Bitcoin has quickly gone from the fringes of the internet to mainstream consciousness, not only taking up significant space in mainstream business news, but also becoming a topic of day to day conversation, especially in millennial social circles. While there is a lot of intense debate around the merits of Bitcoin and other cryptocurrencies, there is surprisingly little basic understanding about the topic. In this long read, we will lay down the fundamental information to do with Bitcoin, putting you in control of the conversation and able to dissect your ageing technophobic uncle’s surprisingly strong view that “Bitcoin is a bubble”. Are you ready?
What Are Cryptocurrencies in General?
Cryptocurrencies, of which there are now over 2,000 (including TrumpCoin) are being traded globally as we speak. Referred to by most people as either digital or virtual currencies, crypto is used as a medium of exchange between online users. Cryptography is used to control the creation of new units, and store and verify transactions that take place on a network. Cryptocurrency transactions are recorded on a blockchain, a digital decentralised ledger that cannot be hacked or manipulated. You can do any jobs with cryptocurrencies online.
What is Bitcoin?
Bitcoin can refer to two things:
- the Bitcoin token - code that represents the currency;
- the Bitcoin protocol - the ledger network that stores information and logs transactions.
For our purposes we are talking about the Bitcoin token, the very first “cryptocurrency”, which was invented in 2008 by an unknown programmer using the pseudonym Satoshi Nakamoto. It’s unclear backstory is perfectly fitting for a currency that has been mired in controversy and speculation.
Interesting fact, the first Bitcoin purchase was for a pizza, back in May 2010. If the purchaser had held on to his Bitcoins and paid in cash, they would be worth over US$33,000,000 going by today’s rates.
So how did we get to this point, where something worth basically appreciated in value over such a short period of time?
How does Bitcoin work?
Small wonder that Bitcoin emerged in 2008 just after Occupy Wall Street accused big banks of misusing borrowers’ money, duping clients, rigging the system, and charging boggling fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption, create organic network value, and cut fees. They created a decentralized system, where you could control your money and know what was going on without depending on banks.
You can work with Bitcoin online in Freelancer websites like our website CCLanc.com
Bitcoin has come far in a relatively short time. All over the world, companies, from REEDS Jewelers, a large jewelry chain in the US, to a private hospital in Warsaw, Poland, accept its currency. Billion dollar businesses such as Dell, Expedia, PayPal, and Microsoft do, too. Websites promote it, publications such as Bitcoin Magazine publish its news and price actions, forums discuss cryptocurrency and trade its coins. It has its application programming interface (API), price index, and exchange rate.
Problems include thieves hacking accounts, high volatility, and transaction delays. On the other hand, people in third world countries may find Bitcoin their most reliable channel yet for giving or receiving money.
- October 31, 2008: Bitcoin whitepaper published by the anonymous Satoshi Nakamoto.
- January 3, 2009: The Genesis Block or block number one is mined.
- January 12, 2009: The first Bitcoin transaction.
- December 16, 2009: Version 0.2 is released.
- November 6, 2010: Market cap value exceeds $1 million USD.
- October 2011: Bitcoin forks for the first time to create Litecoin.
- June 3, 2012: Block 181919 created with 1322 transactions. It is the largest block to-date.
- June 2012: Coinbase launches.
- September 27, 2012: Bitcoin Foundation is formed.
- 4th December 2013: Price reaches a high of $1,079.
- 7th December 2013: Price falls to around $760.
- February 7, 2014: Mt. Gox gets hacked. This was one of the worst hacks ever which lead to a drop in price.
- June 2015: BitLicense gets established. This is one of the most significant cryptocurrency regulations.
- August 1, 2017: Bitcoin forks again to form Bitcoin Cash.
- August 23, 2017: SegWit gets activated.
- September 2017: China bans BTC trading.
- December 2017: First bitcoin futures contracts were launched by CBOE Global Markets (CBOE) and the Chicago Mercantile Exchange (CME).
- December 2017: Bitcoin price reaches its all-time high.
- January 2018: Price drops as a result of the 2018 cryptocurrency market crash.
- September 2018: Cryptocurrency value collapses 80% from their peak in January 2018, making the 2018 cryptocurrency bearish run worse than the Dot-com bubble’s 78% collapse.
- November 15, 2018: Bitcoin’s market cap value fell below $100 billion for the first time since October 2017.
- October 31, 2018: 10-year anniversary of Bitcoin
- May 11, 2020: 3rd Bitcoin halving
Where can I find Bitcoins?
First, we would recommend you read this in-depth guide for buying Bitcoin.
You can get your first bitcoins from any of these four places.
- A cryptocurrency exchange where you can exchange ‘regular’ coins for bitcoins, or for satoshis, which are like the BTC-type of cents. Resources: Coinbase and Coinsquare in the US & Canada, and BitBargain UK and Bittylicious in the UK.
- A Bitcoin ATM (or cryptocurrency exchange) where you can change bitcoins or cash for another cryptocurrency. Resources: Your best bets are BTER and CoinCorner
- A classified service where you can find a seller who will help you trade bitcoins for cash. Resources: The definitive site is LocalBitcoins.
- You could sell a product or service for bitcoins. Resources: Sites like Purse.
Caution! Bitcoin is notorious for scams, so before using any service look for reviews from previous customers or post your questions on the Bitcoin forum.
What is Bitcoin Mining?
Mining, or processing, keep the Bitcoin process secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue. Blocks are chopped off as each transaction is finalized, codes decoded, and bitcoins passed or exchanged.
Miners can also generate new bitcoins by using special software technology to solve cryptographic problems. This provides a smart way to issue the currency and also provides an incentive for people to mine.
The reward is agreed-upon by everyone in the network but is generally 12.5 bitcoins as well as the fees paid by users sending transactions. To prevent inflation and to keep the system manageable, there can be no more than a fixed total number of 21 million bitcoins (or BTCs) in circulation by the year 2040, so the “puzzle” gets increasingly harder to solve.
So to summarize the Bitcoin mining process:
- Bitcoin miners are nodes in the Bitcoin network that possess specialized software technology called ASICs.
- The Bitcoin miners constantly solve cryptographically hard puzzles.
- If successful, they get to add a block to the Bitcoin blockchain and get a reward, in return.
- Currently, the bitcoin block reward is around 12.5 BTC.
There are a few more key things to remember about bitcoin mining or proof-of-work are as follows:
- It’s extremely difficult to do. Miners often need to spend a lot of money and computing power to successfully mine a Bitcoin. In fact, mining is now so difficult to do that it is impossible for a lone miner to do it on their own. This is why miners often join forces to create mining pools.
- The metric which defines the degree of toughness of mining is known as “difficulty.”
- Difficulty is directly proportional to network hashrate. Hashrate is a value that calculates the rate in which miners are executing operations within the ecosystem. Higher the network hashrate, higher the speed and security of the network.
- When bitcoin hashrate increases, the difficulty increases as well to keep mining under control and maintain a consistent bitcoin block time of 10 mins.
The best way to earn Bitcoin instead of Bitcoin mining is working as a Bitcoin Freelancer in Bitcoin Freelance Platform like our website CCLanc.com
Why Has Bitcoin Become So Popular?
Back when Bitcoin was only on the radar of that annoying 15 post a day Facebook acquaintance that you sadly unfriended, it was slowly gaining popularity with libertarians, due to its anonymous and decentralised nature. With Bitcoin, in theory, anyone in the world could buy and sell whatever they wanted, free from bank and government interference. For those who live in countries with restricted democracies, Bitcoin became a form of resistance and ownership of something that those in democratic countries take for granted.
With the bad press, closer scrutiny and high profile hacks that banks endured after the GFC (Global Financial Crisis), some people started to look for other ways to store their money. Using secure encrypted technology, some see it as a safer alternative.
- Economic Empowerment
For the first time in thousands of years, the technology behind money has evolved. This breakthrough revolutionizes the way that people can transfer value over an inherently insecure network without the need for a third party. By effectively simulating trust and value, Bitcoin empowers its users to break free from the hold of banks and the traditional financial system.
How Easy is Bitcoin to Use?
As a global currency free from third parties, Bitcoin is meant to be a quick and easy way to pay and trade. There are three main uses in this section that we need to consider:
- Payment and trading between individuals online
- Payment for good and services in bricks and mortar shops or online stores
- Conversion to fiat (real world currencies like the US Dollar or Euro)
Sending Bitcoin to another person online was simpler before the appetite for acquiring and trading Bitcoin grew. Unfortunately, the Bitcoin blockchain has scalability issues and has problems dealing with the sheer amount of transactions that are occurring. This has led to higher fees at peak times, which can be present problems, especially when only transferring small amounts of Bitcoin. On average the Bitcoin blockchain can only handle seven transactions per second.
However, this is not the end of the story. There are many other ways to pay or trade with Bitcoin if need be. The number of exchanges is mind boggling, but there is a much smaller number that can be really trusted. Find a good one, and you will have a place to safely and quickly buy, store and trade (with lower transaction fees). In many of the big exchanges you can buy not just Bitcoin, but the other top cryptocurrencies as well. Furthermore, you can easily exchange them for Euros, Dollars and other world currencies such as Yen or Pounds (depending on the exchange).
Just for the record, if you are looking for a trusted exchange, bitFlyer is the only one that has clearances to operate in the US and EU with bank level protections and insurance.
For simple purchases, using Bitcoin and other cryptocurrencies is getting much easier as well. Right now, you can pick up your phone, go onto your App store and download a Bitcoin wallet. There are varying functions that are offered depending on the wallet, but the best ones offer multi-level security and the ability to pay for goods as you would normally with fiat currency. At the point of sale, usually for a low fee, your cryptocurrency will be instantly converted to the currency that is accepted.
Moreover, sometimes a conversion before payment isn’t even necessary, with big companies such as Expedia, Microsoft, CheapAir.com, and even Subway to name a few.
To sum up here, provided you pick the right exchange and wallet, Bitcoin is becoming increasingly easier, safer and cheaper to buy, store and trade.
Who Has Profited from Bitcoin?
We know this is what you came for, the disparate group of people who struck it rich by investing in Bitcoin when the price was low. I’ve coined (no pun intended) them the “Biterrati”. Far from an exhaustive list, here are just a couple of those individuals.
- The Winklevoss Twins
Cameron and Tyler Winklevoss were the two brothers who founded ConnectU, the idea for which they claim was stolen by Mark Zuckerburg. They later sued and reportedly settled for $65 million. They invested $11 million of this into Bitcoin in 2013 and are now suffice to say, quite rich.
- Erik Finman
If you have ever heard of Erik Finman and seen his presence on Instagram, then you know he is not shy about flaunting his wealth. Having inherited $1,000 from his grandma at the age of 12, he invested into Bitcoin and became a multi-millionaire. He now dishes out such financial advice as… invest in Bitcoin!
- Satoshi Nakamoto
Does this name sound familiar? Good you’ve been paying attention. The anonymous founder(s) of Bitcoin is said to have a share of 980,000 Bitcoins. That’s over US$3 billion in today’s money. Quite a tidy sum.
How Does Bitcoin’s Blockchain Work?
Bitcoin’s network runs on a Proof-of-Work algorithm. This algorithm is the means by which new Bitcoins are produced, and transactions are confirmed, a process known as mining.
The blockchain is virtually impervious to cyber attacks that often affect centralized entities: denial of service, as well as spam and other potentially malicious attacks. It is also incredibly difficult to falsify transactions on the Bitcoin network.
A user needs to be able to understand what a hash function is in this context, given its complexity. In essence, this function makes it so any kind of data can be mapped in any amount for a specific type of reason. If secured properly, this function cannot be differentiated from a random function in a given situation.
In Proof of Work, the individual who is chosen to confirm a transaction is usually the individual with the most “hash power” (computing power.) They use their hash power to solve complex equations; once an answer is discovered, a ‘block’ (a small group) of transactions are confirmed. This typically happens at a rate of 3-4 transactions per second. In return for their work, miners are given rewards in the form of BTC tokens.
If this is done properly, and the correct cryptographical aspects are applied, then the solution should only be found by applying the “brute force” method, which entails looking to try every single possible combination until the correct answer is found.
This system has been effective until the present time, but one must also note that it does consume a vast quantity of energy. To illustrate this point, the vast majority of countries in Africa use up less energy than the network for mining Bitcoin.
An alternative to Proof of Work, the Proof of Stake algorithm, limits the amount of currency one can utilize in the space of given time. This system is not used by Bitcoin, but is used for coins such as Blackcoin; This system allows an individual to bypass problems such as the vast energy consumption which comes with Proof-of-Work, and to create a greener and energy efficient method to mine Bitcoin. However, this algorithm is not quite as popular as Proof of Work.
What are the advantages of Bitcoin?
The best thing about Bitcoin is that it is decentralized, which means that you have a payment system that can settle international deals without messing around with exchange rates and extra charges. Plus, you don’t need to go through a third party like a bank to conduct your transactions. Bitcoin is free from government interference and manipulation, so there’s no Federal Reserve System to hike interest rates. It is also transparent, so you know what is happening with your money. You can start accepting bitcoins instantly, without investing money and energy into details, such as setting up a merchant account or buying credit card processing hardware. Bitcoins cannot be forged, nor can your client demand a refund.
Where Can I Use My Bitcoins?
Bitcoins can be used in numerous places and have a wide array of uses for many an individual. In recent times, the desire to use Bitcoin as a form of digital cash has reduced in many ways and does not have the same pull as it perhaps used to. That being said, there are still numerous ways that one can use their Bitcoins in the everyday world which can be found below.
Bitcoin can be used for gift cards and buy from online websites from various places such as Gyft or eGyfter or Bitcoin Freelance Platform such as CCLanc.com; some merchants offer users who use these gift cards certain discounts.