Bitcoin is a blockchain and cryptocurrency created by Satoshi Nakamoto in 2008. Bitcoin began with the release of its White Paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” which detailed a new global financial system powered by digital assets.
Since its launch in 2008, Bitcoin has surged from less than $1 to $84,000 at the time of writing, representing a staggering 7,000,000 percent increase. Bitcoin, at its core, is a digital asset that serves as a currency, store of value, and legal tender in some jurisdictions. As the primary digital asset, Bitcoin has been adopted for a wide range of uses globally. The cryptocurrency can be used for payments, investments, and as a hedge against inflation in countries with weak currencies.
As a Legal Tender, Bitcoin can be used as an acceptable means of exchange in El Salvador and the Central African Republic, as the two countries remain the only jurisdictions to have granted Bitcoin that status.
Several countries, including the United States, are considering adopting Bitcoin as a reserve asset. The Idea of a strategic Bitcoin Reserve, where Bitcoin serves as a digital Gold, is mulled by several countries, adding to the digital asset’s global adoption.
Bitcoin, capped at 21 million coins by design, makes it an attractive reserve currency as it is inherently protected from inflation and the pitfalls of fiat currency. Aside from the United States, Countries like Japan, the Czech Republic, and Belarus are considering setting up Bitcoin reserves.
What is Bitcoin Mining
Bitcoin as an ecosystem is powered by Blockchain Technology. New Bitcoin tokens are minted through a mining process guided by a Proof of Work Mechanism. Contrary to popular belief, Bitcoin miners are not solving complex mathematical equations but are rather brute-forcing their way to guess the correct hash. The process is akin to guessing the correct lock combination rather than solving math problems.
The Work in the “Proof of Work” mechanism that guides the mining process refers to the computational effort required to guess the correct hash and the energy input the process consumes.
Bitcoin miners validate blockchain transactions through the Proof of Work (PoW) mechanism, a process that ensures transactions are legitimate, prevents double spending, and maintains the integrity of the decentralized ledger.
In the Bitcoin ecosystem, transactions are recorded in a public ledger, known as a blockchain, accessible to everyone. A blockchain ledger is a decentralized, digital record of transactions that is secure, transparent, and immutable. It serves as the backbone of cryptocurrencies like Bitcoin and other blockchain-based systems.
Is Bitcoin Traceable?
Bitcoin transactions are pseudonymous, not anonymous. Blockchain technology, which Bitcoin runs on, is a public ledger system. This means transactions are open to the public and can be seen by everyone.
Wallet Addresses, which look like “7yut3woTkisha6aXjC7YNeLUTTWi4m2fS5cYf3Bguzyr,” don’t reveal much about their owners. However, most exchanges require Know Your Customer (KYC) details before an account is opened. KYC details matched to a wallet address can reveal a user’s complete information, which is necessary for identification.
Firms like Arkham Intelligence, Chainalysis, and Lookonchain have carved a niche by identifying wallet addresses and studying transaction patterns. Popular sleuth Zachxbt also belongs to this category, solving complex on-chain hacks by tracing transactions and learning patterns.
Can Bitcoin Be Hacked?
Given its sophisticated security architecture, Bitcoin as a blockchain is almost impossible to hack. Bitcoin’s blockchain uses SHA-256 encryption and proof-of-work, making it nearly impossible to alter past transactions without controlling 51% of the network’s hash rate.
However, Bitcoin can be stolen externally from exchanges and wallets that are not part of the protocol’s tight security. These hacks are facilitated by various factors, including social engineering schemes, human errors, and technical compromises of a platform’s security.
The most significant case of Bitcoin Theft occurred on the Tokyo-based Bitcoin Exchange, Mt. Gox. Over a four-year period, from 2011 to 2014, hackers stole approximately 850,000 BTC (worth $450 million at the time, now valued in the billions) from the exchange.
Other minor cases of Bitcoin Theft have occurred on different exchanges, such as Bitfinex, where Hackers stole 119,754 BTC (~$71 million at the time) from the Hong Kong-based exchange.
Bitcoin Legality and Regulations
Bitcoin’s legality is heavily dependent on the jurisdiction in Question. The primary cryptocurrency has achieved legal tender status in only two countries. El Salvador and the Central African Republic. In other countries, Bitcoin is openly embraced but cautiously regulated, as the asset remains volatile, like all cryptocurrencies.
The United States, under Donald Trump, has made giant strides in launching a strategic Bitcoin reserve. The SBR, as proposed by the Trump administration, will serve as an alternative reserve, similar to the country’s gold stockpile at Fort Knox. The number of BTC in the reserve at the time of launch is 200,000 BTC.
Aside from being used as a store of value, Bitcoin is regarded as property for tax purposes. The country’s regulatory bodies apply capital gains taxes to transactions.
In Europe, Bitcoin as a digital asset falls under the purview of MICA, the primary regulatory framework for crypto assets. MiCA ensures consumer protection and compliance with anti-money laundering regulations.
Germany taxes crypto profits, classifying it as a financial instrument. In China, trading and mining are prohibited, but over-the-counter trades continue to boom. India explores permissive policies amid crypto growth while tinkering with Central Bank Digital Currencies.
First Bitcoin Transaction
The first Bitcoin transaction on the Bitcoin ecosystem was a Test run initiated by Bitcoin Founder Satoshi Nakamoto. On January 12, 2009, Nakamoto, the pseudonymous creator of Bitcoin, sent 10 BTC to Hal Finney, a developer and early Bitcoin enthusiast.
This transaction took place on the Bitcoin testnet, shortly after the network’s launch on January 3, 2009, with the mining of the genesis block. It was a proof-of-concept transfer designed to demonstrate the functionality of the Bitcoin protocol, as outlined in Nakamoto’s 2008 white paper. The transaction is recorded in block 170 of the Bitcoin blockchain. At the time, Bitcoin had no monetary value, so the transaction was purely experimental.
Another Significant Event in Bitcoin history is the Pizza Day event, which marked the very first use of Bitcoin to purchase an Item. Laszlo Hanyecz paid 10,000 BTC for two Papa John’s pizzas.
The pizzas were worth approximately $41 at the time. Today, those Bitcoins would be worth millions, making “Bitcoin Pizza Day” a legendary event in crypto history.
How to Buy and Sell Bitcoin
Bitcoin can be simply bought on exchanges using Fiat or stablecoins like USDT. Reputable exchanges like Coinbase, Binance, or Kraken facilitate the sale of Bitcoin and other Crypto assets.
Crypto users compare fees, security, and user experience when shopping for an exchange to buy or sell Bitcoin. The process of buying and selling Bitcoin is straightforward, and exchanges with great UX design make the task easier. The process is as follows.
Buying Bitcoin:
- Choose a Platform: Select a reputable cryptocurrency exchange, such as Coinbase, Binance, or Kraken. Compare fees, security, and user experience.
- Create an Account: Sign up using your email address, verify your identity (Know Your Customer, or KYC), and enable two-factor authentication for added security.
- Deposit Funds: Link a bank account, debit or credit card, or transfer funds (e.g., USD, EUR) to the exchange.
- Place an Order: Navigate to the trading section, select Bitcoin (BTC), and choose a market or limit order. Market orders buy at the current price; limit orders set a specific price to be filled.
- Store Safely: Transfer Bitcoin to a secure wallet. Hardware wallets (e.g., Ledger) or software wallets (e.g., Exodus) are generally considered safer than storing funds on an exchange.
Selling Bitcoin:
- Access the Exchange: Log into your Exchange account and ensure your Bitcoin is in the exchange wallet.
- Place a Sell Order: Select BTC, choose a market or limit order, and specify the amount to sell.
- Withdraw Funds: Transfer the proceeds (e.g., USD) to your linked bank account.
Bitcoin Use Cases
Bitcoin, as the primary cryptocurrency, is used by crypto enthusiasts for a multitude of reasons. As the flagship cryptocurrency with the largest market capitalization, Bitcoin is used for the following purposes.
Peer-to-Peer Payments: As envisioned by Satoshi in his whitepaper. Bitcoin facilitates peer-to-peer transactions that transcend borders. Borderless transactions facilitated by Bitcoin undercut the need for intermediaries like Banks, reducing transaction time and transaction fees.
Store of Value: Bitcoin, capped at 21 million tokens, acts as a store of value and a hedge against inflation.
Decentralized Finance (DeFi): Bitcoin supports DeFi applications, like lending or yield farming, through platforms like the Lightning Network, enabling fast, low-cost microtransactions and smart contract-like functionality.
Why is Bitcoin Valuable?
Bitcoin is the most valuable digital Asset in the trillion-dollar cryptocurrency industry. At $77,373, it has a market capitalisation of $1.5 trillion and over 50% dominance over other crypto assets. A range of factors drives Bitcoin’s valuation.
Fixed Supply: Bitcoin, capped at 21 million tokens, has a limited supply, creating scarcity. Scarcity is suitable for exchange in the financial world as it automatically drives up demand and prices. Bitcoin’s 21 million total supply is embedded in code in its protocol, protecting the asset from inflation by default.
Global Adoption: Bitcoin’s value can also be drawn from its international user base. Millions worldwide use and own Bitcoin, making it a widely accepted means of exchange. Adoption is significant for exchange as it extends its reach and adds to market capitalisation.
Bitcoin’s market capitalisation of $1.5 trillion reveals its massive global adoption. Market capitalisation takes into account the total circulating supply of a token.
Is Bitcoin a Good Investment
Bitcoin’s status as an investment vehicle depends on the investor’s goals. Like other crypto assets, Bitcoin is subject to volatility. Currently, Bitcoin is down by over 23% from its all-time high, meaning investors who bought it at its peak are now in the red.
Bitcoin might be a good investment for long-term investors. Analysts project the Crypto asset to reach as high as $750,000 following significant bullish events, such as the US launch of a strategic Bitcoin reserve and a considerable increase in Global adoption.
This remains speculation as the current market situation does not reflect this optimism. Bitcoin, at best, is a risky asset and investment vehicle suitable for investors with a high-risk appetite.
Long-term benefits for long-term investors outweigh short-term losses, making it a good investment for diamond hands.
Conclusion
Bitcoin is the primary cryptocurrency, pioneering the cryptocurrency industry, and is currently worth trillions of dollars. The Whitepaper, launched in 2008, serves as a manifesto for Digital assets as a concept.
Bitcoin’s value is derived from its Scarcity, decentralisation, and Global adoption. Despite the Bitcoin protocol’s airtight security, bad actors can still steal tokens from exchanges and wallets.
Bitcoin’s value as an investment vehicle depends on the investor’s goals and risk appetite. While the Asset might deliver long-term benefits, it’s still susceptible to volatility like other crypto assets. Bitcoin is exchanging hands for $77,373, down 28.9% from its all-time high of $108,786.
