An informative guide that explains- what is bitcoin, how it works, what makes it is so valuable and volatile?
What is Bitcoin?
Bitcoin is decentralised digital money that allows seamless and secure peer-to-peer transactions over the internet without the need for a third-party intermediary.
Peer-to-peer, meaning able to send money or information directly to the recipient without involving an intermediary. For example, while transferring money using a banking channel, the bank acts as a third-party intermediary, acting as a facilitator of the transaction.
Fiat currencies refer to government-issued currencies, like INR, USD, JPY, etc.
Who Created Bitcoin?
The real identity of the creator of bitcoin is still a mystery to the world. No one knows whether it is a person, group of people or an organisation.
On Oct 31, 2008, an email with the name Satoshi Nakamoto first shared the idea of bitcoin through a nine-page whitepaper titled- “Bitcoin- A Peer-to-Peer Electronic Cash System” to a group of cryptographers.
The first bitcoin was mined on January 3rd, 2009 and the Bitcoin network came into existence. It is based on blockchain technology.
What is Blockchain Technology?
Blockchain technology is a unique record-keeping system that is hard to break and manipulate.
Also known as distributed ledger technology, it records transactional information in small digital packets called blocks. Each block has a fixed memory size and once it is populated with transactional data, the block is cryptographically stitched to another block in a sequence, one after another. Once the block is cryptographically hashed, the data becomes immutable or unchanging.
The copy of the blockchain is then distributed to the entire Bitcoin blockchain network. So, if a hacker ever tries to manipulate the blockchain records, he needs to do it on every copy of the blockchain stored across the network, which is practically impossible.
Why BTC is So Valuable?
Because of its superior tokenomics. Bitcoin has a fixed supply of 21 million coins and to date, 90% of the coins are in circulation. And the rest 10% will be distributed in the next 120 years or by the year 2140. This makes bitcoin an extremely scarce digital asset.
Just like any other scarce asset, the supply and demand metric affect the price of bitcoin the most. It is responsible for bitcoin’s meteoric rise in value in recent years.
Read here: Why bitcoin is called digital gold?
How Bitcoin Works?
Bitcoin is divisible up to 8 decimal units. Satoshi is the smallest unit of bitcoin, which is 100 millionths of one bitcoin. You can buy bitcoin in small fractions, like 0.0001 BTC or 0.0023 BTC.
You can buy bitcoin online from any reputed crypto exchange, and hold it as an investment asset or make a transaction. To spend your bitcoin, you need the recipient’s bitcoin address and then initiate a transfer. The bitcoin blockchain network will process the transaction and include it in the block. Once added, the amount gets reflected in the recipient’s bitcoin wallet.
What makes Crypto so volatile?
Bitcoin is an unregulated asset class and its price is affected by factors like supply and demand, investor sentiments, and government regulations.
That’s all about the world’s oldest cryptocurrency in fewer than 500 words.