Bitcoin was originally created in 2009 as a digital form of currency, built for the internet age. It was the first to solve the issues with fraud that had plagued other attempts at digital currency, employing revolutionary cryptographic methods to ensure its security.
Today, Bitcoin is used by hundreds of millions of people around the world as an alternative to traditional payment methods and as a way to save. It’s widely considered a good way to store wealth because it has a fixed supply of 21 million Bitcoin, giving it similar properties to scarce assets like gold. This has led to people also using it as an investment or an alternative to saving.
Bitcoin spawned a new wave of cryptographically-secured currencies known as cryptocurrencies, which use the same technology as Bitcoin but have an array of uses other than money and transactions.
Learn more about Bitcoin
What does Bitcoin bring to the table?
What is the Bitcoin blockchain?
How are Bitcoins created?
How are Bitcoin transactions recorded on the blockchain?
Is Bitcoin a scarce resource?
Is Bitcoin a good investment?
Takeaway
What does Bitcoin bring to the table?
As a currency - a unit of exchange we use to pay for things - Bitcoin has a few key things going for it.
Ever tried sending money across borders? It’s expensive and takes forever to reach its destination. Even sending money from one bank to another in the same country can take a few days.
Bitcoin can be transferred almost instantly to anywhere in the world, whether you’re sending Bitcoin to family in another country or paying for food at a Bitcoin-friendly merchant around the corner. And it’s cheap to do this. Transactions on the Bitcoin network cost a fraction of the money sent through a traditional merchant like a bank.
Bitcoin is also completely secure. It’s never been hacked, and although it can be stolen as with any possession, it can’t be manipulated.
What is the Bitcoin blockchain?
Bitcoin is able to do this because it is decentralised. In other words, there’s no middle party like a bank processing transactions and taking their cut.
This is all thanks to the Bitcoin blockchain, the network on which Bitcoin transactions are recorded. It’s almost like a Google Drive where each transaction is recorded and lives forever. Previous entries to the drive can’t be changed, and all new entries need to be approved by the majority of the network – none of whom know each other. Everyone, including you and me, can see what’s going on inside the drive.
Importantly, no one person or entity owns the Bitcoin blockchain, so they can’t go in and make any changes to either what’s recorded on there or in the way it works. This means you can always be sure that it’s following the same rules, and know exactly what those rules are.
How are Bitcoins created?
It has to do with how transactions are recorded on the Bitcoin blockchain. Using a method called proof-of-work, super fast computers called miners compete with each other for the opportunity to record transactions on the blockchain. The miners are rewarded for confirming and recording Bitcoin transactions on the network with newly-created Bitcoin, which they will then either keep or sell into wider circulation.
How are Bitcoin transactions recorded on the blockchain?
People send cryptocurrencies using a Bitcoin wallet. Each transaction contains the sender’s private address, the recipient’s public address and the amount sent.
These transactions are bundled together, where they wait to be picked up and verified by miners. A miner adds the transactions as a block to the blockchain.
Every computer in the network checks that the information in the block is valid.
The new block is then recorded on the blockchain.
Is Bitcoin a scarce resource?
There is a limit to how many new Bitcoin can be created, whereas governments have full control over how much fiat money is in use at any time. There will only ever be 21 million created and Bitcoin is programmed so that new Bitcoin are released on a fixed schedule until that number is reached some time around 2140. If and when demand picks up and Bitcoin becomes more scarce over time, the rules of supply and demand mean Bitcoin’s price will probably go up.
Is Bitcoin a good investment?
Looking at its current value of tens of thousands of US Dollars per Bitcoin, it’s hard to believe that in 2011 $1 could buy you 1 whole Bitcoin. This meteoric rise in value is thanks to the increasing global adoption of the cryptocurrency.
As more and more people started using and buying Bitcoin, the more it piqued the interest of institutional investors from traditional finance, who bought huge amounts of Bitcoin, sending the price one step closer to the Moon.
And while prices have gone down many times in the last decade, Bitcoin has rebounded each time. Where to next is anyone’s guess.
