Bitcoin is the most famous cryptocurrency in the world. It was the first to break through into the public eye and remains the most valuable token in existence.
But what is Bitcoin? How does Bitcoin work? And how has Bitcoin performed over the last few years?
Keep reading our Bitcoin guide to learn more.
What Is Bitcoin?
Bitcoin is the creation of a mysterious person—or group of people—call Satoshi Nakamoto. There is has been a feverish debate about the true identity of Nakamoto, but nobody has managed to come up with a definitive answer.
Despite the murkiness around the Bitcoin developers, we do know some things for sure about the creation of the token.
For example, we know that Nick Szabo did some preliminary work on a Bitcoin predecessor—called Bit Gold—in the late 1990s. We know conversations between Hal Finney and Nakamoto were ongoing during 2008, and we know the genesis block was mined on 3 January 2009.
Bitcoin’s original intent was clear. The developers wanted to create a cashless, decentralized digital currency that could operate without the need for trust, thus eliminating middlemen, reducing fees, and making corruption more difficult.
The original Bitcoin whitepaper was published under the name of Satoshi Nakamoto on 31 October 2008.
The whitepaper contains some key quotes about the goals for Bitcoin and the issues it was trying to overcome.
In the Abstract, Nakamoto outlined his dreams in the very first sentence:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
He goes on to explain why transactions with financial institutions we so expensive:
Financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads.
In the remainder of the whitepaper, Nakamoto explains how Bitcoin works.
How Does Bitcoin Work?
Compared to many of the other cryptocurrencies we’ve covered in our coin guides, Bitcoin is more simplistic and easy-to-understand.
All Bitcoin transactions are recorded on a public ledger. The ledger is called the Bitcoin blockchain. The blockchain is decentralized (meaning it existing on many different computers (nodes) around the world).
Bitcoin’s blockchain is incredibly hard to corrupt. If a ledger on any of the nodes disagrees with the majority, it is ignored and discarded.
This is called a one-CPU-one-vote proof-of-work. Here’s how Nakamoto describes it in his white paper:
Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. If honest nodes control a majority of CPU power, the honest chain will grow the fastest and outpace any competing chains. To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes.
New Bitcoins come into existence via the process of Bitcoin mining. A miner is a node on the Bitcoin network that confirms Bitcoin transactions.
The confirmation process involves solving complex math problems to create new blocks on the blockchain. If a miner solves the puzzle, they are rewarded with new coins.
At the time of writing, about 17.6 million Bitcoins are in existence, though it’s suspected that at least three million have been lost forever. A maximum total of 21 million Bitcoins can ever be produced.
Due to the process of reward halving, Bitcoin supply will not run out until 2140.
How Much Does Bitcoin Cost?
For much of its early life, Bitcoin failed to attract significant investment. It took until April 2011 for Bitcoin to pass $1 for the first time.
The coin then experienced its first mini-boom. In July 2011, the price peaked at $29.58 before falling away again.
Of course, that was just a precursor for the 2017 boom. On 16 December 2017, Bitcoin hit its all-time high of $19,665.39.
Since then, the Bitcoin market has been in decline. It spent much of the second half of 2018 trading around $6,000 before a further dip saw it drop to the mid $3,000s.
So far in 2019, it has failed to break much above $4,000. Bitcoin has a current market capitalization of $73.2 billion—it’s the largest market cap in the crypto sector.
Where to Buy Bitcoin
Bitcoin is the easiest cryptocurrency to buy. It is available on almost every crypto exchange, and certainly on any worth its salt.
The biggest Bitcoin markets can be found on FCoin ($2.3 billion 24-hour volume on the BTC/USDT market and $500 million on BTC/ETH) and BitMEX ($1.2 billion on the XBT/USD market).
If you want to convert Bitcoin into U.S. dollars, the largest market is on RightBTC ($126 million).
Bitcoin’s Future Potential
Bitcoin benefits from its position as both the most recognizable and most widely adopted cryptocurrency.
However, the coin suffers from some serious problems, some of which have led experts to question its long-term viability.
Perhaps most significantly, Bitcoin suffers from a scalability issue. The small block size means the network can process a maximum of about 10 transactions per second (in contrast, the Visa network can process thousands of transactions per second).
The problem of scalability has led to several high-profile Bitcoin forks. The most notable fork occurred on 1 August 2017 when Bitcoin Cash came into existence.
You can read our Bitcoin Cash guide if you would like to learn more.
If you would like to get more involved with Bitcoin, you should consider joining some online Bitcoin communities.
The best Bitcoin communities are:
- BitcoinTalk forum
- Bitcoin subreddit
- Bitcoin Facebook page
- Bitcoin IRC channels (#bitcoin, #bitcoin-core-dev, #bitcoin-otc, #bitcoin-market, and #bitcoin-mining)
And remember, we’ve also written about how to print a paper Bitcoin wallet if you need even more information.