What is Bitcoin (BTC) in simple words: description, history of occurrence

3 months ago
Bitcoin
Bitcoin

For 2020, probably all residents of developed countries of the world heard about cryptocurrency Bitcoin. But for many, this word remains something incomprehensible. We will try to understand in detail what Bitcoin is in simple words, why it is needed, the principle of work, the history of appearance, consider the online chart and the process of receiving, buying, ways to earn Bitcoins.

Bitcoin is an entry in a distributed public book (blockchain). Bitcoin is used as a payment system, an investment tool, a financial instrument for speculative trading. Cryptography is used to protect the blockchain network.

What is Bitcoin?

In its simplest sense, Bitcoin is a computer program. However, it is not located on one specific computer, but simultaneously on thousands and millions of PCs directly connected to each other through this program. The principle of operation resembles torrents. We will tell more about the work of Bitcoin in the corresponding section.

Such a system is called decentralized. It is almost impossible to crack or take control in any way. The main tool for circulation within the network is BTC, virtual coins that exist exclusively on the Internet.

In simple words, Bitcoin is digital money on the Internet. The emission and management system is decentralized. Cryptocurrency does not have a central authority and is not supervised by financial institutions of the world. The operation is based on blockchain technology and cryptography.

What is bitcoin

Bitcoin exchange rate history since 2009, growth and fall dynamics

Bitcoin exchange rate history
Bitcoin exchange rate history

Like any means of payment, albeit virtual, the Bitcoin cryptocurrency has a rate (usually a course against the US dollar is taken). It is interesting to observe its ups and downs over 10 years of existence:

  • For the first time a specific course was recorded in October 2009. At that time, for 1 dollar they gave 1309.03 coins. That is, having spent just a few USD, you could buy a huge amount of Bitcoins. Due to the low cost, the cue ball was not yet divided into satoshi.
  • In May 2010, they gave $ 0.008 for Bitcoin. Then a turning point happened - for the first time they bought a real product for a digital coin. These were two pizzas with a total value of $ 25 or 10 thousand BTC.
  • By mid-2010, the cue ball showed tenfold growth and reached a price of 0.08 USD, and by the end of the year this figure was already 0.5.
  • In 2011, the rate of Bitcoin for the first time caught up with the dollar. By March, the price rose to $ 31, but soon fell sharply. This is due to the fact that hackers, who sensed the prospects of the currency, set about trying to break into wallets and exchanges. Having Bitcoin back then was unsafe.
  • Throughout 2012, the exchange rate was relatively flat.
  • But 2013 showed a real explosion - by the end of November, the cost of BTC exceeded $ 1200. True, it soon decreased by 2 times due to the ban on the use of cryptocurrency in China.
  • In 2014, the cryptocurrency rate did not change much, but the coin was confidently gaining ground in the market.
  • In 2015, there were sharp ups and downs (range - from 281 to 355 dollars).
  • Throughout 2016, the value of cryptocurrency gradually grew, despite the scandalous departure from the team of one of the developers, and by December reached $ 1000. In addition, in 2016, the market capitalization of the currency reached $ 30 billion.
  • In 2017, the popularity of Bitcoin was at a peak level. In December, the rate reached a record value of $ 20
  • 2018 was not so successful. For the most part, the price of the currency was stable at $ 6500, however, in November it sank heavily and still cannot recover.

How to get, buy, earn Bitcoin

There are different ways to get Bitcoins. Some of them are already losing relevance, while some are still quite in demand.

Bitcoin cryptocurrency mining

Bitcoin mining
Bitcoin mining

The cryptocurrency mining process consists in solving mathematical problems simultaneously by thousands of computers connected to the network across the planet. The end result of mining is getting BTC coins. The system is safe due to the fact that the process is distributed among all participants, and is not controlled by a single server or a center that issues money.

Each payment made within the network is fixed in a special log open for public access. The task of the miners is to choose among the millions of combinations the desired hash that would fit all recent transactions and a “key” that guarantees a reward in the form of a certain amount of Bitcoin-coins. This is called block closure. A transaction block is immediately added to the blockchain chain. A lot of miners are fighting for the award at the same time, most of which are pooled.

When the first mention of cryptocurrency and the software for them appeared, everyone could easily find a new block and get the coveted Bitcoins in the amount of 50 BTC.

Mining equipment needed to simply perform a certain algorithm of actions, mathematical calculation. But, Bitcoin mining has become a mass phenomenon. Everyone wants to earn a virtual coin and the difficulty of mining has increased. In order to earn money you need to buy high-performance ASIC miners and mine by joint efforts in the mining pool. On a processor or graphics card, mining Bitcoin does not make sense.

In October 2008, users of the gmane.comp.encryption.general resource received a newsletter on their e-mail addresses. In it, a certain Satoshi Nakamoto spoke about his invention - a fundamentally new digital currency and its advantages. Then the domain bitcoin.org was registered, working to this day.

Bitcoin cryptocurrency history

Officially, it is believed that Bitcoin has existed since 2009. It was then that in January, cryptocurrency software was first launched. The very first block (genesis) was formed by the creators of the network, Satoshi Nakamoto (whose true identity is still unknown to anyone). A few days later, the first transaction was made, transferring funds from one participant to another.

In 2010, the first cryptocurrency exchanges appeared that allowed exchanging Bitcoin - Bitcoin Market and Mt.Gox, as well as a mining pool called Slush. By the end of that year, the market capitalization of the cryptocurrency crossed the threshold of $ 1,000,000. An unpleasant event also happened - a hacker discovered a vulnerability in the code, used it and generated more than 180 billion coins. The vulnerability was soon managed to close, and the deal was canceled.

In February 2011, when the cost of BTC was equal to the dollar, the coin was first talked about en masse in both digital and print media. The reviews were not only laudatory, but also condemning, and this negatively affected the course. In June 2011, the Mt.Gox exchange was hacked, as a result of which several tens of thousands of accounts were damaged. But interest in cryptocurrency still persisted.

At this moment, altcoins began to appear, trying to eliminate one or another disadvantage of Bitcoin. Some were successful - for example, Litecoin has been consistently in the top ten cryptocurrencies for several years.

In 2013, Bitcoin was already considered a recognizable project. Around him constantly occurred events of varying degrees of importance. In particular, this is the bankruptcy and closure of the Mt.Gox exchange.

With the growth of the course, more and more dissatisfied participants appeared: after all, the number of miners increased, and as a result, commissions grew, blocks were processed longer. In this regard, enthusiasts achieved a hard fork, as a result of which a Bitcoin Cash coin was formed. Nevertheless, interest in Bitcoin was steadily growing, both private individuals and large companies paid attention to it.

After the sharp fall of Bitcoin in November 2018, many said that the coin came to an end - but it is unlikely that this is so. Now the course is quite stable. The only question is where will he go next - up or down.

Bitcoin working principle

Let's take a look at the main aspects of the work of the Bitcoin cryptocurrency:

  • To store, receive and transfer funds, you need a cryptocurrency wallet. A wallet consists of a public key (address), a private key (giving access to account management) and a balance. The public address can be compared with a login, and a private address with a password. To send you money, the other party needs to know the public or public address, however, the private key must be kept in a safe place in strict secrecy.
  • The address of the Bitcoin wallet is an identifier of the form 19L2ffRrriLo3ZDmwKdSXssadQJdp9g1fv. It is noteworthy that the Internet is needed only to make payments, but not to create a wallet. The process of creating a wallet is just randomly generating a password and login. There is even a chance of generating a wallet with money in the account, but it is extremely small and amounts to 1.813595 * 10 to -62 degrees.
  • The entire Bitcoin network can be described as a huge register that stores information about transactions. Any transaction is open for viewing by any participant. There are special sites where you can track them. for example, the Blockchain browser. Amounts transferred, like public addresses, are not confidential information. However, each transaction is reliably protected by a cryptographic signature to prevent hacking.
  • It takes about 10 minutes before adding a new transaction to the blockchain. This time is needed to establish the confidence of the system in the payment. In 10 minutes, the transaction should be included in as many blocks as possible created by the miners.
  • The maximum number of possible Bitcoins is 21 million. Emissions are limited in order to prevent inflation. Currently, 17,501,550 coins are in circulation, however, due to increased complexity and periodic cutting of the reward, the process slows down significantly with time. According to calculations, all Bitcoins will be in circulation only by 2140.
  • The smallest unit Bitcoin can be divided into is Satoshi, one hundred millionth part. Named after the creator of the cryptocurrency.

What is Bitcoin provided with?

Bitcoin provided
Bitcoin provided

Bitcoin is not controlled by anyone, is not associated with any state economic structure and has no physical embodiment. However, this does not prevent its price from rising and measured in thousands of dollars. It follows that the value of Bitcoin is provided primarily by demand and popularity, as well as by the technological mechanisms that underlie it (in particular, the high cost of mining).

Many people do not trust cryptocurrencies for the reason that they are not provided with a gold reserve, mistakenly believing that fiat money is provided to them. In fact, most countries have already abandoned the gold standard.

What are Bitcoin Forks

Cryptocurrency forks are divided into two types:

Soft fork. It is a non-critical update compatible with the current blockchain network protocol.

Hard fork. This is an update whose rules cannot be combined with current software.

In the Bitcoin network, hard forks are carried out by increasing the volume of the block when the nodes that make up the system are upgraded software to comply with the new rules. If the change is not made, then nodes using different software will not be able to adequately perceive the same information. In this case, the blockchain is divided into two independent parts. All operations that were carried out in the original network for the second become invalid.

Over the 10 years of the existence of the Bitcoin blockchain, such forks have happened repeatedly, but they have not always ended in the formation of a new coin. In the summer of 2017, the Segwit soft fork was successfully activated, and almost at the same time a hard fork happened, which resulted in the appearance of the Bitcoin Cash coin.

Investments in Bitcoin, prospects

Forecasts about making investments in the Bitcoin cryptocurrency range from positive to sharply negative. Optimists cite the example of the gradual adoption of cryptocurrencies in countries around the world - for example, in the United States there is a law under consideration whereby digital money is in fact equal to fiat. In addition, due to limited emissions, the BTC rate promises to go up, despite the swings associated with the information background.

Pessimists point out that the project behaves like a “bubble”, and all its popularity is based solely on speculative actions of exchange players. They also believe that one should not particularly count on world currency adoption in the next 5-10 years, since it will not be beneficial to the authorities in any country.

Nevertheless, most experts are convinced that we should expect a sharp jump from Bitcoin in 2019-2020. So, cryptocurrency still remains a promising investment tool.