Everything you need to know about Bitcoin

As we celebrate Bitcoin climbing back up on the right side of USD10,000, I thought I’ll share an in depth article on all things bitcoin. Hopefully, this can provide you with some interesting information and the impetus to find out more, and also have a little fun reading about.

What is Bitcoin?

Bitcoin, as described in the whitepaper, is a peer to peer cash system that enables you to make transactions, or payments, to anyone anywhere in the world, without having to go through a third party, which is how we currently transact around the world, via traditional banking or financial services institutions.

This means, that we have to trust in these financial systems to deliver the payments, and also trust that our funds are stored safely and are retrievable to us at any time. We also have to trust that our fiat currencies will retain their value. Now, depending on where you are and what currency you use, you may already have seen that these currencies and institutions cannot always be trusted to protect your interests.

In contrast, all bitcoin transactions are recorded in a public ledger, and available for anyone to see. This distributed ledger is called a blockchain. Transactions are linked up one after another, forming an irreversible chain that together, makes it highly immune to forgery and fraud.

Who created Bitcoin, and why?

Bitcoin was created by a person or group of people known as Satoshi Nakamoto. The white paper was released in late 2008, and bitcoin officially came into existence in January 2009.

In fact, the very first block created had the following message encrypted into the block:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Bitcoin Genesis Block

This was taken from the headline of the London Times article. The very first person to receive the initial batch of bitcoin was Hal Finney. He has been heavily speculated to be Satoshi Nakamoto, but has always denied it. Finney died in 2014 from complications arising from ALS.

How much Bitcoin is there?

With quantitative easing happening across the world, and governments introducing unlimited amounts of new money into the financial system, one of the biggest fears will be the repercussions of this move, resulting in dramatic inflation of currencies worldwide.

This is where bitcoin comes in. With deflationary characteristics and a hard supply of 21milion BTC only, you always know exactly how much of the pie you have.

Only 21 Million? How is that sufficient for the world’s population as money? Glad you asked. You don’t have to get entire coins as they are fractional. What this means is you can simply buy 0.00001BTC. Then add on as you deem fit. The lowest denomination is known as 1 satoshi, and 100,000,000 satoshis = 1BTC.

You can also view bitcoin more as a store of value, similar to gold. In fact, bitcoin has been called digital gold by many, and are miles ahead of gold in terms of portability and utility.

Over time, bitcoin will simply join in the ranks of property, gold and assume it’s position as a solid asset that appreciates or retains value over time better than fiat currencies do.

Where can you buy Bitcoin?

So, you’re looking at the prices of bitcoin and think “maybe there’s something to this digital gold claim after all…” and are looking to get in on the action.

Well, congrats! It’s never too late to get in, especially at current prices. If you want to get your hands on some btc, or even other cryptocurrencies like ETH, the easiest way would be to open an account with one of the big global exchanges. Coinbase, Binance and Gemini operate across a wide geographical range, so it shouldn’t be a problem for anyone to get an account with these services.

Once you get an account, you can easily integrate or top up your account either via bank transfers or credit card and start buying crypto from there.

Another avenue will be via localbitcoin apps, where you can buy bitcoin peer to peer either via physical meetups, or perhaps in a virtual meeting, given this environment.

If you’re old school, you can try out the mushrooming bitcoin ATMs popping up everywhere. Their fees are atrocious though, and I personally wouldn’t recommend it as I’ve seen a 10% variance in spot vs ATM price.

Not your keys, not your coins

You might have heard of the above saying, “not your keys, not your coins”. This simply means that if you’re not in control of your private keys, for example if you keep your crypto in a custodial exchange, you’re susceptible to exchange hackings and your stash could potentially get stolen in a hack. Once you have gotten a sufficient amount of crypto, you might want to look into storing some, or even the bulk of your crypto in a cold wallet.

What’s a cold wallet, you ask? Well, bitcoin is designed to be a trustless asset, meaning they are yours to hold and yours to own. No one else can and should have the keys to your house. Exchanges are a great way to procure your crypto, but once they get to a meaningful value, you should really think about moving those assets to something like a ledger, which is an offline hardware wallet for you to safely store your crypto.

Ledger is one of the more popular hardware wallets out there, and I did a short write-up discussing the difference between Ledger Nano S and Ledger Nano X.

How is new bitcoin entering into the economy?

New bitcoin is minted by means of mining. Bitcoin miners across the globe work to maintain the blockchain, and to confirm and process new transactions that are added to the blockchain. In essence, they can be seen as blockchain auditors, working together to maintain a single, continuously building chain of transactions.

For every block that miners confirm and add to the blockchain, new bitcoin is created and awarded to them as reward. After the 2020 halving, the bitcoin reward currently stands at 6.25BTC per block. This, together with transaction fees, makes up the revenue for miners.

What is Bitcoin Halving?

Because the total supply for bitcoin is 21million, there has to be a reliable and predictable way to introduce that into the ecosystem. Enter the halving mechanism. It is built into the code, which states that the total amount of new bitcoin entering the system will be halved every 210,000 blocks. One block is generated every ten minutes, which makes the halving event roughly once every 4 years. This will happen until the very last bit of bitcoin will finally be introduced in 2140.

How many cryptocurrencies are there?

Bitcoin is the oldest cryptocurrency, but there are thousands of other cryptocurrencies circulating out there. Many of them are products of scam and most will zero value by the time the dust settles.

There are of course other valuable cryptocurrencies that help solve for privacy, contracts, ownership and other asset accumulation purposes, and it’s important to be able to tell them apart.

You’ll have to do your own research on this, as I believe in mainly bitcoin and Ethereum as the core blockchains that will endure, with many other tokens built as an execution layer on top of them. The total cryptocurrency market cap as of today is about USD307B, 61% of which is dominated by Bitcoin (~USD188B).

Is Bitcoin a scam?

People say Bitcoin is only used by criminals for illegal stuff! Well, bitcoin, like all other currencies, will be susceptible to scam and extortion schemes. That’s just how people get paid for things! People say things like “Oh, bitcoin facilitates drug purchases!”. My understanding was that drugs existed way longer than bitcoin did. I wonder how people bought drugs before there was bitcoin?

Also, bitcoin is actually more transparent than you think, and in terms of laundering, cash would be a much preferred option than bitcoin in terms of anonymity. After all, if you were to lug a huge luggage of cash and pass it on to someone else, there wouldn’t be a very public record of it anywhere, much less online, is there?

What is the price of 1 BTC now?

Ahhh, asking the real question now! As of the writing of this piece, BTC was trading at USD10,306.

Oh wait, what’s this Bitcoin Pizza about?

Back in 22 May 2010 (Which has since become known as Bitcoin Pizza Day), during Bitcoin’s infancy, a developer by the name of Laszlo Hanyecz bought 2 pizzas with 10,000BTC, which at the time was worth about USD41.

We all know what’s happened since then, and how he had since eaten the world’s most expensive pizza. As of today, those pizzas have cost him more than USD99 Million dollars!