the middle of the Great Recession. An individual or group known as “Satoshi Nakamoto” designed the digital currency to be a decentralized form of payment that could be traded without banks using a network of computers that come together to make up what we now call a blockchain. The first “block,” known as the genesis block, was “mined” by Nakamoto in early 2009.
In the early days of Bitcoin, mining was the only way to obtain tokens. This meant using a piece of open-source software to join the blockchain and generate new coins, or verify Bitcoin transactions for a small fee. It is this network that allows cryptocurrencies to be maintained by the community, rather than traditional financial systems, which tend to charge excessive fees and have complete control over the entire system.
One of the first proper Bitcoin transactions took place in 2010 when a Florida man purchased two pizzas valued at $25 for 10,000 Bitcoin tokens. It seemed like a great deal at the time, when Bitcoin was worth very little and it’s future was still very much unclear. As of August 2022, however, those tokens would now be worth more than $231 million. And that’s after a rather significant drop in Bitcoin’s value over recent months.
Since then, other blockchains, including Ethereum — which has become the second-most valuable cryptocurrency since it launched in 2015 — have entered the market. They all operate in broadly the same way by using a distributed database made up of blocks that is shared among a vast network of computers to process transactions.
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Nakamoto designed Bitcoin to be an entirely digital alternative to traditional fiat currencies, such as the U.S. dollar and the Great British Pound. But it wasn’t the digital aspect that made Bitcoin unique. Instead, Bitcoin, unlike fiat currencies, was built to be completely decentralized so that it isn’t owned or controlled by any one party, such as a central bank. This offered a number of benefits, including the ability to trade anonymously and free from regulation.
Most importantly, Bitcoin removed the need for trust in a centralized banking system, which Nakamoto saw as the “root problem” with fiat currencies. “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust,” read a 2008 Nakamoto paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party,” added Nakamoto in a mailing list published the same year. This currency “would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution.” Nakamoto also outlined how the system would work.
AAG Academy has a dedicated guide on how cryptocurrencies work, but let’s go over the basics in regards to Bitcoin specifically. As we mentioned above, in the early days of Bitcoin, the only way to acquire tokens was to “mine” them. Mining is the process of validating Bitcoin transactions and adding them to a distributed ledger on the blockchain.
When you trade with conventional fiat currencies, every transaction is validated and recorded by a bank. But because Bitcoin was designed to operate entirely outside of a traditional banking system, it instead relies on a decentralized network of people — or miners — to validate each transaction and record it in a block.
It sounds like a simple process, but don’t be fooled. Every validation requires a computer of some kind to solve a complex cryptographic calculation, which calls for sophisticated hardware that can deliver plenty of power. Bitcoin is then issued as a reward for validating transactions, and to help ensure there are always plenty of miners on the network.
Unlike most other cryptocurrencies, there are a finite number of Bitcoin tokens. As of early 2022, around 18.9 million have been issued, with only 2.1 million left to be released, taking the total to 21 million. However, every four years, the number of new Bitcoin tokens produced is reduced by half, which means the final token likely won’t be released until 2140.
It is still possible to obtain Bitcoin tokens today by mining them. However, because the validation process now requires such sophisticated hardware — including powerful and expensive graphics cards (GPUs) — mining is no longer a worthwhile endeavor for the average Bitcoin fan. Instead, it’s much easier to acquire Bitcoin tokens by buying them.
Bitcoin is available from a large number of exchanges today, and you can purchase it using a regular credit or debit card. Some of the biggest exchanges offering Bitcoin include:
You might be interested in: What is a Centralized Exchange?
Although Bitcoin is somewhat volatile, like almost every other cryptocurrency in existence today, it is considered safe — both from an investment and trading standpoint. Its value can fluctuate quite substantially, and although it has been known to suffer large declines, its value tends to bounce back eventually, and often ends up exceeding its previous all-time high.
When it comes to trading and holding Bitcoin, you’ll need to follow standard best practices for cryptocurrency traders. These include:
Bitcoin is much more than just a hobby project in 2022, and while its value may have fallen by more than 50% from an all-time high in late 2021, this particular cryptocurrency has a healthy future ahead, with experts predicting a single token will cost $100,000 by the end of this year, and as much as $110,000 within five years. The previous all-time high for a single Bitcoin token is $68,000, and it was achieved in November 2021.
It’s already possible to use Bitcoin to purchase all kinds of goods and services online and in the real world, and its adoption will only increase the longer it sticks around. Some governments, including the Central African Republic and El Salvador, have now adopted Bitcoin as legal tender. However, the vast majority of Bitcoin transactions still take place on cryptocurrency exchanges, rather than with merchants.
Yes, in much the same way you can buy Bitcoin with conventional fiat currencies, you can also sell it for real cash.
Almost anyone can buy Bitcoin. So long as you have an internet connection, you can use one of many exchanges to buy Bitcoin with real cash, or to swap other cryptocurrencies for Bitcoin.
No. Bitcoin was the very first cryptocurrency, but since it launched in 2009, thousands of others have appeared using Bitcoin’s original model.
That depends on what your goals are when it comes to investing. It certainly can be a good investment, and lots of people have made a lot of money buying and selling Bitcoin. However, like almost every cryptocurrency, its value can fluctuate a lot.
You can store Bitcoin in a number of ways, the simplest of which is to use a wallet app. Most centralized exchanges have wallets built into their software, so when you buy Bitcoin with them, it will automatically appear in your account.
This article is intended to provide generalized information designed to educate a broad segment of the public; it does not give personalized investment, legal, or other business and professional advice. Before taking any action, you should always consult with your own financial, legal, tax, investment, or other professional for advice on matters that affect you and/or your business.
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