What’s going on with Bitcoin? After rallying over 200 per cent in 2020 and around 500 per cent in the last two years, people wonder if it is the right time to buy Bitcoin given the current ‘high’ prices.
In 2021, the days where people doubted Bitcoin are behind us. Now investors and financial institutions around the world are betting on the crypto king. However, for most people there are still many unknowns regarding what BTC actually is, how Bitcoin is created, or how it really works…
Let’s explore all the key points you need to know about Bitcoin, to help you decide whether ‘to buy Bitcoin or not to buy Bitcoin’ throughout 2021.
Satoshi Nakamoto (the inventor of Bitcoin) once said, “if you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.” A lot has changed since around 2009. Today, in this guide, we’ll cover all the key details — so you are empowered to ‘get it’, ‘believe it’, and ‘own it’. Let’s start!
What is Bitcoin: The Basics
Bitcoin is the first successfully implemented digital asset. You can buy it, sell it, and use Bitcoin instantly. Created in 2008, it provides the framework for global transactions, cheaper transfers, and online payments.
Governments do not control it, as Bitcoin and the blockchain (the technology behind the digital asset) are essentially decentralised. That means nobody controls the system, because it is distributed in thousands of computers around the world that act as witnesses to confirm whether transactions are authentic or not (more on that later).
As you may know, government organisations and central banks continue to ‘print’ or generate new money (EUR, USD, GBP, etc.), creating imbalances and cheating the real economy, and diluting our own savings. On the other hand, Bitcoin has a built-in limited supply of 21 million coins. As of now, some 17.5 million coins have already been created, but the last Bitcoin is expected to be mined around the year 2140.
The commonly accepted abbreviation of Bitcoin is BTC. One Bitcoin can be divided into 8 decimal places, and the smallest unit is unofficially called Satoshi. This is one hundred millionth of a single Bitcoin or 0.00000001 BTC.
What are the Bitcoin Core Values?
To help us understand the main advantages of Bitcoin, we can consider the main Bitcoin values, summarised as follows:
Decentralisation: A decentralised market is the leitmotiv of Bitcoin and the whole blockchain. It aims to give financial power back to people. Ideally, you will not need financial institutions to act as middlemen in your transactions. Instead, a peer-to-peer system will help avoid excessive costs and inefficient processes.
Limited supply: There can be no more than 21 million Bitcoin (providing a predictable supply and increased demand). The limited supply will avoid fake printing money that will push cash value down.
Cryptography: Anonymity is another critical factor for Bitcoin owners. It’s impossible to know the details of the sender/recipient (the transactions are anonymous). It also provides security to the owners, the assets and the whole network.
Transparency: As Bitcoin is based on blockchain, all network members know all data information and bitcoin transactions. They don’t know the owners’ name but what wallet contains what and the full money flow.
Bitcoin Security: Using encryption, Bitcoin is one of the world’s most secure assets. BTC can not be duplicated so you do not have to worry about receiving a fake bitcoin. Also, the network will maintain a record of your Bitcoin transactions so none of your BTC will go missing without trace.
Next, let’s explore how bitcoin transactions work…
Bitcoin Transactions and Satoshi Nakamoto’s Breakthrough
Bitcoin was created in 2008 by an anonymous person or organisation under the pseudonym of Satoshi Nakamoto. Their identity is still unknown, and it will probably remain like this forever.
Satoshi published the initial idea for the Bitcoin cryptocurrency in what has come to be known as the Satoshi white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. It summarises Bitcoin’s mission, the reasons that led the Satoshi team to create it, and potential implementations.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,” the paper starts as a direct introduction to its leitmotiv. “Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.”
The above is a bit scientific, so let’s break this down…
Bitcoin is a decentralized digital currency since the system operates without a central bank or a single administrator. Users themselves govern the value and supply of this digital currency. In a sense, it is a currency that genuinely belongs to the people.
Bitcoin is a cryptocurrency because it acts as a means of exchange and uses cryptography to secure financial transactions, control the creation of additional units (new coins), and verify the transfer of funds.
Bitcoin transactions and information are developed in an open-source network structure called blockchain. Therefore, no one owns it and everyone can participate in its use and development.
Satoshi proposes “a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”
About security Satoshi explains, “the longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.”
The key for Bitcoin is also the transparency of all transactions. Everybody knows all the data the whole time, no matter if he or she is in a different place.
Satoshi finished his or her paper’s abstract saying: “The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.”
An excellent example of a digital asset applied to a blockchain structure is the new supply chain developed by JPMorgan and partners. The bank is implementing a supply chain where companies, suppliers and retail sellers can check their products’ information on real-time. From the moment the product leaves the factory to the time it arrives at the final store. Including transportations, payments and people involved.
There are no centralised institutions in the Bitcoin ecosystem to collect fees, and transactions can be processed within a few minutes, even if you send funds to the other side of the world. Besides, it is a currency that isn’t limited by national borders.
Now we know that banking institutions have high fees, are generally sluggish in their operations, and have certain geographic restrictions. But that’s not all. For example, banks can, at any time, freeze accounts of their clients, sometimes on very unreasonable grounds. As a result, some people believe that banks hold too much power.
Bitcoin was created shortly after the 2008 financial crisis. Some people even believe that the financial crisis helped spark the idea for a decentralised currency and was one of the main reasons for the emergence of Bitcoin.
The Bitcoin Blockchain — How Bitcoin Is Managed… and Priced
Blockchain is the technology behind Bitcoin and most altcoins in the market. Many digital coins are powered by networks structured on the idea or a version of blockchain. That is the reason why bitcoin’s value has everything to do with potential blockchain implementations.
Bitcoin price is a representation of the value of the whole blockchain. So, the real question regarding the bitcoin price arises here: What do you think about blockchain?
Do you think blockchain is the future for any single industry disruption and revolution? If your answer is yes, you may want to bet on Bitcoin because the BTC price is not only attractive but potentially still cheap regarding its potential growth linked to blockchain implementations in the years to come.
But let’s explore what blockchain is and then you can choose your odds.
Also known as the Distributed Ledger Technology, Blockchain is a system that allows the recording of information in a manner that makes it almost impossible to hack, change, or cheat the system. By using decentralisation and cryptographic hashing, blockchain technology is able to make the records of any digital data unalterable and transparent.
It is nearly impossible to hack the network as every block of the chain contains the whole network’s information and its updates. So, a hacker should change all the blocks to success on his or her hacking attempt. It is even more complicated as blocks are distributed worldwide, not in a central station of power.
Stringent encryption rules prevent any modifications as each block contains a record of the latest transactions and a unique mathematical function that points to the previous block in the blockchain.
Any fraudulent or malicious attempts to change the block’s data would cause all subsequent blocks to be invalidated. You would never be able to add such a block to the blockchain because the consensus would not be reached.
Individuals can’t influence the blockchain, nor can they replace parts of the chain in hopes of manipulating transactions. This ensures that the recorded transactions remain on the blockchain forever and cannot be subsequently modified.
Bitcoin Mining — How Bitcoin Is Made
The creation of bitcoin is called mining. You mine Bitcoin when your computer calculates a mathematical problem to help in the management of blockchain processes. People use computer power to solve, verify and validate bitcoin transactions and add new blocks to the chain. People who participate in this process are called miners.
Mining is a distributed consensus system. It is used to validate transactions waiting to be included in the blockchain. This is how a chronological ordering of transactions is achieved, and the network neutrality is protected.
A new block is added to the blockchain around every 10 minutes. The most successful miners are awarded the newly created Bitcoins. You have to understand that the award is usually never given to a single person since no one in the world has sufficient computing power to solve the complex mathematical operations required for a successful block. A higher number of miners results in a more secure network.
As a result, miners collaborate and group their computing power into so-called “mining pools.” The prize is then distributed in proportion to the work they put in (those with a larger computational power input receive a higher reward).
The prize is halved every 210,000 blocks. Initially, the miners were rewarded with 50 Bitcoins, and in 2012 the prize was reduced for the first time (to 25 Bitcoins). The second halving followed in 2016. where the reward was halved from 25 bitcoins to 12.5 bitcoins. The last bitcoin halving happened on May 11, 2020, and the next one is likely to occur in 2024
Bitcoin’s rewards are halved approximately every four years. We get this timeframe by multiplying ten minutes (the average time for a new block) with 210,000 (the number of blocks required to achieve the halving). As a sports fan, I find it interesting that the halving events are in the same year as the Summer Olympics.
The gist of it is this: More miners provide a safer network, but also cause a higher mining difficulty. This is because the system ensures that the block is added every 10 minutes (and not sooner or later).
The Quest for Decentralisation
In order to understand Bitcoin, it is essential to understand what a decentralised network is. The concept of decentralisation has already been described above, but we can look at it from another point of view.
When you visit your web browser and enter “www.google.com,” your computer starts a conversation with Google servers. The browser then shows you various search results. If Google servers were not available for whatever reason, you would not be able to see those results. This is because the data is stored in a centralised network.
In a decentralized network, we can avoid such problems. The decentralized nature of bitcoin means there is no central authority or central server, hence no single point of failure.
The network will always be ready for you because thousands of other points are available if there is a lost point. It is also safer, as nobody will control all the information, but everybody on the net will do.
Bitcoin’s Limited Supply
The main advantage of limited supply relates to the nature of supply and demand. People always attribute a higher Bitcoin value to rare things, which means that a smaller supply usually leads to higher demand and thus a higher price. Imagine vintage cars or rare gemstones.
Bitcoin is built on the same concept as its supply is limited to 21 million coins, and there will never be more coins in circulation.
So, as Bitcoin is powered by blockchain, BTC price will be linked to blockchain implementations in the real world. It is expected that bitcoin prices should increase as each BTC based on the blockchain would increase its worth.
Choosing A Bitcoin Wallet
Bitcoin may soon become considered among the safest assets in the world. However, like any other investment instrument, you should take good care of it.
In the crypto industry, wallets are the solution that keeps your digital assets safe. There are two types of wallets, cold and hot, which basically means that hot wallets are connected to the internet or online platforms, while cold wallets are offline and you only connect them when you are doing a transaction.
A Bitcoin wallet is always composed of two parts:
The first part is the public address (or public key). It’s like an email address, and you can freely share it with others.
The second part is the private key. It’s like a password and you must never reveal it publicly.
A private key is used to encrypt transactions while the public key is used to decrypt a transaction. The public key is intended for sharing with third parties and ensures that you are the address owner who can receive funds. The sender encrypts the transaction with his private key, which can be decrypted only by the recipient with the sender’s public key.
The combination of these keys creates a digital signature. Through the cryptographic algorithm called Elliptic-curve cryptography, it produces a secure digital reference of user identity.
Similar to a handwritten signature, the digital signature is used to verify the identity and prove ownership of a particular wallet. Also, your actual identity remains anonymous, as other people only need your public key if they want to send you Bitcoin.
In the case of Bitcoin, digital signatures are mathematical functions that match with a given wallet. If you attach a digital signature to a transaction, nobody can argue that this transaction actually came from your wallet.
How to Buy Bitcoin
There are a lot of different options for buying Bitcoin. You can either buy in regulated crypto exchanges, go to certain stores in your city, use a ‘Bitcoin ATM’, or trade BTC via contracts for difference, also known as CFDs.
Crypto Exchange: An exchange is an online platform where people create accounts to buy and sell cryptocurrencies. The most convenient method for beginners is certainly buying through a licensed and regulated online exchange, such as Kriptomat. First, you will have to create an account, use your name, address, passport, or national identity card.
Bitcoin ATM: Another option is to use a Bitcoin ATM. This instant purchasing method ensures anonymity, at least while you withdraw smaller amounts. Let me warn you that finding a Bitcoin ATM in your vicinity may prove to be a difficult task. And they typically charge quite high fees.
Trading BTC: Finally, you can invest your money trading bitcoins via contracts for differences. Here you will not own the underlying asset, but you will speculate with price movements against other crypto or fiat currency. You will make money buying cheap and selling it for a higher price, or vice versa, selling expensive and then buying it cheaper.
For more information, How to Buy Bitcoin
Shop With Bitcoin
In 2010, Laszlo Hanyecz, a crypto enthusiast and early believer, posted in a bitcointalk forum offering 10,000 bitcoins to a person who would bring him a couple of pizzas to his house in Florida, the United States.
“I’ll pay 10,000 bitcoins for a couple of pizzas.. like maybe 2 large ones so I have some left over for the next day,” Hanyecz wrote in the crypto forum bitcointalk on May 22nd, 2010.
Laszlo got his pizzas from a guy who went to Papa Jones and bought two on sale larges. That was a simple transaction, but it became the first-ever real article bought with bitcoin. In 2010, the cost in BTC was 41 dollars. Now, it would represent almost 200 million dollars. What a deal!
Today, people can buy more than a couple of pizzas using Bitcoin and you can use the crypto currency to buy and sell thousands of goods and services.
Bitcoin should simplify travelling to your favourite vacation spot because you will not need to exchange money or pay draconian fees for using your bank card. Already you can use it to buy plane tickets, rental cars, and hotels; it’s gradually creeping into other areas of business and services. Use Bitcoin from every device anywhere in the world, and don’t let anyone put their hand in your pocket.
Whatever you do, Kriptomat can be your go-to personal crypto bank account when you’re travelling or going about your day-to-day life.
Can you sell Bitcoin?
You can sell bitcoin in several ways: using an online exchange platform, such as Kriptomat, in-person locally, or through Local Bitcoin.
What can Bitcoin do?
Bitcoin has the power to change the financial industry as we know it today. The bitcoin protocol can act as a global identification, currency, micro-tipper, voting mechanism, a crowdfunding platform, and basically, everything that the current financial system can handle and much more.
What happens to my Bitcoins if I lose my private keys?
Unfortunately, since private keys are connected to individual Bitcoin wallets, there is no way to access your coins if you lose the keys. This is why modern wallets come with key and wallet backups, or password retrieval with identity verification.