In October 2021, an unexpected event happened in the world of cryptocurrency. Defying the projections of skeptics worldwide, the value of Bitcoin rose, once again, above the $60,000 mark.
Putting this in perspective, in 2013, one Bitcoin was valued at a meagre $67.81. It was a time when many people were less enthusiastic about the rise of digital currency. Today, many are kicking themselves for losing out on such a lucrative financial opportunity.
But what really is Bitcoin? How did it start? How does one get rich by owning Bitcoin? How do you even get to own Bitcoin? And will Bitcoin continue to soar in value in the coming years, or is this just another dot com bubble waiting to burst in everyone’s face? We’ll seek to answer these questions and more in this post.
The Crypto’s Origin
The origin of Bitcoin starts with a man with the alias Satoshi Nakamoto. Nakamoto is the name given to the person, or possibly, the group of persons behind the cryptocurrency known as Bitcoin.
The idea behind the creation of Bitcoin was to build a decentralized financial institution, separated from the controlling powers of the governments around the world. One of the biggest attractions of Bitcoin to many owners and would-be buyers is the fact that it is unregulated. Many argue for and against this attribute of Bitcoin.
But first, let’s define what Bitcoin is, just in case you don’t know what it is. Simply put, Bitcoin is a digital currency. This means that, unlike traditional currency, Bitcoin is virtual. It cannot be held in your hands.
Satoshi Nakamoto may be widely regarded as the brain behind Bitcoin, but the reality is that the idea of a cryptocurrency began way before Satoshi Nakamoto. In 1997, Adam Back designed Hashcash. Then we also had Wei Dai’s b-money, Nick Szabo’s bit gold, and Hal Finney’s Reusable Proof of Work. All these inventions made the way for the creation of Bitcoin. It is also rumored that many of the people behind these projects had significant roles to play in the creation of Bitcoin.
On August 18, 2008, the domain name bitcoin.org was registered. And in keeping with the secrecy of the founder of the cryptocurrency, the identity of the owner of the domain name remains private to date.
In October of the same year, a person or group of persons identified by the name Satoshi Nakamoto announced a new cryptocurrency called Bitcoin in the now-famous whitepaper published on the bitcoin.org website. Nakamoto’s whitepaper was titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
By January 3, 2009, the first Bitcoin block was mined and it was called Block 0. It is also known as the “Genesis block”. Five days later, the first version of the open-source Bitcoin software was announced and the following day, Block 1 was mined. This was the beginning of the Bitcoin mining phenomenon.
The value of Bitcoin first surpassed the $1000 mark in January 2017. Later that year, its value peaked at $30,000. However, the value of Bitcoin has been somewhat volatile over the years reaching as low as $3000 at some point.
Outside of Government Control
As we have pointed out before, what makes Bitcoin truly unique is not just that it is a digital, virtual currency, but also that it is operated by a decentralized authority that is not subject to government regulation, at least, for now.
So you might then ask, if this currency is not government-issued, and is not government regulated, how then can we trust it? Great question.
Although Bitcoin is not government-issued, it is run via a decentralized system where balance sheets are kept on a public ledger which is accessible to everyone on the platform. The verification of Bitcoin transactions is conducted using huge amounts of computing power with some of the most secure computer algorithms on the planet.
Where Does Bitcoin Come From?
Behind these complex but secure computer algorithms is a network of individuals who keep the peer-to-peer nature of Bitcoin transactions afloat. These individuals are called miners.
You can think of miners as the individuals or companies who own the computing power that governs the system and play crucial roles within the Bitcoin network. The miners are in charge of processing transactions on the blockchain – the open-access public ledger of Bitcoin.
One way to visualize the work of miners within Bitcoin’s ecosystem is to think of editors on Wikipedia. Just the same way various people contribute to the millions of articles on Wikipedia, these miners make their contributions to Bitcoin’s networks by ensuring that peer-to-peer transactions are secure and completed.
Of course, there is a financial reward for these miners. First, they are paid transaction fees, in Bitcoin, of course. Also, their activities on the platform generate more Bitcoin. Newly mined Bitcoins are released to miners at a fixed rate, but this rate continues to decline as time goes by.
Within the Bitcoin system, only 21 million Bitcoins can be mined, and already, we have 18.6 million Bitcoins that have been mined and are in circulation, leaving about 2.4 million Bitcoins yet to be mined.
Bitcoin mining is a complex process. It requires the solving of very difficult mathematical puzzles, which when completed, will uncover new blocks that can be added to the blockchain for future transactions.
Before we get into more nitty-gritty jargons of Bitcoin, let’s take a step back to really understand how it works.
We have already introduced you to the Bitcoin miners, the individuals responsible for “creating” Bitcoin. The entire Bitcoin system is made up of a collection of these miners. You can also think of them as nodes within the network.
These miners are responsible for running Bitcoin’s code and storing them on Bitcoin’s blockchain. Yeah, you’ve heard that word “blockchain” already, right? Let’s break that down too.
What is The Blockchain?
Think of a blockchain as a collection of blocks. And on each block, you have a collection of transactions. When a miner runs the Bitcoin code, they have access to all the existing list of blocks and the transactions on them. This means that even when new Bitcoins are mined and new blocks are uncovered because they must be updated on the system, every miner will be able to see every single block on the blockchain. This ingenious design is what makes the blockchain system virtually impossible to break.
Everyone who has access to the blockchain can see every single block on the system, and every transaction taking place as they happen. By “everyone” we mean even those who are not miners. This design makes cheating on the system nearly impossible. In fact, it will take an individual or an organization to hold up to 51 percent of all existing nodes to perpetrate any transactional fraud on the system. To put that in perspective, there are about 12,000 nodes/miners on the system, making it extremely unlikely for an attack to take place on the platform.
Although all the transactions on the blockchain can be seen by all, not everyone has access to every transaction. Think of the blockchain as a ledger of a global bank. You can see everyone’s transactions, but you cannot get into their bank accounts.
Public and Private Keys
To access your balance on the blockchain, a user will require public and private keys. These keys are long strings of numbers and letters that are created and linked through a mathematical encryption algorithm.
Public keys are analogous to bank accounts, they serve as the digital address of your balance sheet. It is to this address that your Bitcoin balance is published and this is also the address to which other users can send Bitcoin.
Private keys are analogous to ATM Pins. They are meant to be secretly guarded. These private keys are used to authorize Bitcoin transactions.
Although Bitcoin is not regarded as a form of legal tender, it is taken as a means of payment for products sold and services rendered in many countries. Bitcoin transactions for this purpose can be carried out using specified hardware terminals or through QR Codes and touch screen apps.
The value of Bitcoin is dictated by the classic law of supply and demand. Most people purchase Bitcoin with an eye on the US dollar equivalent of the cryptocurrency, hoping that the value of one Bitcoin will increase in the future. But this isn’t always the case. And because the demand for Bitcoins intensifies and wanes at different times, it becomes difficult to predict the trajectory of its value.
How To Buy Bitcoin
So, how can you buy Bitcoin? You can purchase Bitcoins through cryptocurrency exchanges like Coinbase. Some investment brokerages like Robinhood, also offer Bitcoin for sale. Also, within the US there are more than 7,000 Bitcoin ATMs from which you can buy some Bitcoin.
Other methods of acquiring Bitcoin include the basic Peer-to-Peer purchases where you can buy directly from other Bitcoin owners or exchange Bitcoins for conventional currency. Alternatively, you could choose to mine Bitcoin yourself. But be warned, this is a very technical skill that requires lots of computing power.
That said, should you buy bitcoin?
Bitcoin has a very alluring side to it. First, it has a big potential for growth as we have seen over the years, it also allows private, secure transactions with far lower transaction fees than what is obtainable in banks, and of course, there is the beauty of sidestepping governmental intermediaries.
On the other hand, price volatility can be a concern. There are also concerns about hacking issues despite the acclaimed security of blockchain technology. You should also bear in mind that Bitcoin investments are not protected by the Securities Investor Protection Corporation. So, if you lose substantial amounts of money due to fraudulent activities within the Bitcoin space, you can consider it gone forever.
Finally, no one can really tell what direction the value of Bitcoin is headed in the coming years. Right now, we might be experiencing a huge boom in Bitcoin value, but we had the same boost in value in 2017 before it came crashing spectacularly in 2018.
That said, if you are in for the thrill of the Bitcoin boom, and you are willing to take the risk, by all means, go for it. However, we’d advise that you don’t invest more money than you are willing to lose, just in case this cryptocurrency bubble falls flat on its face. We certainly hope that it wouldn’t.