Did you know that Bitcoin accounts for nearly half of the value of the entire crypto market?
It is by far the biggest cryptocurrency in the world and is often seen as the gold standard in an industry that can often have a lot of sketchy coins.
Like it or not, Bitcoin is here to stay and will be the focus of this article today.
I will start off by explaining briefly what it is and how it works.
I’ll also give you more information that will ultimately make it easier for you to take advantage of this coin.
Let’s get started!
So, What Is Bitcoin?
To be fair, it's actually very hard to provide a simple and straightforward definition of Bitcoin.
This is because Bitcoin has evolved significantly over the last decade to take different shapes and forms.
However, when the coin was invented for the first time in 2009, the vision at the time was to use it as a digital currency that would help facilitate peer-to-peer transactions across the world.
However, over the last ten years or so, Bitcoin has evolved beyond the idea of a transactional digital currency.
It is now seen as an investable asset class and even to some extent, a store of value, the same way Gold and Silver is seen.
Bitcoin has also paved the way for the revolutionary blockchain technology that is now looking to completely transform traditional finance.
I’ll discuss more about that in a later article.
Let’s Take a Deeper Look at How Bitcoin Works
To be able to understand how Bitcoin works, I think it is important to briefly look at how traditional fiat currency works.
Let’s take the example of the US dollar.
The dollar is issued by the United States Federal Reserve.
The purpose of the dollar is to facilitate transactions, both in the US and abroad, while also acting as a store of value.
So, in essence, if you have, say $1000, it means that you could be able to use that money in exchange for goods and services.
Even more so, the $1000 represents a certain value that can be transferred to someone else or stored in a bank for future use.
It sounds simple, right…?
How Does Bitcoin Compare with Traditional Money then?
Bitcoin is very similar to USD, but there are a few crucial differences.
Just like the US dollar, Bitcoin can be used to facilitate transactions, albeit in a much more limited manner.
In addition to this, Bitcoin can also be used as a store of value.
However, unlike the US dollar, which is issued and controlled by a central entity called the Federal Reserve Bank, Bitcoin Miners play a key role in the issuance of new Bitcoin.
But that is not all.
There are also specific and codified standards in place to protect the value of Bitcoin over time.
With the US dollar, however, the value depends entirely on the actions of the Federal Reserve, which is essentially about seven people.
Also, unlike the US dollar, whose value is only transferable and stored in a centralized banking system, Bitcoin’s value can be stored and transferred globally through the blockchain.
This blockchain is a public ledger that is not controlled by any single person or group of persons.
So, where did this technology come from…?
Let’s Look at Bitcoin's History
As noted above, Bitcoin was launched in 2009 by an anonymous developer named Satoshi Nakamoto.
The proposed workings of Bitcoin were covered extensively in a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System”. published on Bitcoin.org in the same year.
As the title suggests, the vision for the creators was to build a peer-to-peer payment system.
It was designed to allow people to transact with each other directly without using third parties like banks.
Interestingly enough, when Bitcoin launched, the total supply of coins was capped at 21 million, meaning that only 21 million Bitcoins will ever exist.
It is believed that Satoshi Nakamoto mined around 1 million Bitcoins during the initial phases of the project.
However, as the years have gone by, Bitcoin mining has become harder and harder.
You would need to expend a lot of resources today to mine a single Bitcoin than you would have needed four years ago and most definitely more than 8 or 12 years ago.
So, How Many Bitcoins Are There Today?
According to data from CoinMarketCap.com, right now, there are 19 million Bitcoins in circulation.
This means 2 million coins have yet to be mined and released into the market.
At face value, you might assume that it's only a matter of time before these 2 million coins are mined.
Well, not quite.
You see, as noted above, mining Bitcoin has become harder and harder over time and will continue to become so in the future.
In fact, it is estimated that the full supply of 21 million Bitcoins will be reached in 2140.
That is over 100 years from now, so there is still a lot of work to do.
Although, since we’re talking about the Bitcoin supply…
What is Bitcoin Mining Anyway?
I know I have mentioned mining Bitcoin throughout this article, so let me take a minute to clarify what it is.
Mining is basically the process through which new Bitcoins are introduced, through solving complex computational puzzles.
Remember, at the start of the article, I said that Bitcoin is transferred and stored through the Bitcoin blockchain?
Well, that’s a network of decentralized computers that verify and validate every transaction.
These decentralized computers are rewarded with new Bitcoins in return for validating transactions and keeping the Bitcoin network secure.
In essence, this is what Bitcoin mining is doing, then.
It’s a term used to describe the validation and creation of the Bitcoin network.
But what does this mean for traditional finance…?
What are Bitcoin’s Potential Implications for The World Economy?
First, Bitcoin is changing how people view money.
Although the adoption of these digital currencies is not as widespread as with traditional fiat currencies, there is a growing realization that money doesn't have to be physical or centralized.
In addition to this, Bitcoin has opened the door for massive innovation around blockchain technology.
Thanks to Bitcoin, we have now seen major developments around the use of decentralized technology in financial transactions around the world.
Bitcoin has also paved the way for the use of decentralized technology in gaming and so many other sectors.
There is, of course, an environmental impact too.
The amount of energy that Bitcoin uses is pretty high - more than some countries, in fact. As a result, it has some impact there too.
Regardless though, it looks like it’s here to stay in one form or another.
Is Bitcoin the Future of Money?
Well, I wouldn’t call it the future of money just yet.
For all its benefits, the penetration of Bitcoin as a digital currency is still modest compared to the penetration of traditional fiat money.
Besides which, there is growing pressure from governments worldwide to regulate Bitcoin in some way.
Previously, a lack of rules has made it a big hit for people looking for an open and independent currency controlled by no one.
So if regulation happens, the coin will likely lose some of its attractiveness.
Furthermore, there are still some crucial problems with Bitcoin.
For instance, it has some serious scalability problems.
Due to a design oversight, Bitcoin cannot handle transaction volumes anywhere near the level of modern payment processors.
This could lead to issues with widespread adoption in the future.
Finally, Bitcoin is also quite complex in terms of how it works - on the surface, at least.
It may be a bit scary for the average person to use it, at least without extensive tutorials or useful articles like this one!
Conclusion
Before I wrap up this article, let’s recap what you learned.
I started by explaining that Bitcoin is a form of digital currency that has evolved over the years to become a store of wealth and a tradable asset class.
You also learned that new Bitcoins are released into the market through mining and that there are 19 million coins in circulation so far.
The articlealso explored the future of Bitcoin and concluded that, while Bitcoin is going to grow bigger and better in the future, it is still not big enough to replace traditional fiat currencies at the moment.
Bitcoin has a lot going for it though, and the blockchain technology behind it is certainly here to stay.
Well, that's it for this article, I hope you enjoyed it!
