What is Bitcoin?

By July 8, 2020July 30th, 2020No Comments
What is Bitcoin? Everything you need to know

Bitcoin has been a great topic of discussion amongst investors, finance professionals, media outlets, investment commentators, bloggers, etc. The cryptocurrency has been called by a lot of names.

Some of them are ‘the next financial revolution’, internet currency, decentralized money, digital gold, gold 2.0. But what is it exactly?

Bitcoin primarily consists of two things. The token and the protocol that powers the token. In 2009, anonymous creator(s) Satoshi Nakamoto mentioned both, as a ‘Peer-to-Peer Electronic Cash System’ in the white paper.

Represented by the symbol BTC, bitcoin is a medium-of-exchange. By design, there is a cap on the total supply of bitcoin. Only 21 million bitcoins will ever be available.

bitcoin controlled supply timeline estimation
Bitcoin: Controlled supply timeline estimation, Source: Bitcoin wiki

No individual or centralized authority controls bitcoin’s creation and circulation. BTC leverages cryptography for supply, issuance, and transaction verification. That’s why Bitcoin is a cryptocurrency https://blog.wazirx.com/what-is-cryptocurrency/

On a protocol level, Bitcoin is a distributed network of computers that maintains a record/ledger of all BTC transactions. This network is called the Bitcoin blockchain.

Every network participant has a copy of the ledger, which makes it difficult for hackers and infiltrators to gain access and alter the network data. To understand how this all happens visually, check out the video below:

Why Bitcoin Came into Being?

In the year 2008, The United States housing market crashed. It was a reality check for people putting their complete faith and ‘trust’ in legacy financial systems.

The Great Recession was a result of the failure of trust-based systems. Trust is not bad but it creates inefficiencies and fissures in operational models. It also significantly increases the cost to operate such operational models.

2008’s economic slowdown illustrated the need to democratize finance, to give users the control of their money, to let people be their own banks.

Bitcoin’s idea took shape when Satoshi intended to minimize trust, through the use of cryptographic proof, decentralized network design, and open-source software.

He/She/They designed the protocol in such a way so that bitcoin transactions

  • Could happen without permissions and beyond borders
  • Are trustless, pseudonymous
  • Can happen without anyone blocking or freezing a transaction of any amount
  • Takes place faster than usual banking transactions and without being reversed 
  • Keep happening 24 hours a day, 365 days per year.

When Bitcoin was finally revealed to the public, erstwhile developer and one of Satoshi’s closest associates, Hal Finney posted this tweet:

How Does Bitcoin Work?

Bitcoin leverages a public-key cryptography system, peer-to-peer networking, and mining to process and verify payments.

Network participants or miners engage in a competition to verify transactions using advanced computing hardware designed to solve complex mathematical problems.

The miner who solves the problem verifies the transaction and adds it to a block. This goes on for a while until the block is full. The block then gets added to the longest chain. Miners win an appropriate number of bitcoins generated by the protocol, for quickly adding blocks to the chain. The reward system is called ‘proof-of-work’.

This is how new BTC is created, and subsequently becomes a part of the Bitcoin economy as miners sell these newly minted bitcoins to cover their operational costs.

The addition of transaction information to the blockchain eliminates a ‘double spending’ scenario.

How to Buy Bitcoin, and From Where?

Cryptocurrency exchanges can serve as the most appropriate place to buy Bitcoin. At WazirX, we offer the safest and fastest platform for you to start your Bitcoin journey.

What is the Future of Bitcoin?

Bitcoin has come a long way, since its inception in 2009. It is now supported by a multi-billion dollar BTC mining industry and billions of dollars worth of spot and futures trades that have ballooned Bitcoin’s value over the years. With a market cap of around $170 billion, it is no longer a DIY project for hobbyists.

Just recently, famed billionaire hedge fund investment heavyweight Paul Tudor Jones favored Bitcoin and said that he would give a section of his portfolio to BTC. According to his market outlook, ‘The Great Monetary Inflation’ Mr. Jones drew similarities between bitcoin and the 1970’s gold market.

Comparing Gold and Bitcoin markets
Comparing Gold and Bitcoin markets, Source – Bloomberg

He said that the first cryptocurrency, just like gold stands to gain a lot on the investment front.

Apart from investment, tremendous progress is happening on the development front. Developers are working tooth and nail to speed up bitcoin transactions. Bitcoin development firm, Blockstream, and off-chain scaling solution Lightning Network deserve notable mentions in this regard.

Bitcoin also stands to become a great smart contract development platform. As per a CoinDesk report published last year, prominent Bitcoin programmer Pieter Wuille, unveiled a new language called ‘Miniscript’ that could find a use for programming Bitcoin-based smart contracts and decentralized applications.

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