What is Bitcoin?
What is Bitcoin?
Bitcoin is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is perhaps best described as ‘cash for the Internet’, but Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.
It is also known as digital cash, cryptocurrency, an international payment network, the internet of money – but whatever you call it, Bitcoin is a revolution that is changing the way everyone sees and uses money.
Who Created Bitcoin?
The original Bitcoin code was designed by Satoshi Nakamoto under MIT open source credentials. In 2008 Nakamoto outlined the idea behind Bitcoin in his White Paper, which scientifically described how the cryptocurrency would function.
Bitcoin is the first successful digital currency designed with trust in cryptography over central authorities. Satoshi left the Bitcoin code in the hands of developers and the community in 2010. Thus far hundreds of developers have added to the core code throughout the years.
What is the Blockchain?
The blockchain is simply a vast, distributed public ledger of account. It keeps track of every transaction ever made in the network, and all transactions are timestamped and verified by network miners.
This is how it works: miners with specialized computers compete to solve mathematical puzzles with other computers, and once they solve a puzzle they are awarded with some Bitcoin, but they also add a “block” of completed transactions to the blockchain for future viewing and verifiability.
Once a block is added to the chain the cycle repeats itself, and the computers continue to compete to solve these difficult problems. Every transaction on the blockchain is completely transparent and accounted for in its log. Anyone can see the public keys of any transaction they want (although there are no names associated with transactions).
One could go all the way back and view the very first transactions ever made on the first block ever created. This block was unironically called the Genesis Block.
What’s the big deal about Bitcoin?
The Bitcoin protocol can change the financial landscape we see today. The protocol can act as a currency, voting mechanism, global identification and reputation application, a micro-tipper, crowdfunding platform, initiate trusts, wills and contracts, decentralized domain names, future markets, and basically everything the financial system of today can handle plus so much more.
The currency application is just the beginning of this evolution of world’s finances. Check out more Benefits Of Cryptocurrency for more information.
How do I Mine Bitcoin?
Around the world, people are using software programs that follow a mathematical formula to mine Bitcoins. The scripts that calculate the mathematical formula is freely available so that anyone can get in on the action. The software is also open-source which means that there are many people looking at the blockchain to make sure nothing fishy is being done.
One of the beauties of Bitcoin is that it has a finite number. The formula only allows a limit of 21 million Bitcoins to be mined and so far 16,141,163 Bitcoins have been mined. Once we hit 21 million, that’s it!
You might be thinking that the last 5 million will go fast, well yes and no. Another genius thing that the creator of Bitcoin did was to make the formula’s difficulty linear with the total compute power. That means the more people that are mining Bitcoin, the harder it is to solve the formula.
So that means the last 4 million will take anywhere from 5-10 years while the last million itself might take another 10-20 years. But once all 21 million gets mined, that’s it. No more will Bitcoin will ever be created.
Early on, anyone with a computer can be mining Bitcoin and get plenty of it (since they were worth nothing). After mining became popular and CPUs could no longer keep up, people moved mining to powerful graphic cards called GPUs.
Then when those were no longer cost effective, specialized companies came out with special processors called ASICs with the sole purpose of mining Bitcoin. Soon cloud miners came out but they were short lived.
These days a hobbyist could not mine Bitcoin itself with profitability. But with the rise of other digital coins, it is profitable to build mining rigs for digital currency such as Ethereum and Litecoin and convert them to Bitcoin afterward. Check out Build Your Own GPU Mining Rig for Ethereum and Altcoins.
How Do I Profit from Bitcoin?
Besides mining, the other way to get Bitcoins and to profit from them is to buy them low and sell them high (trading). But even with Bitcoin trading, there are two ways to make money.
First is the safer method which is to play the long game and buy and hold. Second is to play the short game and do a lot of buys and sells almost like day trading. Let me go over both options.
The long game of buy and hold is for people who believe Bitcoin has a lot more room to grow. This is how a lot of folks are investing and even billionaires have come out and said they have at least 10% of their investments into Bitcoin. Since 2016, Bitcoin has risen from $250 dollars to over $2850 dollars (as of 6/6/2017).
Because of the limit cap of 21 million Bitcoins, there is very real chance that once we approach that last Bitcoin, the value of Bitcoin skyrockets to something we can’t even fathom today. Some are predicting Bitcoin to be around $500,000 by end of 2030. At this point, it’s anyone’s guess.
The short game would be to buy and sell Bitcoins daily or weekly. Just like any other kind of investment such as stocks, bonds or currency, you want to buy low and sell high. There are weeks where Bitcoins has wild fluctuations and if you time it correctly, you could make as much as 20% profit within a few days.
Even without the wild fluctuations, there are still highs and lows and you can profit from.
Why Are There Wild Fluctuations with Bitcoin Prices?
Since people now have access to Bitcoin anywhere in the world, whenever there is any news about inflation, currency devaluations, war, trade issues, etc… people usually bulk up on Bitcoin from that country or region. And whenever there is news about Bitcoin exchanges being hacked or halting withdraws, people usually sell Bitcoin based on fear.
Since the total market cap in Bitcoin is still relatively small (Around $45 billion), these buying sprees and selling sprees can result in these wild fluctuations. But as the market cap increases, these fluctuations become smaller and smaller.
What is Bitcoin Cash?
Bitcoin’s biggest weakness has always been scaling. Bitcoin transactions are completed when a “block” is added to the blockchain but blocks are limited to 1MB every 10 minutes – or seven transactions per second. If you compare this to the 2,000 per second that Visa can handle, you can see how scaling is holding Bitcoin back.
Many solutions were presented to solve the problem but the one that was chosen to help with the issue and was recently implemented on August 1 is called Segwit2x. But a rival group consisting of miners and later exchanges decided to go in a different direction with Bitcoin Cash.
The current implementation of Segwit2x moves some of Bitcoin’s transaction data outside of the block and on to a parallel track to allow more transactions to take place. And to help things, even more, a plan is in place to double the “block” size to 2MB in November.
Bitcoin Cash, on the other hand, is a hard-forked blockchain that does not have Segwit2x implemented. Instead, each “block” size to increased from 1MB to 8MB. The reason for this decision is that its backers are skeptical that the Segwit2x plan will follow through with doubling the block size later on. And even so, Bitcoin Cash backers feel the Segwit2x solution is only a stop gap and not a true solution.
Only time will tell if Bitcoin Cash will survive as an altcoin or if it simply dies off due to lack of miner support.