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  • Claudia Campisano

What is Bitcoin?

Almost nine years after its first appearance, bitcoin has become the mainstay of the crypto industry and today is no longer known only by its supporters.


Bitcoin is the first real cryptocurrency to take hold and open the doors to numerous altcoins.

It has changed our concept of traditional finance.


"What is Bitcoin ?" article's cover

The history of Bitcoin


To understand what Bitcoin is, we need to take a step back and retrace the past that has affected the whole world: the crisis of 2008, known as the Great Recession.


This subprime mortgage crisis started years before, around the end of 2006, and involved several financial institutions and the failure of banks, which were forced to be sold off or incorporated.

In the years that followed, the GDP of many countries collapsed.


In some cases, as in the Eurozone, it resulted in a vast sovereign debt crisis that forced central banks to heavily loans to avoid default.


In these years, thanks to Satoshi Nakamoto (we still don’t know if it is a person or a group), Bitcoin has been established within the financial world in response to this great crisis.


bitcoin.org website logo

In August 2008, Satoshi Nakamoto registered the bitcoin.org domain, and the term bitcoin appeared for the first time two months later in an encryption site’s mailing list.

On this site (metzdown.com), a user called “Satoshi Nakamoto” claimed to have created a digital currency able to support a monetary system without a third-party trust and have solved one of the most important problems that plague electronic payments: double-spending.


The attachment, known today as the Bitcoin whitepaper: "A peer-to-peer electronic cash system," described its operation to reinforce this thesis.


A trustless payment system without central regulatory entities fascinated many developers who, thanks to online distribution, set up a whole P2P network ready to test this new project.


On January 3, 2009, the first block of Bitcoin, block 0 or genesis block, was generated.


Inside this block, Satoshi Nakamoto decided to engrave "Chancellor on the brink of second bailout for banks." These were words present on the cover of The Times, January 3.


The Times front page of January 3 2009

This phrase was intended as further evidence of the official date of the creation of the block, as well as an accurate criticism of the instability caused by the fractional reserve.


A few days later, the first Bitcoin Open Source client was released, and three days later, the first transaction (10 BTC) was made by Satoshi Nakamoto in favour of Hal Finney.

From then on, Bitcoin went viral, and on October 5, 2009, the market price of a bitcoin was set: about $0,0007.


In 2010, the Bitcoin Market (the first exchange dedicated exclusively to bitcoin) was born. On May 22 (the day on which Bitcoin Pizza Day is celebrated among strict supporters) was made the first purchase with cryptocurrency in the real world. Two pizzas for a value of 25$ or 10.000 BTC.


Many events happened that year, including the birth of Mt.Gox. one of the most historical and discussed exchanges, the first fork, and the first P2P transaction via mobile device.


On February 10, 2011, bitcoin reached $1; 1BTC=$1.


2012 and 2013 were decisive years for bitcoin and the entire crypto world: the Coinbase giant was born, bitcoin reached 100$, and inaugurated for the first time the first bitcoin ATM.


The following years were turbulent and saw a succession of up-and-down moments for the cryptocurrency’s price and the entire sector, which in 2017 recorded the first real fork of the Bitcoin blockchain that gave birth to Bitcoin Cash.

In November 2021 reached its all-time high of $69,000.


Bitcoin or bitcoin? What is the difference between traditional currencies?


bitcoin coins

To better understand the concept behind the first cryptocurrency, it’s essential to understand the difference between these two terms: Bitcoin and bitcoin.

The first one -with the capital letter- identifies Bitcoin’s network, most precisely, the open-source protocol created and developed for the cryptocurrency. The word bitcoin -lowercase letter- refers to cryptocurrency or the individual units of the digital asset, also written as BTC.


 

Why has Bitcoin so crucial for the industry?


Bitcoin was revolutionary when it was first introduced because it offered a decentralized and secure way to store and exchange value without needing a central authority.


Blockchain technology has also become known thanks to the digital ledger that records, verifies, and processes transactions on the Bitcoin network.

With Bitcoin, users can send and receive payments directly without needing a third party to verify the transaction. This not only makes transactions faster and cheaper, but it also gives users more control over their own money.


In addition to its decentralized nature, Bitcoin has also gained popularity because of its high level of security. Transactions on the network are secured using cryptography, which makes it difficult for hackers to steal or manipulate the currency.



Critical differences between Bitcoin and traditional currencies


Bitcoin has been innovative for the financial world and brings numerous differences from traditional currencies.


First, it is a digital asset that needs to be better regulated. Although used as a payment method, this use case is not yet developed on a large scale (lightning network).

Many users and traders see bitcoin as gold and, therefore, more of a store of value than an actual currency to purchase.


Nakamoto originally designed bitcoin as an alternative to traditional fiat currency, aiming for a globally accepted legal tender, but people won’t use it to purchase goods and services. They prefer those anchored to another asset, such as the dollar, or euro, called stablecoins.


In contrast with traditional currencies, Bitcoin is based on complex mathematical algorithms and protocols that ensure security and integrity, making it immune to inflation and allowing seamless and secure transactions between parties. The bad aspect is that bitcoin is affected by volatility, which means that its price changes dramatically daily.

Bitcoin has been created with a limited supply of 21 million bitcoins. This limited supply is intended to make bitcoin a deflationary currency, meaning its value will likely increase over time.


 

How does Bitcoin work?


Bitcoin runs on a peer-to-peer network that does not require the help of intermediaries to execute and validate transactions. Users can connect their computer directly to this network and download its distributed ledger in which all the historical bitcoin transactions are recorded.


The Bitcoin blockchain is a digital and chronological string of codes ordered in blocks that allow cryptocurrency transactions to be verified, stored, and ordered in an immutable, transparent way. (Bitcoin is programmed to allow new blocks to be added to the blockchain approximately once every 10 minutes). The network updates every user’s copy to reflect the latest changes whenever new transactions are confirmed and added to the ledger.


Before confusing, it is crucial to mention that validating transactions and bitcoin mining are separate processes.


Mining is the process through which new bitcoins are created. Miners use specialized computer hardware to solve complex mathematical equations, and the first miner to solve a given equation is rewarded with a certain number of bitcoins. This process is known as proof-of-work, the consensus mechanism that ensures the security and integrity of the Bitcoin network.


One important concept is halving: the number of bitcoins intended for miners as a reward is cut in half.


Proof-of-work is a vital component of the Bitcoin system because it helps to prevent fraud. Miners must prove that they have performed some computational power to add a new block to the blockchain.


A new block must contain a valid proof-of-work and be added to the network's longest existing chain of blocks to be considered good. This ensures that the blockchain is constantly growing in a linear and chronological order, preventing any single miner from adding fraudulent blocks to the chain and allowing network security and integrity.

Overall, mining is a crucial part of the Bitcoin network, and proof-of-work is the mechanism that helps to ensure its security and integrity.


 

Bottom line:


Bitcoin has become a highly popular and valuable asset since its creation. It has also spawned several other digital currencies, known as altcoins, that have sought to improve upon the original Bitcoin design.

Despite some challenges and controversy, Bitcoin remains a crucial player in the world of digital currencies and has helped to pave the way for a new era of financial transactions.

Overall, Bitcoin has proven to be a revolutionary technology that has the potential to change the way we think about and use money. While it may still have some challenges to overcome, it has already made a significant impact and will likely continue to do so in the future.


What is your opinion about Bitcoin? Are you a maximalist, or do you diversify your investments?

Share your thoughts with us on Telegram and Discord.


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