What is Bitcoin?

what is bitcoin btc

The History of Bitcoin

In August of 2008, the domain name bitcoin.org was registered by an anonymous entity. Just two months later, a link to a whitepaper authored by “Satoshi Nakamoto” was distributed among a cryptographic mailing list. The paper described a system designed for electronic transactions without the need to trust a third validating party (such as banks). Early January 2009, the network started its initial phase, and the very first block of the Bitcoin blockchain was mined.

The First Bitcoin Block

This block was called the ‘Genesis’-block, a term adopted for referring to the first block of a cryptocurrency that uses Proof-of-Work as a consensus algorithm. Nine days after its creation, the first user-to-user bitcoin transaction was created. During this transaction, the late computational scientist Hal Finney received 10 BTC from Satoshi Nakamoto.

The Adoption of Bitcoin

A year later, the first commercial transaction was recorded. A programmer named Laszlo Hanyecz was struggling for four days to trade around 10.000 BTC for two large pizzas on the 22nd of May 2010. That same year, one of the first online Bitcoin exchanges “MtGox” was created. As the price of a bitcoin increased over time, so did the number of platforms that provided brokerage for this cryptocurrency. In 2012 Gavin Andresen founded the Bitcoin Foundation to decentralize control and to support and nurture further developments of the project.

The Fall of Mt.Gox

In February 2014, Mt.Gox went offline and rumors started to circulate about why the platform was not working anymore. Officials from the online exchange stated that they were hacked, and malevolent attackers had stolen around 850.000 bitcoins over the course of several years. It became clear that the company was not going to survive the damages they suffered, and thousands of customers lost their coins with little to no hope of ever seeing them returned.

Scaling Bitcoin

In the year 2016, a debate started between different bitcoin developers on how to solve the scalability issue of Bitcoin. Since Bitcoin blocks can only contain up to 1mb of data, the more popular the currency got, the more congested the network became. Many developers suggested different kinds of solutions but were unable to reach consensus on the subject.

Bitcoin Hardfork

The most favored of the proposed solutions for the scalability issue was the introduction of SegWit transactions. The SegWit process increases the block size limit of the blockchain by removing signature data from Bitcoin transactions. However, some of the lead developers and promoters of Bitcoin could not be convinced that this new implementation was going to help fix the issue and decided to part ways. This resulted in a chain split of the Bitcoin network on the 1st of August 2017. The new currency was called “Bitcoin Cash”. On the 23rd of the same month, the SegWit improvement protocol was implemented on the Bitcoin network by means of a soft fork.

Specifications of Bitcoin

Ticker Symbol BTC
Founder(s) Satoshi Nakamoto
Date of Release 3 January 2009
Consensus mechanism Proof of Work
Hashing Algorithm SHA256
Maximum supply 21.000.000
Average Block Time 10 Minutes
Mining reward 6.25 BTC
Average blocksize 1 mb
Next Block Halving 2020
Smart Contracts No

The Price of Bitcoin

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Unique Aspects of Bitcoin

The Bitcoin community believes that with online privacy and strong cryptography, people can reinvent the way they interact with one another. Thus, they can protect themselves and their identity. Due to the proven instability of conventional financial institutions, this innovative payment system gained a lot of traction.

No Third Parties

In the whitepaper written by Satoshi Nakamoto, it is stated that rather than relying on trust to establish an electronic payment system, cryptographic proofs could be used instead. This would allow for direct exchanges between any two willing parties and eliminate the need for a trusted third party.

The idea of Satoshi Nakomoto

The idea was that Satoshi’s proposed payment system would utilize cryptographic proofs, by performing one-way calculations, making it computationally impractical to reverse a transaction. This feat, together with Satoshi's proposed solution to the double-spending problem, has made Bitcoin the first electronic payment method (that is not governed by one entity) to succeed.

Why Use Bitcoin?

We can compare Bitcoin to other cryptocurrencies; however, since it is the first and most widely used cryptocurrency, it might be more fitting to compare it to other widely used currencies. What makes Bitcoin a beneficial currency to use in comparison to traditional fiat currencies like the Euro?

Bitcoin’s deflationary economic model

Firstly, the deflationary economic model of Bitcoin is something that traditional currencies do not use as they are controlled by centralized governments. Due to the centralized nature of currencies, the total supply of these currencies can be changed by the government based on the state of the economy. Bitcoin, on the other hand, has a fixed total supply and a fixed amount of currency entering the ecosystem every block. In other words, the current number of bitcoins in circulation, as well as the total amount that will ever be produced, are already known.

The Decentralized Nature of Bitcoin

Secondly, the decentralized nature of Bitcoin makes it a trustworthy network to use when making transactions. Most transactions in the world require at least one or more intermediaries (banks, payment providers, retailers, etc.) Due to the decentralized nature of the Bitcoin network, these 3rd party services are no longer necessary to validate transactions and balances on the network.

The Immutability of Bitcoin

Thirdly, the immutability of the blockchain (the underlying database of bitcoin) makes it a powerful system where the term ‘trust’ is redefined. Coins can never be double spent, and every transaction can be traced in the blockchain forever. This immutable and decentralized ledger represents full transparency. This transparency is what will also help the mass adoption of Bitcoin; no bank or government can offer the same kind of insights.

Conclusion

There are of course many other advantages Bitcoin offers such as transaction speed, micro transactions and store of value. Bitcoin separates itself from the other cryptocurrencies not only by being the first and most successful, but it’s also the only currency that is not yet rivaled in terms of innovation. The decentralized digital scarcity that Bitcoin entails is a feat that has yet to meet its equivalent in the cryptocurrency sphere.

Resources of Bitcoin