What is Bitcoin, and how does it work? Exploring the state of Bitcoin today

What is Bitcoin?

Bitcoin is a decentralised digital currency that first went live in January 2009. It originated around the 2008 financial crisis when its pseudonymous creator or creators Satoshi Nakamoto released a whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System in October 2008. 

According to Nakamoto’s whitepaper, the main idea behind Bitcoin was to design a peer-to-peer version of cash that would enable money to be sent online from person to person without needing a middleman.

How Does Bitcoin Work?

Bitcoin is powered by a distributed ledger known as blockchain. This open-source technology creates a shared public ledger where each transaction, known as a block, is added, or chained, to the code, creating a record of the transaction. Each transaction added to the ledger can’t be amended, creating a permanent and immutable record of transactions.

Bitcoin miners are the ones who add blocks to the chain and are rewarded with newly minted Bitcoins for doing so. At the time of writing, miners get 6.25 Bitcoin per valid block mined. This reward halves roughly every four years, or after every 210,000 blocks, and is known as Bitcoin halving

Gone are the days, though, when the average computer owner could mine their own Bitcoin. Today, the investment needed to build and run a machine that’s capable of mining Bitcoin is significant and increases over time as the mining difficulty rises. Now, it’s Bitcoin mining operations such as Bitfarms who use high-speed computers that take between 10-12 minutes to confirm transactions. 

On its current path, it’s predicted that the year 2140 will see the total 21 million supply of Bitcoin reached, unless current protocols are changed. At the time of writing, over 18.7 million Bitcoins have already been mined.

In order to digitally sign transactions, Bitcoin’s protocol provides each wallet owner with a private and public key. It is these which work together to sign transactions and deliver proof of authorisation.

Where should you store your Bitcoin?

Bitcoin can be stored in two different types of wallets: hot wallets (online) or cold wallets (offline).

Hot Wallets: These are web-based wallets, desktop wallets, or mobile wallets and are connected to the internet. Think BinanceCoinbase, or Kraken. They’re typically ones people start with as they provide ease of use, are always online, and don’t require a user to trade between online and offline. Saying that, because they’re online, they are susceptible to online hacks, which is why it’s generally not a good idea to store large amounts of crypto in hot wallets.

Cold Wallets: Hardware wallets or paper wallets are considered the most secure as they’re stored offline and generally live on devices the size of a USB stick. Think Ledger or Trezor. Stealing someone’s crypto from a cold wallet would require physically stealing the device as well as knowing the passwords to gain access. Cold wallets are less convenient as they need to be connected to the internet to make a transaction.

There is also the option to use both, giving a mixture of convenience and maximum security, creating the ideal balance.

Where Can You Buy Bitcoin?

There are several options available when it comes to buying Bitcoin.

Cryptocurrency Exchanges: Various cryptocurrency platforms are available worldwide. Binance, Coinbase, GeminiHuobi, Kraken, and KuCoin are just a small selection.

Bitcoin ATMs: Latest data from CoinATMRadar shows that there are nearly 21,000 Bitcoin ATMs in 71 countries, making it easy to find one that’s nearest to you.

Peer-to-Peer Platforms: True to the original idea of Nakamoto’s whitepaper, you can purchase Bitcoin directly from owners through marketplaces such as LocalBitcoins.com and Paxful.

Where is Bitcoin Today?

Twelve years after the first Bitcoin transaction took place Bitcoin remains the number one crypto asset on the market. Since then, though, thousands of other coins have surfaced, all with the aim of solving something. None, however, have overtaken Bitcoin. At the time of writing, one Bitcoin is worth over $38,000 with a market capitalisation valued at nearly $722 billion. And many have speculated that its value is only going to rise.

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