Bitcoin is the best-known and most popular decentralized virtual currency in the world. Bitcoin uses blockchain technology where all financial transactions and bitcoin addresses are publicly available and readable from the public ledger. Bitcoin’s white paper was published in October 2008 by an unknown person or group named Satoshi Nakamoto. The first block of Bitcoin was created on January 3, 2009. This is also widely accepted as Bitcoin’s birthday.
Bitcoin uses the Proof of Work consensus method. This means that the blockchain maintenance work is done with physical mining machines. Miners allocate the power of their computers to the bitcoin network. Without miners, there would be no bitcoin network. The main tasks of mining are to verify transactions and create new bitcoins. Miners are rewarded for their work with a block reward for mining a new block and transaction fees for transactions on that block.
Miners currently allocate 3.125 new bitcoins per block. The amount of new bitcoins per block is halved approximately every four years (or every 210,000 blocks). The last halving took place in April 2024. In the case of bitcoin, the halving of the mining reward means that fewer new bitcoins enter the market every four years. The bitcoin halving is a function programmed into the bitcoin blockchain. The purpose of the halving is to prevent inflation and ensure that the total number of bitcoins grows at a predictable rate. The maximum number of bitcoins is 21 million. One bitcoin can be divided down to eight decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction.
The history of Bitcoin
Bitcoin is the oldest cryptocurrency in the world. The first bitcoin block was made in January 2009. Bitcoin was not born out of nowhere. It was the result of decades of research. Satoshi Nakamoto succeeded where cryptocurrency projects before Bitcoin had failed. For the first time, people had access to a digital currency equipped with a truly fully decentralized administration and much-needed rarity. Rarity in this case means a predetermined maximum amount of bitcoins.
Bitcoin is a financial system that is not controlled by centralized operators. Satoshi Nakamoto created Bitcoin at the best possible moment. In 2008 and 2009, the world was shaken by a financial crisis that had never happened before. This financial crisis was the result of the reckless monetary policies of central banks. Confidence in the traditional banking system had collapsed and people wanted to find a new type of monetary system.
There was a real demand for a new type of monetary system and Bitcoin’s popularity began to grow very strongly in the first half of the 2010s. A whole new set of services began to emerge around Bitcoin.
Throughout its history, Bitcoin has also undergone several different forks, or upgrades. The most famous Bitcoin update is the 2017 update. The SegWit update improved capacity by changing the way the network secures bitcoin transactions.
The technology behind Bitcoin
The Bitcoin protocol is based on the blockchain. The term blockchain literally means blocks in a chain. A blockchain is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of previous blocks, a timestamp, and transaction data. The Bitcoin blockchain is also a public ledger, meaning that every transaction is visible to everyone.
In the case of Bitcoin, the blockchain is completely decentralized. In a decentralized system, the information is stored by a single entity. There is no central version of this information that hackers can corrupt. In a traditional model, information is stored in a centralized database. In this case, all the information is in the same place. A good example of a centralized system is banks. They store all your money, and the only way you can pay someone is through the bank.
People’s distrust of centralized information systems is one of the biggest reasons for Bitcoin’s existence. The 2008 financial crisis demonstrated the enormous need for a fully decentralized digital monetary system. Bitcoin’s blockchain is fully decentralized, meaning it is not under the control of a single party.
Thanks to the large number of miners and enormous computing power, the Bitcoin blockchain is extremely secure and reliable. Data from the Bitcoin blockchain is distributed worldwide and is completely safe from hackers. It is also impossible for any single party to gain enough computing power to shut down the Bitcoin blockchain.
Bitcoin as an investment
In recent years, Bitcoin has attracted the attention of investors around the world. Bitcoin can be considered both a payment system and a digital currency. Everyone should remember that traditional currencies such as the dollar and the euro have lost value over time with inflation.
Unlike traditional currencies, the amount of bitcoins is completely fixed. It is not possible to create more than 21 million bitcoins. Bitcoin should therefore not be confused with traditional currencies, where there is essentially no limit to how many can be created. Bitcoin is first and foremost a store of value, which many experts have compared to, for example, gold rather than traditional currencies.
Compared to other cryptocurrencies, Bitcoin also has a very important advantage on its side. Bitcoin was the first cryptocurrency on the market so it has the first mover advantage. Most cryptocurrency news is Bitcoin-related, and bitcoin controls a large part of the entire cryptocurrency market capitalization. Already today, almost all new cryptocurrency investors start their journey from Bitcoin.