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What is Bitcoin?

Basic information

It is the first, best known and most widespread cryptocurrency, i.e., digital currency. Contrary to standard (fiat) currencies, Bitcoin is not controlled by any central bank. That is, at least, one way to describe Bitcoin. The author of this cryptocurrency, as well as the whole concept of a decentralized blockchain system, is believed to be the mysterious Satoshi Nakamoto, about whom little is known. He came, created cryptos, and disappeared.

Regarding Satoshi, while it could have been one person, the general opinion is that the name was used by the whole group. The total number of Bitcoins that will ever see the light of day is already fixed. By 2140, the number of BTC mined will reach 21,000,000 and will stop there forever. It is assumed that the vast majority will be mined by the end of 2030.

Origins of Bitcoin

The creation of the first Bitcoin was preceded by roughly the same motivations as in the aforementioned cases from the twentieth century. Classical money transfers have become increasingly slow, expensive, non-transparent and dangerous for many, as they cannot be carried out anonymously.

Bitcoin does not have any of these drawbacks. In the summer of 2008, the newly registered domain Bitcoin.org appeared on the Internet, where a document entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” was published in the following months. Immediately, the same document was shared in a cryptographic group that presented itself under the pseudonym Satoshi Nakamoto.

The words attached to the paper conveyed a clear message:

"I created an electronic money system that is fully built on peer-to-peer principles and does not need a third party to ensure the system's trust."

The document became a basis of the entire cryptocurrency ecosystem and also contained a detailed description of the entire technology. It took another few months for this concept to get a real contour. At the beginning of 2009, the world saw the first mined block named “Genesis“, under which the mysterious Satoshi Nakamoto was signed. This block also contained a political commentary that, according to the crypto community, clearly defined itself against scams connected with the centralization of power.

Purpose of Bitcoin

Its usage does not require any permission. Anyone with internet access can receive and send Bitcoin. It has many parallels to classical money – you can use it to make transactions between recipients that accept it, but its digital nature means that it can be used globally. Thanks to this feature, it is attractive for use cases such as international payments, where individuals do not want to reveal their identity (which is not possible when paying by debit or credit card).

Cancelling Bitcoin transaction

Once the data is added to the blockchain, it is not easy to delete it (it is, in fact, virtually impossible). This means that when you make a transaction, it cannot be undone. You should always double-check that you are sending money to the correct address.

Bitcoin value

The price of Bitcoin is affected only by supply and demand. It doesn’t have a fixed ceiling, so it can be around one dollar, but even around a million dollars. What the development of the BTC price will be in the future is difficult to predict, however, it can be assumed that it will slowly grow again over time and break new highs.

Mining

New Bitcoins are generated through the mining process. Mining can be described as a “math puzzle”. The right to include transactions in a block and attach that block to the end of the blockchain is won by the person who provides proof of the use of a sufficient amount of computing power to solve that puzzle.

The proof is given in the form of a “hash” starting with a certain number of zeros. Such a hash is difficult to find, but easy to verify. So, why do miners need to spend large amounts of computing power, which naturally means consuming a large amount of energy? That’s required to allow the system to operate without a central administrator in a way which protects its participants from scams. Thus, only those who “buy” this right can record transactions, and the price for this right changes dynamically so that it is always more advantageous to accept a reward for a mined block than to try to scam others.

Bitcoin anonymity

Bitcoin may seem anonymous, but it is not. Bitcoin’s blockchain is publicly available and transactions can be traced. Although we will not find the names, we will find the wallet addresses from which the cryptocurrencies were sent. Nevertheless, the system is considered relatively private thanks to methods that make monitoring your Bitcoin activities difficult. Freely available technologies can create credible denials and “break relationships” between addresses. In addition, future upgrades could significantly enhance privacy.

Bitcoin and scams?

Bitcoin is not a scam. It is true that no one can prevent its use for illegal activities, but we can say the same about any other means of payment.

You may come across the designation of Bitcoin as a pyramid scheme, but Bitcoin does not meet this definition, as its price is entirely dependent on speculation on the free market. It is a more than ten-year-old technology that has been proven to be very safe and reliable.

Unfortunately, Bitcoin is used in many scams that you should know about. This can be phishing (fraudulent web messages) or, for example, fake gifts and airdrops. Generally, “If something sounds too good to be true, it’s probably a scam”. Never give anyone your private keys or “seed” and be wary of scams that offer you the option of multiplying your money with what seems to be only little risk. If you send your “coins” to a fraudster or a fake gift contest, they will be lost forever.