What is Bitcoin?
Bitcoin is not the first attempt at creating a digital currency, but it is the world’s first successful digital currency, which marks a major shift in the global financial industry. A wide number of cryptocurrencies have been developed since Bitcoin's inception, but the first-to-market cryptocurrency is still the global leader in terms of price and market capitalization.
The inception of Bitcoin
In 2008, an anonymous person or group of people published a whitepaper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System” under the name ‘Satoshi Nakamoto.’ According to the whitepaper, the purpose of creating Bitcoin was to enable easy peer-to-peer transactions by eliminating intermediaries.
In early 2009, open-source software was created to develop Bitcoin. The first Bitcoin transaction took place between Nakamoto and an early adopter of Bitcoin in 2009. The value of one Bitcoin was $0 in 2009. In November 2021, Bitcoin reached its all-time high value of around $68,000.
What exactly is Bitcoin?
Bitcoin is the first cryptocurrency that allows you to buy, sell, and hold without depending on any intermediaries like banks. It is a digital currency and does not have a physical form, i.e. it only exists on the internet. You can make peer-to-peer or person-to-person payments from one part of the world to another with Bitcoin.
How does Bitcoin work?
Bitcoin is also the first real-time application of blockchain technology. Each Bitcoin transaction is recorded and stored on its underlying blockchain network. Bitcoin’s decentralized public ledger is managed by the participants called nodes. The network uses standard cryptographic methods to avoid double-spending, which also makes it highly secure.
Bitcoin uses the Proof-of-Work consensus mechanism and it requires a huge amount of processing power. Nodes solve complex mathematical problems to verify the transactions and to create new blocks in the network. In exchange for verifying transactions and keeping them secure, nodes are rewarded with new Bitcoins. This process of solving problems, verifying transactions, and extracting new Bitcoins is called ‘mining’.
When Bitcoin was created, its supply was pre-defined to 21 million Bitcoin, or BTC. Every four years, BTC undergoes an event called ‘Bitcoin halving’ to gradually reduce its supply. This means that the amount of Bitcoin that can be mined will be reduced by 50%.
Let us look at some of the unique characteristics of Bitcoin:
After Bitcoin was created, many recognized the potential of its underlying blockchain technology and started applying it to different industries. Today, almost every industry is exploring ways to integrate blockchain to perform better.