With the exponential growth of cryptocurrencies and bitcoin many people may find themselves asking “What is Bitcoin?”
Introduction to Bitcoin
Bitcoin (BTC) is a blockchain based cryptocurrency created in 2009. Bitcoin uses a blockchain, a public transaction log, to record transaction data and track the number of bitcoins that are held by specific bitcoin addresses. Each bitcoin address is associated with a “private key” that is required to access and use the bitcoin associated with that address. Without this private key the bitcoin contained in the wallet cannot be used. As a result, a lost private key means that the associated bitcoin that are lost forever. Many wallets, such as the Robinhood app, do not provide the user with a private key. This is dangerous as the service owner has complete control over the bitcoin and the user is completely reliant on the honesty and security of the service.
The overall bitcoin supply is limited to 21 million bitcoins. The total number of bitcoins in circulation will be lower than this due to lost private keys. The smallest fraction of a bitcoin you can own is 0.00000001 bitcoins. A fraction of a bitcoin in this amount is called a “satoshi” after the anonymous creator.
Transacting with only a single satoshi would be difficult due to the transaction fee. The transaction fee is paid to those who “mine” bitcoin to discover “blocks.” Many wallets allow the transaction fee to set by the sender which can increase or decrease the time to confirm the transaction. When a bitcoin miner discovers a block, the reward is a fixed number of bitcoins for discovering the block and in addition they earn the fees associated with the bitcoin transactions that were confirmed in that block. The block is then added to the blockchain and the transactions contained in the block are now confirmed. The fixed number of bitcoins rewarded with each block decreases over time and eventually ceases when the final number of 21 million bitcoins have been rewarded. After this time miners will rely on transaction fees to earn mining rewards.
In order to begin using bitcoin you will need to have a secure bitcoin wallet. Bitcoin wallets are available for your computer or phone and many versions allow QR codes to be used instead of the long bitcoin address. The wallet allows your bitcoin address to send and receive payments. The official list of supported wallets can be found at https://bitcoin.org. Only download a wallet from a trusted source.
Keep reading to learn more about the history of bitcoin and other cryptocurrencies.
A Brief History of Bitcoin
Bitcoin was released as open-sourced software in the year 2009 by an unknown person using the online pseudonym “Satoshi Nakamoto.” This individual is no longer actively using this name and it is unknown if the identity will ever be discovered. Several people have claimed to be the creator of Bitcoin but no realistic candidate has come forward. It would be easy for the creator to prove his identity by spending some of the large amounts of bitcoin that has been sitting unused in wallets known to be owned by Bitcoins creator.
Bitcoin seemingly gained in popularity due to the rise of the “dark net” which hosted online marketplaces that often were involved in selling illegal items including drugs. The main currency on these dark net markets was bitcoin. Today, many large retailers accept bitcoin and it is even possible to buy a house or a car using only bitcoin.
Another aspect in the rise of bitcoin is bitcoins ability to be used as a store of value that is free of government control. Initially thought of as an anonymous method of payment and ownership of wealth many users have found that bitcoin is not as anonymous as they once thought. The IRS is actively tracking large bitcoin users who have not reported bitcoin related income on their taxes.
The price of bitcoin has varied wildly from almost nothing in the early days of bitcoin to as much as $20,000 in late 2017. Since 2009 Bitcoin has grown at an astonishing rate which has resulted in people making and losing millions of dollars in a very short time. The price can vary widely from day to day with price swings of 5% or more daily being common.
Bitcoin has been subject to several “hard forks”. A bitcoin fork is when the blockchain rules are changed going forward from a specified block. The Bitcoin Cash (BCH) hard fork occurred in August of 2017, Bitcoin Gold (BTG) in October 2017, and Bitcoin SV (BSV) in November of 2018. Anyone holding bitcoin private keys during the moment of the hard fork is able to claim an equal amount of the newly created currency using the appropriate process.
Bitcoin Cash is currently the most valuable “hard fork” cryptocurrency. The primary investors and marketers of Bitcoin Cash are often criticized for causing confusion between Bitcoin and Bitcoin Cash.
Bitcoin malware, computer software designed to steal bitcoin, is becoming increasingly common. “Cryptojacking” is a term used to describe malicious software that uses to computing power to mine bitcoin. Individually one computer will not be able to generate a lot of mining power, but a large network of computers infected with bitcoin mining virus can generate serious mining power.
Another form of bitcoin malware is software that will cause your computer to display false bitcoin addresses. This works by having the software monitor the information on your PC and when it detects a bitcoin address the software replaces it with one controlled by the hacker. When you send bitcoin to these addresses the bitcoins are now in control of the hacker instead of the intended recipient.
Alternative Crypto-currencies aka Altcoins
Altcoin is a term describing the numerous cryptocurrencies that were created after the success of bitcoin. Many altcoins were created for the sole purpose of generating wealth for their creators and actually have no inherent value. Other altcoins declare that they are better than bitcoin, either in anonymity, security, or for various other reasons. The largest “altcoins” as of mid-2019 are Litecoin, Ripple, Ethereum, Dogecoin, and EOS. As of mid-2019 https://coinmarketcap.com lists over 1500 altcoins with a market capitalization of over $100,000.
Many cryptocurrency traders treat altcoins like penny stocks, in other words, they are hoping to make a profit on small price movements while owning a large number of low cost “shares.” Other investors hope to recreate the profits realized by early bitcoin investors.
One June 18, 2019 Facebook announced Project Libra which is a partnership between several large corporations to create an open source currency. The digital wallet for this currency is called Calibra. Unfortunately at the time of writing Calibra has not been released. Many cryptocurrency insiders view as an attempt by Facebook of creating a new payment method in order to charge fees to users on each transaction. Immediately after announcement by Facebook, Congresswoman Maxine Waters asked the company to halt development of Libra until Congress makes time to hold hearings. The future success of Libra at this point is unknown but the process will be fun to watch.
Legality of Bitcoin
Since the inception of Bitcoin countries have had the problem of deciding how bitcoin and its users should be treated. Should bitcoin be treated as money or as property? This is only one of the questions governments must contemplate as they determine what to do with bitcoin. Several countries, mainly in Asia, the Middle East, and South America, including Morocco and Libya, have banned the use of bitcoin by making it illegal to own. Enforcing these laws will be difficult to enforce, especially if the owner was not using cryptocurrency for local transactions. Bitcoin is legal in the United States and the European Union, as well as in most countries.
If you have read this entire article we hope you are now adequately introduced to bitcoin and altcoins. You should also be aware that there is a lot more to learn about bitcoin. In later blog posts we will delve further into these topics individually and give updates on the current happenings in the bitcoin world.