Bitcoin- The Grand Daddy
- Tanishq Wadhwani
- May 3, 2021
- 3 min read
Twitter: "Bitcoin is an open source censorship-resistant peer-to-peer immutable network. Trackable digital gold. Don't trust; verify. Not your keys; not your coins."
Launched in 2009, bitcoin is the world's largest cryptocurrency by market capitalization.
Unlike fiat currency, bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, known as a blockchain. It is also the largest cryptocurrency measured by amount of data stored on its blockchain. It was the first cryptocurrency to successfully record transactions on a secure, decentralized blockchain-based network.
Bitcoin was created by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2017.
Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.
Bitcoin's history as a store of value has been turbulent; the cryptocurrency skyrocketed up to roughly $20,000 per coin in 2017, but less than years later, it was trading for less than half of that.
As the earliest virtual currency to meet widespread popularity and success, bitcoin has inspired a host of other cryptocurrencies in its wake.
The Bitcoin software is free and available online to anyone who wants to run a Bitcoin node and store their own copy of the Bitcoin blockchain. As Bitcoin matures, engineers have designed additional protocols to improve the speed and privacy of Bitcoin transactions, including the Omni Layer, Lightning Network and Liquid Network. Only approximately 21 million bitcoins will ever be created. New coins are minted every 10 minutes by bitcoin miners who help to maintain the network by adding new transaction data to the blockchain.
Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. But security can be a concern: bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.
People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 12.5 bitcoins roughly every 10 minutes.
Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC.
Wallet in cloud: Servers have been hacked. Companies have fled with clients’ bitcoins.
Wallet on computer: You can accidentally delete them. Viruses could destroy them.
Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.
No one knows what will become of bitcoin. It is mostly unregulated, but some countries like Japan, China and Australia have begun weighing regulations. Governments are concerned about taxation and their lack of control over the currency.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services, but the real-world value of the coins is extremely volatile. Research produced by the University of Cambridge estimated that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin. Users choose to participate in the digital currency for a number of reasons: ideologies such as commitment to anarchism, decentralization and libertarianism, convenience, using the currency as an investment and pseudonymity of transactions. Increased use has led to a desire among governments for regulation in order to tax, facilitate legal use in trade and for other reasons (such as investigations for money laundering and price manipulation).
Bitcoin has been criticized for its use in illegal transactions, the large amount of electricity (and thus carbon footprint) used by mining, price volatility, and thefts from exchanges. Some economists and commentators have characterized it as a speculative bubble at various times. Bitcoin has also been used as an investment, although several regulatory agencies have issued investor alerts about bitcoin.
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