Bitcoin – the one that started it all



Some may praise it as the currency of future, others may consider it a well-designed Ponzi scheme, but one thing is certain – Bitcoin is the first cryptocurrency in the world that introduced some brand-new technological concepts to the world. Backed by a ground-breaking blockchain technology that utilizes distributed, decentralized network that could be used for numerous purposes, this peer-to-peer currency exchange platform has created the most thrilling market in the world. Since its inception, it had its ups and downs, but this year it finally got the mainstream recognition, popularizing both blockchain technology and the rise of other intriguing cryptocurrencies. Therefore, we have written this extensive Bitcoin review article that will explain everything you need to know in order to become a part of this revolution. From its initial creation, through the concept behind it, all the way to creation of new coins and future predictions, here you will find all important info regarding the most valued cryptocurrency in the world. So keep on reading and learn why you should take a part in this adventure!

Bitcoin | Legacy of Satoshi Nakamoto

The concept of peer-to-peer transaction network built on top of the distributed ledger called blockchain dates back from 2008. Shortly after the global economic crisis, a man or a group of people hidden behind the pseudonym Satoshi Nakamoto published a technical description, or whitepaper, explaining the Bitcoin software. On January 3rd 2009, the first block was established by the authors, and the network began operating just a month after it. It brought together renowned developers, cryptographers, and creators of Bitcoin’s predecessors, and these early adopters became the loudest proclaimers of the new technology. Bitcoin’s popularity has been rising over time, and now, only 8 years after its inception, it holds the majority of the market worth almost 200 billion dollars.

The true legacy of the mysterious creators is not Bitcoin (which was never intended to be used as a digital currency), but rather the technology behind it – blockchain. This new concept that utilizes the decentralized authority in a form of all users that collectively decide about the network changes is here to stay, and will surely impact multiple industries. In fact, it already does this, through various ICO-backed companies adjusting the blockchain and putting additional layers on top of it. It’s safe to say that we’re currently a part of something truly magnificent, something that has the power to change the world as we know it. Still interested in hopping on the train, aren’t you? Then read the next part of our article and learn how Bitcoin works, and what you need to ensure in order to participate!

Bitcoin | How it works?

Although it may seem complicated, the functional principles of all cryptocurrencies have minor differences among each other. That way, explaining how Bitcoin works will explain the functionality of majority of present cryptocurrenies as well. So let’s start.

The backbone of Bitcoin is blockchain, a type of publically distributed ledger system that records and broadcasts each and every Bitcoin transaction. Think of it as a huge database, but instead of existing only on one local server, it is duplicated on the so-called nodes, computer software owned by Bitcoin users. Therefore, each node owner has a copy of the whole ledger that is updated every 10 minutes with a new block. Each block contains a timestamp, transactions that happened in a given time span, and a link to the previous block in the chain. The sole process of creating blocks is called mining, where multiple users are using their computing power in order to be the first to solve complex mathematical problems, thus being eligible to receive reward in a form of new Bitcoins. We’ll be talking a lot more about mining in the rest of our review. For now, let’s see how transactions are processed on the network.

Let’s say that you want to send a certain amount of Bitcoins to your friend. Transactions on this network are performed using combinations of letters and numbers, or addresses. These addresses are putting “crypto” in the cryptocurrency, and all of them function on the very same principle. Each user has two addresses – a public one, for receiving coins, and a private key that is used to access funds deposited on the corresponding public address. In other words, imagine that Bitcoins are contained in the specific address that is protected with strong encryption, and can be deciphered only by providing the unique string of numbers and letters – private key. As private key is the only thing that denotes ownership of coins, it is vital to keep it safe from potential harm, because losing it may result in permanent loss of access to your coins. So, in order to make a transaction, both you and your friend must have your public and private addresses. The easiest way to obtain them is by using a software called a wallet, which is essentially a keeper of your keys, as well as an interface for sending and receiving coins. You need to input your friend’s address, the amount of Bitcoins you want to send, and that’s pretty much it. It’s good to mention that you’ll be asked to pay a certain amount of transaction fee, which serves as an incentive for miners to keep doing their job. The higher the fee, the more probability that your transaction will be processed faster. Transaction fee, as well as speed, is one of the most criticized aspects that prevents even greater acceptance of Bitcoin, but we’ll give a more detailed analysis later on. Now that you know how this network works, let’s take a closer look at another way of obtaining valuable coins – mining.

Bitcoin | To mine, or not to mine?

Although it doesn’t quite look like extracting valuable resources from the Earth’s core using excavating machinery, cryptocurrency mining does have one thing in common with conventional mining – creating new resources, in this case new coins. At the very beginning of Bitcoin, mining was a highly successful way of earning coins, due to their low cost and lack of recognition. However, due to significant price increase and reduction of rewards for each generated block, as well as growing competition, mining has become more of a thing for professionals and those willing to initially invest larger sums. Nevertheless, we’ll give a brief overview of it and let you decide if it’s the right thing for you.

Mining takes place on the specifically designed mining nodes that often run a core Bitcoin software on a highly specific piece of hardware. Earlier, you could mine on your own laptop, home computer, Raspberry Pi, and some cryptos even let you mine through your browser or mobile phone. However, due to the growing number of users, increasing mining difficulty and lower mining rewards (currently 12.5 BTC per block), Bitcoin mining now requires specifically designed ASIC machines. These are advanced computers composed of a multiple powerful graphic cards, capable of executing huge number of operations per second. Speed is the key here, since only the first miner that manages to create a block among tens of thousands of them gets the mining reward – others are left dry. Basically, mining denotes the process of solving complex, irreversible mathematical problems of finding specific string of numbers that satisfies the equation with the predetermined difficulty level. The procedure of using electricity to generate computer power in order to generate the next block in the chain is also known as proof-of-work, a conversion of real-life resource to crypto coins. The puzzle difficulty changes dynamically every two weeks based on the available computing power, thus always keeping the block generation time at approximately 10 minutes. The reward for creating a block is halved every four years, with eventually reaching zero in approximately 120 years. In that moment, exactly 21 million Bitcoins will be created, which is the maximum quantity determined by the source code – after that, the incentive for keeping nodes active will be in form of transaction fees only.

So, should you start mining or not? It depends on what you want, and how fast you want it. Mining rigs and ASIC machines are fairly expensive and extremely power-consuming, but they are the only devices that let you mine Bitcoins successfully. Therefore, if you’re ready for a costly initial investment that should pay off in roughly one year, go for it. Otherwise, the best way of obtaining coins is simply by receiving them from others or by buying them on exchanges. Now, let’s give an unbiased overview of pros and cons of owning and using Bitcoin!

Bitcoin | Pros and cons

The most important and most obvious advantage of Bitcoin is the fact that it is the first, and therefore most recognized cryptocurrency in the world. It is being accepted by more and more stores each day, subsequently rising its value per coin. Also, your personal information are not linked to your public address, meaning that as long as you’re careful enough, you can buy any goods completely anonymously, regardless of the fact that the blockchain can be publically browsed by anyone. Also, current transaction fees are still way smaller than with commercial banks, making it a great way for moving larger amounts of funds. Its decentralized nature is a huge treat as well, since the whole system is controlled by users, without any governing body and third-party mediator. On the other hand, risks of payment frauds are significantly reduced compared to fiat currencies, since all transactions written on the blockchain are immutable and cannot be changed or manipulated in any way. And finally, Bitcoin depends only on the supply/demand ratio, there is no government that can control it, and it is a first step towards decentralized world. Also, due to the fixed number of coins that will ever be issued, the inflation won’t destroy its growing price.

However, it has its flaws as well, of both technical and legal nature. The most prominent one is scalability issue – the initial design of the network didn’t predict this amount of usage, meaning that the blockchain is growing huge, transactions are slow and costly, and there are cryptocurrencies that are offering better solutions. There are some proposals for solving the scalability issues by stripping the main blockchain of extra data (SegWit) or increasing block size, but this question still remains unsolved. High volatility is also present, as the market is still fairly young, as does the fact that the safety of your keys can be endangered by failure of electronic devices, human error or security breaches – be sure to always keep several backups! Also, Bitcoin trading is being more and more regulated by governments, and due to its anonymity feature, it is being used for criminal businesses which might damage its reputation. Regardless of all these advantages and disadvantages, the future of Bitcoin and blockchain is surely as bright as it can be.

Bitcoin | Conclusion

As you have seen, Bitcoin is the most important cryptocurrency of today, a true market leader that is being recognized throughout the world as an alternative, decentralized and anonymous way of exchanging goods and services. Its backing architecture, blockchain, will surely be applied to many aspects of everyday life in future, which will reflect on the acceptance and prices of cryptocurrencies as well. Therefore, we can say that truly exciting times are ahead of us, and strongly advise you to get your Bitcoins right now. Also, keep on reading our other cryptocurrency-related articles, as we’ll be posting more and more interesting stuff in the coming days!

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Author: Ben Prescott

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