A Brief Summary of Everything You Need to Know About Bitcoin
You’ve almost definitely heard of Bitcoin by now. If you haven’t, you’ve most likely been living under a rock for the past few months.
Following its steep price increase over the past few months, everyone has been talking about this revolutionary cryptocurrency. Some people have even gone as far as to take out a loan to buy and invest in Bitcoin, hoping it will continue to appreciate in value.
But beyond using it as a way to make some quick cash, most people don’t actually know much about Bitcoin at all.
This fascinating technology doesn’t look like it’s going away any time soon - in fact, it’s just getting started.
When Was Bitcoin Created, and Who Invented It?
In 2008, the domain name, “bitcoin.org” was first registered.
Later in the year, the Bitcoin whitepaper (Bitcoin: A Peer-to-Peer Electronic Cash System) was released by the anonymous group or person, Satoshi Nakamoto.
Bitcoin was then released as open-source software back in 2009.
How Can I Get Bitcoin?
Bitcoins are created and distributed to users through a process known as ‘mining’ which requires the extensive use of processing power to verify transactions.
Bitcoin mining serves two major processes:
- It confirms transactions in a trustful manner to ensure that the Bitcoin nodes maintain a secure, tamper-proof consensus.
- It creates new Bitcoins in each block.
This method is known as Proof of Work (more specifically, Bitcoin uses the Hashcash proof of work algorithm).
It is relatively straightforward, but as it is a random process with low probability, there is a lot of trial and error involved. As a result, it is time-consuming and requires considerable computational power.
When a block has been successfully mined, the miner is rewarded with the newly created Bitcoins and the transaction fees.
However, most investors acquire Bitcoin by purchasing it on an exchange like Coinbase. They can then store it for a period of time and wait for it to appreciate in value, exchange it for other cryptocurrencies, or use it to pay for products and services.
With the recent surge in the popularity of cryptocurrencies, there has been a significant increase in the number of companies accepting Bitcoin as a viable means of payment.
The Technology Behind Bitcoin: What is the Blockchain?
Many new investors only see the merit in Bitcoin as a currency - but this is only the tip of the iceberg.
The real value of Bitcoin lies in the technology that powers it - known as the blockchain. This piece of technology has the potential to completely revolutionize our perceptions of trade, ownership, and trust.
To put it simply, the blockchain is a public ledger that records Bitcoin transactions.
Currently, our transactions are hidden from the public and managed by a series of trusted third-parties, such as governments, banks, and accountants.
The blockchain essentially allows a network of computers to maintain a collective bookkeeping via the internet. This is completely public and decentralized - meaning it is not owned by a central authority.
Whenever a transaction is completed, the blockchain will note the time, date, participants, and the amount of each transaction. Each node within the blockchain network will own a full copy of the network.
To put it simply, everything on the blockchain is public, and everyone has access to a single shared source. This makes the blockchain extremely trustworthy.
How Many Bitcoins Are There?
The supply of Bitcoins is limited to a total of 21 million.
According to the Bitcoin protocol, the reward for adding a block is halved for every 210,000 blocks.
When the limit has been reached, the record keeping will be rewarded solely by transaction fees.
The Bitcoin Scalability Problem
The size of the blocks in the Bitcoin blockchain are limited to 1MB. This was originally implemented to prevent spamming of the network. However, this has created a bottleneck that has resulted in increased transaction fees and delayed processing of transactions that cannot be fit into a block.
This sets the Bitcoin network’s maximum capacity to 3 - 7 transactions per second. When we compare this to Visa, which has a peak of 24,000 transactions per second, it is easy to see that this is incredibly low.
There have been several proposed scaling solutions to this problem. A couple of them have been activated already.
One of these scaling solutions is known as Segregated Witness (also known as SegWit). This was a soft fork that was meant to solve both the block size limit and scalability problems. It was activated on the 24th August 2017.
Following this, there was a proposed hard fork known as SegWit2x that was supposed to launch on the 16th November 2017. This was designed to increase the block size from 1MB to 2MB. However, it was canceled due to a lack of consensus.
How Does Bitcoin (BTC) Differ From Bitcoin Cash (BCH)?
Bitcoin Cash (BCH) was created as a result of a hard fork that was ultimately designed to scale Bitcoin. This took place on the 1st August 2017, and it increased the block size from 1MB to 8MB.
After this hard fork, Bitcoin holders owned equal amounts of Bitcoin and Bitcoin Cash.
The Future of Bitcoin
It goes without saying that Bitcoin is an extremely volatile currency. It’s easy to get excited by hearing about how much money people have made by investing, but it’s also vital to remember that there have been times where we’ve watched it lose over a third of its value in less than 24 hours. It’s important to only risk what you can afford to lose.
However, in spite of these price fluctuations, there’s no doubt about it that the revolutionary technology that powers this cryptocurrency is here to stay for the long-haul.
2017 was the year everyone found out about Bitcoin and learned more about what it could be used for. 2018 could be the year it really takes off.