Bitcoin (BTC) is the most popular and largest cryptocurrency in the world. In this article, we will explain exactly what Bitcoin is and how it works. You will also learn who created it and its advantages and disadvantages. We will compare Bitcoin to traditional fiat currencies and consider whether it is worth investing in. We invite you to read. Learn about all the most important aspects of this revolutionary technology. Check out our Bitcoin guide!
What is blockchain?
To explain what Bitcoin is, you first need to understand what the blockchain technology on which this cryptocurrency is based is. Blockchain is a type of decentralized database that stores information in blocks. These blocks are connected to each other in a chain.
Each block contains a set of data, in this case transactions. Blocks, in turn, are protected using cryptography. When a block is full, it connects to the previous block to form a so-called blockchain. Blockchain works without the involvement of a centralized institution, such as a bank or government in the world of traditional finance. Each user has access to a copy of the entire chain, which ensures full transparency and data security. It is precisely because of the transparency that blockchain technology is difficult to manipulate.
Blockchain is not only used in cryptocurrencies. It can also be used to store various other types of data, for example in logistics or medicine. Its main advantage is decentralization, which increases security and reliability. Now that we know what blockchain is in a nutshell, it’s time to explain what bitcoin is and how it works!
What is Bitcoin?
Bitcoin (BTC) is the first cryptocurrency based on blockchain technology. It was created in 2009 as a response to the financial crisis, and its creator was Satoshi Nakamoto. a copy of the entire blockchain. Transactions are verified by the network through a process called mining. Miners solve complicated mathematical puzzles to add a new block to the chain.
Each block in the Bitcoin blockchain contains a set of transactions. When a block is full, it is added to the chain, and miners receive a reward in the form of new Bitcoins. The number of Bitcoins is limited to 21 million, and there are now more than 19 million in circulation (many have been lost once and for all).
Bitcoin is safe thanks to cryptography. Each transaction is digitally signed, which guarantees its authenticity. Thanks to decentralization, Bitcoin is also resistant to censorship and manipulation. In turn, thanks to strong price fluctuations, it has become the subject of speculation.
Who created Bitcoin?
Bitcoin was created by an anonymous creator or a group of people using the pseudonym Satoshi Nakamoto. The identity of Satoshi Nakamoto remains shrouded in mystery to this day. In 2008, he published a document that describes the principles of Bitcoin
In January 2009, Satoshi Nakamoto launched the first version of the Bitcoin software. That same month, he mined the first block, known as the “genesis block.” This is how the entire Bitcoin network began to operate.
Satoshi Nakamoto communicated with other developers through online forums and emails. In 2010, he handed over control of the project to Gavin Andresen and disappeared from public life. Despite numerous speculations, Satoshi Nakamoto’s true identity has never been revealed. His invention changed the world of finance and technology forever. How does Bitcoin work? Its technical aspects are quite complicated. However, as this guide is aimed at beginners, we will focus here on the most important issues: Bitcoin mining, halving and supply.
Bitcoin mining is a process in which miners verify transactions and add them to the blockchain. Miners solve complex mathematical puzzles. The first miner to solve the puzzle adds a new block to the chain and receives a reward in the form of new Bitcoins. Mining requires a lot of computing power and specialized equipment. Miners compete against each other, which increases the security of the network. The mining process is crucial to the maintenance of the Bitcoin network.
Bitcoin Halving
A Bitcoin halving is an event that cuts the mining reward in half. It takes place approximately every four years. The first halving took place in 2012. Initially, miners received 50 Bitcoins for each block they mined. After the first halving, the reward dropped to 25 Bitcoins, then to 6.25 Bitcoins, and now after the 2024 halving it is 3.25 BTC per block.
Halving is designed to control the supply of Bitcoin. With this solution, the number of Bitcoins is limited to 21 million. Halving has historically affected the price of Bitcoin. This is because it reduces the supply of new coins, which can increase their value over time.
Bitcoin supply
Bitcoin’s supply is capped at 21 million units. There are currently over 19 million BTC in circulation. As we mentioned earlier, new Bitcoins are put into circulation through the mining process. Over time, the rate of mining new Bitcoins is decreasing – thanks to the previously mentioned halving. Moreover, many BTC are lost once and for all, e.g. by sending them to the wrong address.
Bitcoin’s limited supply makes it a scarce asset. This increases its value in the eyes of investors. Bitcoin is often compared to gold due to its rarity. Some even consider it an inflation hedging asset or store of value.
Advantages and disadvantages of Bitcoin
Bitcoin has many advantages. First of all, as we mentioned earlier, it is decentralized. It is not controlled by any bank or government, which means that no one can manipulate its value or block transactions.
Another advantage of Bitcoin is its limited supply. There are only 21 million Bitcoins in existence, making it a scarce asset. Investors often compare Bitcoin to gold because of its scarcity. Additionally, Bitcoin offers greater anonymity compared to fiat currencies, which is sure to appeal to those who value privacy.
Bitcoin transactions are fast and cheap. They can be carried out globally without the need for intermediaries, which makes them more efficient than traditional international transfers. Bitcoin gives users full control over their funds because they store their Bitcoins in special cryptocurrency wallets that only they can access.
However, Bitcoin also has its drawbacks. One of them is high volatility. The value of Bitcoin can rise quickly, but it can also fall sharply. This, of course, carries risks for investors. Another disadvantage is the high energy consumption of the Bitcoin mining process. Mining requires a huge amount of computing power, which leads to high energy costs and can have a huge impact on the environment.
Bitcoin can also be difficult for new users to understand and use. The need to use wallets and understand blockchain technology can be a hindrance for some people. In addition, Bitcoin is not widely accepted as a means of payment, which limits its usefulness in everyday transactions.