Bitcoin (BTC) is a revolutionary virtual currency that operates on a decentralized, peer-to-peer (P2P) payment system. It is free from the centralized control of any government or entity. Created in 2008 by an anonymous individual or group known as Satoshi Nakamoto, Bitcoin introduced the world to a new form of digital money.
While Bitcoin wasn't technically the first cryptocurrency ever created, it and its innovative blockchain technology are widely regarded as the catalysts for the growing digital asset industry we see today. Currently, Bitcoin is the largest cryptocurrency by market capitalization.
How Does Bitcoin Work?
Bitcoin is entirely digital and functions on a decentralized blockchain network. This network is a public virtual ledger that records every transaction made on the Bitcoin blockchain. Transactions are sent electronically to nodes that verify their validity. Once confirmed, a transaction is grouped with others to create a "block" of information, which is then added to the blockchain. This process is known as Proof of Work, and it helps secure the network.
The blockchain ledger is immutable, making it nearly impossible to delete or alter. Anyone can freely access it, making it an open blockchain. Transactions can be conducted anonymously, providing both privacy and transparency to the network. Being decentralized, Bitcoin can be freely exchanged between anyone with an internet connection via P2P trading.
Who Created Bitcoin?
Bitcoin was created by the individual or collective group known as Satoshi Nakamoto. It was a response to perceived problems within the traditional banking system. Bitcoin launched shortly after the global economic crisis of 2007-2008, and its purpose was revealed to the world through a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." Ultimately, Bitcoin was designed to help create a fairer, more equitable, and democratic financial system for everyone, free from the control of banks and centralized entities.
Over the years, several figures have claimed to be Bitcoin's creator, and some media outlets have incorrectly identified certain individuals. However, the true identity of Nakamoto remains unknown to this day.
What Is Bitcoin Used For?
Many consider Bitcoin a store of value, which is why it's often referred to as "digital gold." The currency also provides a decentralized payment system through which other digital assets can be traded and transferred.
Bitcoin is widely used for speculative purposes and is increasingly being adopted as a form of payment for goods and services. Furthermore, some companies allow their employees to receive a portion of their salary in Bitcoin. Many people see Bitcoin as a hedge against inflation, given its historical resilience and perceived outperformance during inflationary periods.
Advances in blockchain technology have expanded the possibilities of the Bitcoin network. For example, the Ordinals protocol now allows users to inscribe data such as videos, images, and text onto individual satoshis (the smallest unit of Bitcoin) on the blockchain. This created a new way to store and share digital assets using blockchain technology. Then, in 2024, Bitcoin Runes emerged. This protocol allows users to create new tokens directly on the Bitcoin network, potentially providing Bitcoin miners with a new source of income.
Bitcoin Price and Tokenomics
A unique factor of Bitcoin is that its price and value are ultimately determined by the collective opinion and actions of the trading community. While fiat currencies are backed by physical goods or government guarantees, Bitcoin is backed simply by data and shared beliefs.
The price and value of Bitcoin are also influenced by the asset's demand relative to its available supply. Since its inception, the supply was capped at 21 million Bitcoin to create scarcity and, in theory, increase the asset's value over time as demand grows. Factors beyond controlled supply and asset scarcity also influence BTC's price. A major factor is the sentiment surrounding Bitcoin news and how it influences public opinion to buy or sell the asset.
The total supply of Bitcoin is managed through a process known as "mining," which is also decentralized and open to anyone with the necessary connectivity, knowledge, and resources. BTC mining involves using computers to solve complex equations to validate transactions and store them on the blockchain. Miners earn Bitcoin as a reward for solving these equations. This incentive not only increases the Bitcoin supply but also helps reinforce network security.
What Is the Bitcoin Halving?
The Bitcoin code was designed to reduce the rewards given to miners through an event known as the Bitcoin halving. The amount of Bitcoin granted to miners for adding blocks to the blockchain is cut in half every 210,000 blocks, or approximately every four years. To date, the Bitcoin network has experienced halvings in November 2012, July 2016, May 2020, and April 2024.
The Bitcoin halving progressively reduces the speed at which new BTC enters circulation until the fixed total supply of 21 million Bitcoin is mined. Bitcoin is expected to reach its maximum circulating supply around the year 2140. Following the latest halving in 2024, the mining reward was reduced from 6.25 BTC to 3.125 BTC. The next Bitcoin halving is expected to occur in 2028, although the exact date is difficult to estimate. After the next Bitcoin halving, the block reward will be reduced to 1.5625 BTC.
Historically, the price of BTC has risen after halvings, although the gains have diminished with each successive event. The price of Bitcoin rose over 12,400% after the first halving in 2012, 5,200% after the 2016 event, and 1,200% after the 2020 halving.
How to Trade Bitcoin
There are many ways to acquire and trade Bitcoin, and one of the most common is through an exchange. Although Bitcoin was built on the idea of decentralization, what is known as a centralized exchange provides access to the currency. On a centralized exchange, you can buy Bitcoin using traditional currencies like USD and EUR, or using other cryptocurrencies like USDC or ETH. Besides providing a pathway to buy Bitcoin, centralized exchanges also match buyers with sellers so you can trade Bitcoin with ease.
Decentralized exchanges are an alternative to centralized services. On a decentralized exchange, buyers and sellers interact directly without the involvement of an intermediary to trade cryptocurrencies. This is known as P2P. Although decentralized exchanges may be hosted by a centralized entity, it has no influence over transactions between users and only provides the platform for exchanges to take place.
In addition to trading Bitcoin for other digital assets, it's possible to obtain Bitcoin through mining and even by using Bitcoin ATMs. Similar to a conventional ATM but connected to the blockchain, Bitcoin ATMs allow you to exchange BTC for cash or cash for BTC.
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Latest Bitcoin News
2024 has been a significant year for Bitcoin. One of the major breakthroughs for the currency came with the approval of a spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC), announced on January 10, 2024. Eleven proposals from issuers like Grayscale, BlackRock, ARK, and VanEck were approved, marking a major shift toward widespread Bitcoin adoption. Subsequently, on April 30, 2024, six more spot Bitcoin ETFs were approved in Hong Kong, bringing these funds to Asian traders for the first time.
Roughly three months after the approval of the spot Bitcoin ETF in the U.S., the virtual currency experienced its fourth Bitcoin halving since its launch, which occurred on April 19, 2024. The Bitcoin halving cut the reward granted to Bitcoin network miners from 6.25 BTC to 3.125 BTC. There is much speculation surrounding the impact the latest halving event will have on the asset's value, and it is still too early to assess how the 2024 halving will affect the long-term price of Bitcoin.
Events like the spot Bitcoin ETF approval, the 2024 halving event, and overall bullish sentiment for the cryptocurrency market helped Bitcoin reach a new all-time high price of $73,787 on March 13, 2024. However, BTC prices retreated to $56,825.40 by April 30, 2024, before climbing back above $60,000 and entering a period of sideways movement.
Frequently Asked Questions
What determines the price of Bitcoin?
The price of Bitcoin is primarily determined by supply and demand dynamics in the market. Its limited supply of 21 million coins creates scarcity, while demand is influenced by factors such as investor sentiment, adoption rates, regulatory news, and macroeconomic trends. Unlike traditional currencies, it isn't backed by a physical commodity or government decree.
How can I safely store my Bitcoin?
You can store Bitcoin in various types of wallets. Hot wallets are connected to the internet and convenient for frequent trading, while cold wallets (hardware or paper wallets) are offline and offer enhanced security for long-term storage. For large amounts, using a hardware wallet is generally recommended. Always remember to secure your private keys and never share them with anyone.
What is the difference between Bitcoin and Ethereum?
While both are cryptocurrencies, they serve different primary purposes. Bitcoin was designed primarily as a decentralized digital currency and store of value. Ethereum, on the other hand, is a programmable blockchain that enables smart contracts and decentralized applications (dApps) to be built on its network. Ethereum's native currency, Ether (ETH), is used to power these operations.
Will Bitcoin ever run out?
No, Bitcoin will not run out, but the creation of new Bitcoin will eventually stop. The total supply is capped at 21 million coins. It is estimated that the last Bitcoin will be mined around the year 2140. After this point, no new Bitcoin will be created, and miners will be incentivized solely by transaction fees.
Is Bitcoin legal?
The legality of Bitcoin varies by country. In most major economies, including the United States, Japan, and much of Europe, owning and trading Bitcoin is legal. However, some countries have restrictions or outright bans. It is crucial to check the specific regulations in your jurisdiction before engaging in Bitcoin activities.
Can Bitcoin transactions be traced?
Bitcoin transactions are recorded on a public blockchain, making them transparent and traceable by anyone. While Bitcoin addresses are pseudonymous (not directly linked to real-world identities), sophisticated analysis can sometimes connect addresses to individuals. For enhanced privacy, some users employ additional techniques, but complete anonymity is not guaranteed by the base protocol.