Bitcoin is a cryptocurrency which isn’t managed by a bank or agency but in which transactions are recorded in the blockchain that is public and contains records of each and every transaction that takes place. The cryptocurrency is traded by individuals with cryptographic keys that act as wallets. The term “wallet” is a bit misleading, as Bitcoin’s decentralized nature means that it is never stored “in” a wallet, but rather decentral on a blockchain. It’s like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether. The physical Bitcoins you see in photos are a novelty. They would be worthless without the private codes printed inside them.
How bitcoin came into existence?
Bitcoin has existed since 2009 and the technology it is built on has roots going back even further. In fact if you had invested just $1,000 in Bitcoin the year it was first publicly available, you would now be richer to the tune of £36.7 million. Those who don’t learn from history are doomed to repeat its mistakes so here is a brief history of Bitcoin.
1998-2009 The Pre-Bitcoin years
Although Bitcoin was the first established cryptocurrency, there had been previous attempts at creating online currencies with ledgers secured by encryption. Two examples of these were B-Money and Bit Gold, which were formulated but never fully developed.
2008-The Mysterious Mr. Nakamoto
A paper called Bitcoin A Peer to Peer Electronic Cash System was posted to a mailing list discussion on cryptography. It was posted by someone calling themselves Satoshi Nakamoto, whose real identity remains a mystery to this day.
2009- Bitcoin begin:
The Bitcoin software is made available to the public for the first time and mining the process through which new Bitcoins are created and transactions are recorded and verified on the blockchain begins.
2010-Bitcoin is valued for the first time
As it had never been traded, only mined, it was impossible to assign a monetary value to the units of the emerging cryptocurrency. In 2010, someone decided to sell theirs for the first time swapping 10,000 of them for two pizzas. If the buyer had hung onto those Bitcoins, at today’s prices they would be worth more than $100 million.
2011-Rival cryptocurrencies emerge:
As Bitcoin increases in popularity and the idea of decentralized and encrypted currencies catch on, the first alternative cryptocurrencies appear. These are sometimes known as altcoin and generally try to improve on the original Bitcoin design by offering greater speed, anonymity or some other advantage. Among the first to emerge were Namecoin and Litecoin. Currently there are over 1,000 cryptocurrencies in circulation with new ones frequently appearing.
2013-Bitcoin price crashes:
Shortly after the price of one Bitcoin reaches $1,000 for the first time, the price quickly begins to decline. Many who invested money at this point will have suffered losses as the price plummeted to around $300 – it would be more than two years before it reached $1,000 again.
2014-Scams and theft:
Perhaps unsurprisingly for a currency designed with anonymity and lack of control in mind, Bitcoin has proven to be an attractive and lucrative target for criminals. In January 2014, the world’s largest Bitcoin exchange Mt.Gox went offline, and the owners of 850,000Bitcoins never saw them again. Investigations are still trying to get to the bottom of exactly what happened but whatever the story, someone dishonestly got their hands on a haul which at the time was valued at $450 million dollars. At today’s prices, those missing coins would be worth $4.4 billion.
2016-Ethereum and ICOs.
One cryptocurrency came close to stealing Bitcoin’s thunder this year, as enthusiasm grew around the Ethereum platform. This platform uses cryptocurrency known as Ether to facilitate blockchain-based smart contracts and apps. Ethereum’s arrival was marked by the emergence of Initial Coin Offerings (ICOs). These are fundraising platforms which offer investors the chance to trade what are often essentially stocks or shares in startup ventures, in the same manner that they can invest and trade cryptocurrencies. In the US the SEC warned investors that due to the lack of oversight ICOs could easily be scams or Ponzi schemes disguised as legitimate investments. The Chinese government went one further, by banning them outright.
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2017-Bitcoin reaches $10,000 and continues to grow
A gradual increase in the places where Bitcoin could be spent contributed to its continued growth in popularity, during a period where its value remained below previous peaks. Gradually as more and more uses emerged, it became clear that more money was flowing into the Bitcoin and cryptocoin ecosystem. During this period the market cap of all cryptocoins rose from $11bn to its current height of over $300bn. Banks including Barclays, Citi Bank, Deutsche Bank and BNP Paribas have said they are investigating ways they might be able to work with Bitcoin. Meanwhile the technology behind Bitcoin blockchain – has sparked a revolution in the fintech industry (and beyond) which is only just getting started.
How bitcoin works?
Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network, also known as “miners,” are motivated by rewards and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins approaches 21 million. Currently, there are roughly 3 million bitcoins which have yet to be mined. In this way, Bitcoin operates differently from fiat currency; in centralized banking systems, currency is released at a rate matching the growth in goods in an attempt to maintain price stability, while a decentralized system like Bitcoin sets the release rate ahead of time and according to an algorithm.
Bitcoin mining is the process by which bitcoins are released into circulation. Generally, mining requires the solving of computationally difficult puzzles in order to discover a new block, which is added to the blockchain. In contributing to the blockchain, mining adds and verifies transaction records across the network. For adding blocks to the blockchain, miners receive a reward in the form of a few bitcoins. As more and more bitcoins are created, the difficulty of the mining process that is, the amount of computing power involved increases.
Why are bitcoins are valuable?
There are lots of things other than money which we consider valuable like gold and diamonds. The Aztecs used cocoa beans as money. Bitcoins are valuable because people are willing to exchange them for real goods and services, and even cash.
Why do peoples want bitcoins?
Some people like the fact that Bitcoin is not controlled by the government or banks. People can also spend their Bitcoins fairly anonymously. Although all transactions are recorded, nobody would know which ‘account number’ was yours unless you told them.
Is it secure?
Every transaction is recorded publicly so it’s very difficult to copy Bitcoins, make fake ones or spend ones you don’t own. It is possible to lose your Bitcoin wallet or delete your Bitcoins and lose them forever. There have also been thefts from websites that let you store your Bitcoins remotely. The value of Bitcoins has gone up and down over the years since it was created in 2009 and some people don’t think it’s safe to turn your ‘real’ money into Bitcoins.
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Bitcoin Price is volatile:
The price of a bitcoin can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets. Consequently, keeping your savings with Bitcoin is not recommended at this point. Bitcoin should be seen like a high-risk asset, and you should never store money that you cannot afford to lose with Bitcoin. If you receive payments with Bitcoin, many service providers can convert them to your local currency.
Bitcoin payments are irreversible:
A Bitcoin transaction cannot be reversed, it can only be refunded by the person receiving the funds. This means you should take care to do business with people and organizations you know and trust, or who have an established reputation. For their part, businesses need to keep track of the payment requests they are displaying to their customers. Bitcoin can detect typos and usually won’t let you send money to an invalid address by mistake, but it’s best to have controls in place for additional safety and redundancy. Additional services might exist in the future to provide more choice and protection for both businesses and consumers.
Bitcoin is still experimental:
Bitcoin is an experimental new currency that is in active development. Each improvement makes Bitcoin more appealing but also reveals new challenges as Bitcoin adoption grows. During these growing pains you might encounter increased fees, slower confirmations, or even more severe issues. Be prepared for problems and consult a technical expert before making any major investments, but keep in mind that nobody can predict Bitcoin’s future.
Government taxes And Regulation:
Bitcoin is not an official currency. That said, most jurisdictions still require you to pay income, sales, payroll, and capital gains taxes on anything that has value, including bitcoins. It is your responsibility to ensure that you adhere to tax and other legal or regulatory mandates issued by your government or local municipalities.
Effect of COVID-19 on Bitcoin:
Bitcoin has experienced wild price swings in recent days as cryptocurrency markets respond to the global economic uncertainty sparked by the coronavirus epidemic. The cryptocurrency has swung between highs of $9,000 and lows of 4,000 since the start of March, representing the most severe price volatility since the market explosion and subsequent crash in late 2017. Over the last week the value of one bitcoin has risen by more than $1,000 to its current price of $6,600. Such drastic economic policy is seen by some analysts as a potential opportunity for investors, who may consider bitcoin as a safe-haven asset due to its decentralized nature.
Bitcoin is a revolutionary currency system which can work in parallel or even replace the existing forms of currencies in the future. Bitcoin can be used as a reliable alternative for fast cashless payments by proposing solutions. The low transaction fees of the network and the instant availability of money to the merchant might render bitcoins interesting for vending machine operators.