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Bitcoin is a cryptocurrency that was created by a pseudonymous Satoshi Nakamoto, and came into existence on January 2009. Towards the end of that year, the currency
had an exchange rate of USD BTC 1,309.03 based off the cost of electricity required to mine one coin.
Bitcoin is a digital currency that offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies. Bitcoin is virtual, intangible and a delusion that has the ability to conquer the world. Bitcoin operates as a decentralized digital currency that provides irreversibility, once transactions are completed.
The concept of bitcoin was born in a detailed white paper published in late 2008 by “Satoshi Nakamoto.” The digital world accepted Bitcoin as a method of payment mostly due to its characteristic of providing some anonymity to its users. Today's market cap for all bitcoin (abbreviated BTC) in circulation exceeds $7 billion.
History
No one knows, not conclusively the true inventor of the bitcoin, but the name Satoshi Nakamoto is the name associated with the person or group of people who released the original Bitcoin white paper in 2008. They also worked on the original Bitcoin software that was released consequently in 2009. The Bitcoin protocol requires users to enter a birthday upon signup, and we know that an individual named Satoshi Nakamoto registered and put down April 5 as a birth date. The reasons for Nakamoto’s anonymity are believed to be centered on two main motivations, privacy and safety because apart from the birth date every other thing about the founder of the bitcoin is shrouded in mystery. According to research on August 18, 2008: The domain name bitcoin.org was registered. By October 31, 2008: Someone using the name Satoshi Nakamoto made an announcement on The Cryptography Mailing list at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party. The paper is available at http://www.bitcoin.org/bitcoin.pdf." This link leads to the now-famous white paper published on bitcoin.org entitled "Bitcoin: A Peer-to-Peer Electronic Cash System." On January 3, 2009: The first Bitcoin block is mined, Block 0. This is also known as the "genesis block" and contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks," Jan. 8, 2009: The first version of the Bitcoin software is announced on The Cryptography Mailing list and on January 9, 2009: Block 1 was mined, and Bitcoin mining commenced in earnest.
Who Birthed Cryptocurrency?
As many would be tempted to believe the media's spin that Satoshi Nakamoto is a lone genius who created Bitcoin, such innovations do not happen out of thin air. Most major scientific discoveries, no matter how original, were built on previously attempted ideology or research. There are precursors to Bitcoin like Adam Back’s Hashcash, VBinvented in 1997, and subsequently Wei Dai’s b-money, Nick Szabo’s bit-gold, and Hal Finney’s Reusable Proof of Work. The Bitcoin white paper itself cites Hashcash and b money, as well as various other works spanning several research fields. How Bitcoin Works? There are no physical bitcoins, only balances kept on a public ledger in the cloud. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it’s not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins. Bitcoin is a type of cryptocurrency where balances are kept using public and private "keys," which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them. The public key (comparable to a bank account number) serves as the address which is published to the world and to which others may send bitcoins. The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used to authorize Bitcoin transmissions. Bitcoin is arguably the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network are known as "miners”. Miners are motivated by reward obtained by the release of new bitcoin and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of BITCOINS approaches 21 million. The smallest unit of the bitcoin is referred to as a Satoshi. ONE BITCOIN is divisible to eight decimal places (100 millionths of one bitcoin). Bitcoin mining is the process through which bitcoins are released to come into circulation. Basically, it involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain and receiving a reward in the form of a few bitcoins. The block reward was 50 NEW BITCOINS in 2009; it decreases every four years. As more and more bitcoins are created, the difficulty of the mining process – that is, the amount of computing power involved – increases. The mining difficulty began at 1.0 with BITCOIN's debut back in 2009; at the end of the year, it was only 1.18. As of April 2017, the mining difficulty is over 4.24 billion. Once, an ordinary desktop computer sufficed for the mining process; now, to combat the difficulty level, miners must use faster hardware like Application-Specific Integrated Circuits (ASIC), more advanced processing units like Graphic Processing Units (GPUs), etc.
The Fears of Digital Currency (Bitcoin)? If every currency is a consensual delusion, then bitcoin, a digital cryptocurrency that changes hands over the internet, feels more like a consensual hallucination. By 2013, one bitcoin was worth $12. As of this writing, it’s worth $21,745.60, for any currency’s value to increase by 100 percent in eight weeks is, to use a technical term, bonkers. If the French franc, Nigerian Naira, or American dollar did the same, their economies would plunge into an infernal deflationary spiral. Throughout history, the currency has taken one of two forms: physical assets, like gold or fiat currency, like government-backed paper and coins. Bitcoin and other Altcoin have introduced a third category: digital currencies that run on a combination of game theory, economics, and cryptography.
Many people have long regarded bitcoin’s rise with both wonder and confusion, with some even calling it the delusion of creating a More Perfect Money. Cypherpunks have dreamed of fully decentralized electronic payment systems for decades however, most digital-currency ideas, however, had the same tragic flaw—replicability. Just about everything that exists online (text, photos, Apps, files) can be copied. Fear of rampant counterfeiting would have undoubtedly spelled death for a digital currency but the Bitcoin solved this problem with the blockchain, an online ledger that records and validates all peer-to-peer payments to eliminate double-spending. The blockchain encrypts transactions to provide anonymity. The payment network is maintained by bitcoin “miners,” a decentralized group of individuals with powerful computers that approve transactions. The total possible supply of bitcoin in the world is limited. Thus, bitcoin solves both of the crypto punk money problems while the blockchain thwarts centralization, and the planned scarcity of bitcoins checks inflation.
The Bitcoin’s Blockchain
The blockchain is an ingenious and potentially transformative technology. Marc Andreessen, a well-known venture capitalist, predicted that it could become the scaffolding of the world’s economy. Andreessen spoke about the transformative vision of the blockchain in an interview held with The Washington Post: “Digital stocks. Digital equities. Digital fundraising for companies. Digital bonds. Digital contracts, digital keys, digital title, who owns what—digital title to your house, to your car … You’ve got digital voting, digital contracts, digital signatures … And then every aspect of financial services: insurance contracts, insurance derivatives, currency exchange, and remittance— on and on and on.” Nobody knows for sure whether the blockchain will transform the economy of the future, as Andreessen foresees. What’s clearer, however, is that it has not transformed the economy of today. While the number of bitcoin transactions is growing every year. Bitcoin remains cumbersome to use with a typical transaction taking up to 10 minutes and the price is extremely volatile with its ever-changing exchange rate with the world’s leading currency.
There are countless theories about why bitcoin’s valuation has gone berserk. The most augmented views however are; Venture capitalism The first five years of bitcoin’s existence, venture capital’s interest in bitcoin-related products and companies were minimal. After all, the very idea of cryptocurrency was infamous for its association with online black markets like Silk Road, where criminals used digital tokens to anonymously sell drugs and other illegal stuff and it seemed for a while that the U.S. government might try to crush the bitcoin. Several senators however praised bitcoin and other virtual currencies at an official hearing as “legitimate financial services.” After the downing of the Silk Road. The value of bitcoin tripled within the month to $900, and venture capital got its green light. VC investments in bitcoin rose from nearly nothing in 2012 to $400 million in 2014 and $600 million in 2016.
Digital Gold
Many have long described bitcoin as digital gold. Like gold or silver, bitcoin is scarce (by design) but its reputation is much bigger than its market. In any given week, about $34 billion in bitcoin is traded, according to The Wall Street Journal, less than 1 percent of the global foreign-exchange market. New York University professor Aswath Damodaran hinted that bitcoin could become the world’s reserve cryptocurrency or the biggest bust of the century. “Right now, it’s not a very good currency, because it’s not a good medium of exchange and it’s not a good store of value, because it’s too volatile,” he told CNBC. Bitcoin a dumb bubble built on absurd speculations? Surveys show that the vast majority of bitcoin owners are buying and holding bitcoin to exchange them for dollars. This is a big red flag because if the predominant use of bitcoin is to buy it, wait for it to appreciate, and then to exchange it for dollars, it is a terrible currency. Even if one buys the argument that blockchain is brilliant, cryptocurrency is the new gold, and bitcoin is the reserve currency of the ICO market, it is still beyond strange to see any product’s value double in six weeks without any material change in its underlying success or application. Instead, there has been a great and widening divergence between bitcoin’s transaction volume (which has grown 32 times since 2012) and its market price (which had grown more than 1,000 times). The explosion of bitcoin’s value has been pretty silly. But great things can be born of such silliness.
Investing in Bitcoins
There are many Bitcoin supporters who believe that digital currency is the future. Those who endorse it are of the view that it facilitates a much faster, no-fee payment system for transactions across the globe. Although it is not backed by any government or central banking system, bitcoin can be exchanged for traditional currencies; in fact, its exchange rate against the dollar attracts potential investors and traders interested in currency plays. Indeed, one of the primary reasons for the growth of digital currencies like Bitcoin is that they can act as an alternative to national fiat money and traditional commodities like gold. Like any other asset, the principle of buying low and sell high applies to bitcoins. The most popular way of amassing the currency is through buying on a Bitcoin exchange, but there are many other ways to earn and own bitcoins.
Ways to Earn Bitcoins
Bitcoins can be accepted as a means of payment for products sold or services provided. An online business can easily accept bitcoins by just adding this payment option to the others it offers, like credit cards, PayPal, etc. Online payments will require a Bitcoin merchant tool (an external processor like Coinbase or BitPay).
Risks of Investing in Bitcoins
Though Bitcoin was not designed as a normal equity investment (no shares have been issued), some speculative investors were drawn to the digital money after it appreciated rapidly in May 2011 and again in November 2013. Thus, many people purchase bitcoin for its investment value rather than as a medium of exchange. But their lack of guaranteed value and digital nature means the purchase and use of bitcoins carries several inherent risks. Many investor alerts have been issued by the Securities, Exchange Commission (SEC), and other agencies. The concept of a virtual currency is still novel and, compared to traditional investments, Bitcoin doesn't have much of a longterm track record or history of credibility to back it. With their increasing use, bitcoins are becoming less experimental every day, of course; still, after eight years, they (like all digital currencies) remain in a development phase, still evolving.
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