Bitcoin is a decentralized cryptocurrency, it has no central authority or a single administrator and can be sent from user to user on the peer to peer bitcoin network that follows the Bitcoin protocol. Bitcoin is also an open source project therefore anyone can view it’s code, use it, copy it, suggest improvements, etc. Due to all reasons mentioned above, Bitcoin is using a technology called Blockchain.
History of Bitcoin
Bitcoin’s history begins on August 18 of 2008 by registering its domain name bitcoin.org. A few months later, on the 31st of October a link was posted on a cryptography mailing list containing a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin’s network came into existence on Jan. 3rd of 2009 with Satoshi mining the genesis block of Bitcoin, which awarded him with 50 Bitcoins.
The genesis block had a text embedded on its coinbase saying: “The Times 03 / Jan / 2009 Chancellor on the brink of second bailout for banks.” The text refers to a headline in the Times published on January 3rd 2009 regarding the instability caused by fractional-reserve banking. A few days later, on January 9th, the first Bitcoin open source client was released and hosted by SourceForge.
One of the first transactions with Bitcoins was when a programmer named Laszlo Hanyecz bought two pizzas for 10.000 Bitcoins making May 22nd of 2010 the first day that Bitcoin was used to buy physical goods. These days, May 22nd is celebrated as ‘Bitcoin Pizza Day’ since it symbolizes the first real-world transaction with Bitcoin.
A bug was spotted in the Bitcoin protocol on August 6th of 2010. That bug allowed users to bypass bitcoin’s economic restrictions and create an indefinite number of bitcoins. On August 15th, the bug was exploited and over 184 billion bitcoins were generated and sent to two addresses on the network. A few hours later, the transactions were spotted and erased from the public ledger, the bug was fixed and Bitcoin was forked to an updated version of the Bitcoin protocol. This was the only major security flaw found and exploited in Bitcoin’s history.
Ideology of Bitcoin
Bitcoin’s ideology in simple terms is decentralization. In the current economic system, we must trust intermediaries to transfer, create, distribute, or manage value. Most of the times we have to believe in their benevolence about all the procedures taking place under their supervision. Satoshi Nakamoto noted that problem to his white paper: “The root problem with conventional currencies is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
However, the idea was not a new one. It has its roots in the Austrian school of economics and it is described in a more complete manner in Friedrich von Hayek’s book Denationalization of Money: The Argument Refined. In his book he suggests ways for a complete free market in the production, distribution and management of money in order to end the monopoly of central banks.
Bitcoin has been described as a “techno-anarchist project” by The Economist and it has been supported by libertarians and cyber-anarchists according to The New York Times. The idea of decentralization of money attracted many people who felt underprivileged and also comprehended the mechanism of fiat currencies. Firmly believing in the spesific idea, people formed “The Declaration of Bitcoin’s Independence” that many Bitcoin proponents read about on a viral youtube video. The declaration also includes a crypto-anarchism message: “Bitcoin is inherently anti-establishment, anti-system, and anti-state. Bitcoin undermines governments and disrupts institutions because bitcoin is fundamentally humanitarian.”
In general, Bitcoin and its technology represent a revolution in evolution or an evolution in revolution, or why not, even both. The protocol is still alive by its people so unless everyone stops believing in it or the modern civilization seize to exist and is no longer possible to regain access to computers, Bitcoin will be alive and for some people it will always represent the era where decentralization started.
The technology behind Bitcoin
Its name is blockchain. Blockchain is what makes Bitcoin unique and revolutionary. It is what the word itself describes, a chain of blocks that is connected through a cryptographic signature with the previous block, up to the genesis block (first block) and is publicly distributed through the network’s nodes.
Having many uses, the technology of blockchain was first introduced by Satoshi Nakamoto on his whitepaper about Bitcoin. Bitcoin uses blockchain to transfer value among individuals. More specifically, it carries a transaction with the form of “payer X sends Y bitcoins to payee Z”. All the transactions are stored into the block and it takes about ten minutes for the network to find the right solution and decrypt the transaction (mining). After the block is mined, the miner publishes it to all the network’s nodes to validate the authenticity of the block and add it to the existing chain of blocks.
Every mined block rewards the successful miner with 50 Bitcoins and the number is halved every 4 years. So the total amount of Bitcoins is limited and is estimated to reach the maximum number of 21 million Bitcoins on the year of 2140. Miners are currently rewarded 12.5 Bitcoins per block and 17.5 million bitcoins have been mined so far.
All this process is used to secure the transactions of the Bitcoin network, making nearly impossible to hack. The phrase “nearly impossible” indicates that there is a way to hack a blockchain network and, indeed, there is. It’s called “51% Attack” and it basically demonstrates that if an entity of the network has 51% of the network’s processing power the “Double spending” problem arouses.
“Double-spending” means that a single token can be used more than once. So far the Bitcoin network has been resistant to this kind of threat because as the network grows it is harder for someone to obtain the means to make a “51% Attack”. Bitcoin’s network right now is almost 100 times more powerful than the TOP500 supercomputer list combined.
Blockchain also offers privacy. The funds are tied to bitcoin addresses instead of real-world entities, making it hard to identify the owners. Bitcoin addresses have a hexadecimal form and only the owner of the wallet’s private key which contains these addresses can spend the coins they hold in. Acquiring a Bitcoin address can be done almost instantaneously but trying to compute its corresponding private key is mathematically unfeasible. If the private key is lost, the Bitcoin network does not recognize other evidence of ownership. As a consequence, it makes the coins unusable and effectively lost. Considering that, we have to create backups of our private key in safe places.
Bitcoin is not the only blockchain. There are other types of blockchains which are used to solve different kind of problems like Ethereum, an open-source, public, blockchain-based distributed computing platform and operating system which utilizes a smart-contract functionality. The uses of blockchain go on. Blockchain beyond doubt is a revolution to computer science and economics, even if it is still at its very early stages of development and adoption. What is the full potential of blockchain is yet to be discovered. As more software is being built, new uses of blockchain will appear.
Bitcoin as form of economic revolution
From pizzas to Lamborghinis, from drugs to games, bitcoin has been used to buy and sell various goods and services over the internet. The first Bitcoin transaction was sent in 2009 to cypherpunk Hal Finney, who created the first reusable proof-of-work system in 2004. After that, we have the first commercial transaction when programmer Laszlo Hanyecz bought 2 pizzas in 2010. People started to value that Bitcoin can be transacted without a central authority, nearly instantly and with minimum fees. Because of these reasons, the first adopters of Bitcoin were programmers, nerds, criminals and cyber-anarchists.
The first major uses of Bitcoin were on the black market because it offers pseudonymity to its users. After seriously accusing Bitcoin of protecting criminals, most of its transactions on the deep web were stopped when the biggest website that sold drugs (Silk road) was seized down by the authorities. This made room for Bitcoin to develop into people’s minds without the ghost of illegality haunting it. As all the things in this world, anything can be used for good or bad purposes. Therefore, Bitcoin’s had a chance to survive and so it did.
On September of 2012, Bitcoin Foundation was founded to promote bitcoin’s development and uptake. People then were using it to trade goods from countries where not anyone has access to a bank account, solving a major problem for these economies. It also saved money for some people in collapsing economies, like Cyprus. Major events like that made people realize the potential of Bitcoin as a decentralized digital currency.
The advantage that anyone can buy and sell bitcoins brought small and big investors into the game. Some of them were just trading Bitcoin’s value to dollars and others invested in huge software solutions where anyone could trade Bitcoins. Due to these changes, Bitcoin rose in value but also fell from setbacks like Mt.Gox, a huge exchange platform, which stole the money of its users.
As more and more people got involved in Bitcoin related industries, the ecosystem grew fast. Big merchants started accepting bitcoins for payments as more software was developed to cover these needs. Hardware companies started investing in the creation of specific chips (ASICS) that will be used to mine bitcoin more efficiently. There are many examples of new companies that were created and still operating thanks to bitcoin and what it represents.
Bitcoin created a new universal decentralized economic system that anyone, anywhere, with access on the internet can use. It’s transparent, has resistant to inflation, it has no central authority and can’t be copied. These are some of its economic strengths. As the current economic system fails, people will start searching for alternatives and the best candidate is Bitcoin.
Acquiring Bitcoins
There are direct and indirect ways to make or get Bitcoins. Direct ways are mining or buy Bitcoins.
Mining
During the early years of bitcoin, anyone could download a mining program and mine bitcoins with their personal computer. However, bitcoin is a protocol which simulates the gold mining process and, therefore, as the time passes, it gets harder and harder to mine. If someone wants to mine Bitcoins today, he or she will need more than a computer.
This occurs because as the network grew, new mining solutions were created. At this point it is considered to be a huge investment, in case someone wants to mine Bitcoins. The mining equipment costs and how much power this equipment is going to need are the elements that must be taken into consideration. If returns can cover the power cost of the whole infrastructure and you can make it profitable, you are good to go. This method contains a lot risks and it depends highly on the value and the network difficulty of Bitcoin.
Buying
The second direct type of acquiring Bitcoins is simply by buying them. There are a lot of exchange sites where someone can sell and buy bitcoins today. Anyone can buy them and you don’t need a lot of money. Someone can buy a 50€ worth of bitcoin in order to buy alpaca socks or just keep them in his/her personal wallet waiting for the price to go up.
When people invest in bitcoin, they expect themselves to become rich overnight but that’s not the case. A lot of things indicate that bitcoin’s price will rise at some point in the future, but, as long as the technology is new and regulations happen from country to country, there is a lot of volatility in Bitcoin’s price. Always make your own research before investing into anything and never invest more than you can afford to lose.
There are also many indirect ways to acquire Bitcoins. Some of them require specific skills and others nothing more than pure dedication.
Services
Anyone with a working internet connection can download a wallet and start accepting Bitcoin for their services. This is the most used indirect way to obtain Bitcoins and, also, the easiest one. Getting paid in Bitcoins for a profession you already have just expands your economic horizon with no major risks. Accepting bitcoins for services comes with more advantages than expected. Countries under capital controls or with low banking infrastructure are still able to sell their services or buy raw materials by using Bitcoin.
Trading
Some people use trading in order to make more bitcoins than they already have. This is a good strategy, considering the fact that you know what to do, otherwise is like diving deep into the ocean waiting for a whale to lift you up, but if the whale does not appear, you will get drowned.
Daily trading can be harsh and it has a many risks, but comes with great rewards. It’s easy for someone to start trading; all you have to do is to register to a major cryptocurrency trading, site sent some Bitcoins from your wallet and buy some of the other coins that are out there.
If you are a trading analyst, this may suits you, as you are expected to take more responsible decisions. If you are not, but still willing to get involved into trading, there are many online courses that can teach you the basics to start with.
Giveaways
Giveaways will not make you rich or change your life, but they are an easy method to get your first Bitcoins. Youtubers and big organizations often do giveaways. Be careful though; if someone asks you to sent digital coins to enter a giveaway or promises similar to that, probably is a scammer and, therefore, should be avoided. All we need to enter a legit giveaway is our wallet address and sometimes filling some KYC (Know Your Customer) information. Moreover, you must never send your wallet’s private key for any reason to anyone (also not needed in a legit giveaway).
Sources:
https://en.wikipedia.org/wiki/Bitcoin
