Bitcoin Explained

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Brief History of Bitcoin

Finance, like most human inventions, is constantly evolving. In the beginning it was basic: food was traded for livestock, and livestock for resources like wood, or maize. It progressed to precious metal, such as silver and gold. And now, the next step in financial evolution has come to light.

This new form of currency has been constantly evolving over the past decade, developed by an unknown person and maintained by a collective group of the brightest minds in technology. It’s a new form of money that is created and held digitally, and the most important part, of course, is that no government owns it, or decides its value – the community does.

We call this new money, ‘Bitcoin’.

How Did Bitcoin Start?

There are many questions about Bitcoin, but the most common one to be asked is, “Who created it?” That answer is not straightforward, because the identity of the creator remains a mystery. All we have is a pseudonym – Satoshi Nakamoto. The accounts are no longer active; the coins in his wallet have never been spent. Satoshi Nakamoto has disappeared from the world, or so it would seem.

The mystery that surrounds Satoshi Nakamoto is fitting; privacy was a key value for both Bitcoin, and its users. Others have tried to claim his mantle – most recently an Australian man named Craig Wright, who has since withdrawn his claim. While we may never know who first created Bitcoin, we do know that the technology he started has left ripples in the financial industry.

What is Bitcoin Used For?

Currency must have value to ensure stability. The most common way for a person to judge a currency’s value is what they can use it on; Bitcoin is no different, and a host of vendors and merchants now accept it alongside, or in place of, fiat money.

One early adopter of Bitcoin was the computer retailer Dell. In fact, when Dell started accepting Bitcoin, it became one of the largest companies to do so internationally. While the digital currency may total for just a fraction of the retailer’s total transaction volume, there are other key reasons why the growth of Bitcoin could be aboon for the retailer.

Dell reported earnings of $59 billion during 2015. Traditional transaction fees range from 2 to 3 percent of the purchase price – with Bitcoin, it’s much, much lower, nearing non-existent – saving the retailer a lot of money in the future.

In addition to Dell, many other companies accept Bitcoin, including airBaltic, an airline that offers tickets to 60 destinations in Europe, the Middle East, Russia, and other select locations. The company posted their announcement on Twitter after adopting the new practice.

Bitcoin In Numbers

Historical Bitcoin Price in USD (As of November 20th 2017, BTC=$8220)

Period Dollar Change Percent Change
Last 7 days +$1,198.78 +17.06%
Last 30 days +$2,201.33 +36.55%
Last 6 months +$6,034.40 +275.64%
Last 1 year +$7,483.96 +1,011.84%
Last 2 years +$7,900.14 +2,442.39%
Last 5 years +$8,211.92 +70,307.53%

Bitcoin Network Statistics

Total Bitcoins
(sum of all currently existing Bitcoins)
16,681,386 BTC
Market Capitalization
(market value of all currently existing Bitcoins)
$137,149,287,403 USD
Transactions last 24h 367,925
Transactions avg. per hour 15,330
Bitcoins sent last 24h 3,964,926 BTC ($32,598,419,107 USD) 23.77% market cap
Bitcoins sent avg. per hour (last 24h) 165,205 BTC ($1,358,267,463 USD)
Avg. Transaction Value 10.78 BTC ($88,601 USD)
Addresses richer than
1/100/1,000/10,000 USD
14,903,085 / 4,647,847 / 1,910,029 / 518,695
Active Addresses last 24h 861,938

The basics for a new user

As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.

Mining

Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.

Every day, Bitcoin the cryptocurrency and Bitcoin the technology gets more popular. When in 2011 you had to write a person from the other continent to order a pizza for you with Bitcoins, now you can do something like that in a number of major cities. In some countries like the Netherlands, the entire towns are Bitcoin-friendly (such as Arnhem, often called ‘the Bitcoin city’) now with a range of services available for those who are willing to pay with BTC. The more ways are there to spend the cryptocurrency, the more ways are there to obtain them. Let us look at some of the approaches to help you earn Bitcoins online.

Balances – block chain

The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.

Transactions – private keys

A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.

How can you get your own Bitcoins?

1. Mine your own Bitcoins

The very first way to get your own Bitcoins was through mining. In 2009, every block mined (every 10 minutes on average) brought a reward of 50 BTC to the lucky one who managed to solve the computational problem. Right now, every block brings 12,5 BTC.

Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released.  Anyone with access to the internet and suitable hardware can participate in mining.  The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.  The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.  The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.

The amount of new bitcoin released with each mined block is called the block reward.  The block reward is halved every 210,000 blocks, or roughly every 4 years.  The block reward started at 50 in 2009, is now 25 in 2014, and will continue to decrease.  This diminishing block reward will result in a total release of bitcoin that approaches 21 million.

How hard are the puzzles involved in mining?  Well, that depends on how much effort is being put into mining across the network.  The difficulty of the mining can be adjusted, and is adjusted by the protocol every 2016 blocks, or roughly every 2 weeks.  The difficulty adjusts itself with the aim of keeping the rate of block discovery constant.  Thus if more computational power is employed in mining, then the difficulty will adjust upwards to make mining harder.  And if computational power is taken off of the network, the opposite happens.  The difficulty adjusts downward to make mining easier.

In the earliest days of Bitcoin, mining was done with CPUs from normal desktop computers.  Graphics cards, or graphics processing units (GPUs), are more effective at mining than CPUs and as Bitcoin gained popularity, GPUs became dominant.  Eventually, hardware known as an ASIC, which stands for Application-Specific Integrated Circuit, was designed specifically for mining bitcoin.  The first ones were released in 2013 and have been improved upon since, with more efficient designs coming to market.  Mining is competitive and today can only be done profitably with the latest ASICs.  When using CPUs, GPUs, or even the older ASICs, the cost of energy consumption is greater than the revenue generated.

2. Do work for Bitcoins

If mining is not for you, you can search for work that you can do for Bitcoins. There are multiple services that will offer one an opportunity to work for cryptocurrency. You can find something at Coinality or by just going to /r/Jobs4Bitcoins on Reddit. Currently, you can earn Bitcoins online as a freelancer mainly, but some Bitcoin startups and companies like Overstock offer an option to get the regular payment in BTC. With greater acceptance, there will be more options to look for.

3. Offer something for Bitcoins

Another way to earn Bitcoins online is to sell something for crypto. If you are keen on handmade, you can accept BTC on your  page, and if you are a merchant, you can use your Bitcoin address to accept Bitcoins payment on your website. You can also hang a “Bitcoin Accepted Here” sign at your hotel, restaurant, café etc.

4. Bitcoin Trading

A good way to make an earning with Bitcoin and cryptocurrency in general is to do it through trading. Exchanges allows you buying Bitcoins with payment cards or via bank transfer, after which you can convert it to other crypto or fiat using the price volatility at your advantage. Sometimes, however, Bitcoin trading can be very similar to gambling – high risks are involved here too. In order to minimise them, you need to learn a bit about trading. You may follow our blog to get some trading tips. Meanwhile, you can start with our 3 tips for profitable trading and then explore our trading category. Just start with a little amount, and when you feel more confident, you will be able to get to bigger earnings.