All about Bitcoin!
Bitcoin was first mentioned in a paper published by Satoshi Nakamoto on 31st October 2008. And on January 3 2009, the bitcoin network came into existence with Satoshi Nakamoto mining the first block of bitcoin. But wait, who is Satoshi Nakamoto? Well, no one actually knows who he is.
The founder of Bitcoin chose to keep his identity a secret. Now, you may think why? We can actually think about his anonymity like this. Like every company has its CEO who promotes the products and is the face of the company. Similarly Satoshi Nakamoto can be considered as the CEO of Bitcoin. Now you can imagine if something happens to the CEO of a company then what will happen to the share prices of the company? Its prices are going to go down due to market sentiments. Similarly, if something happens to Satoshi Nakamoto then what? But nobody knows who he is? We can’t even say if he/she is a single person or even an entire organisation! Or for that matter even if he is alive or not.
So, this kind of danger never came into question for Bitcoin.
Bitcoin Whitepaper ( https://bitcoin.org/bitcoin.pdf )
The reason behind Bitcoin can clearly be seen in the first line of the bitcoin whitepaper.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
So, bitcoin is a digital asset which is not under the control of any financial institution. Just as the US central bank controls the dollar, and the RBI controls the Indian Rupee, but no central bank or organisation controls Bitcoin.
Comparison to Rupee
What do you think is the supply of Indian Rupee? Is it limited or unlimited?
It is unlimited! Whenever the government wants it can print more and more Indian Rupees. But what about Bitcoin? Its supply is limited. There are exactly 21 Million Bitcoins that can ever exist and currently only around 18.8 Million of them are in circulation.
You might also think that Bitcoin is so expensive, currently around 40 lakh rupees. How do you buy it? So, you don’t have to invest such a large amount of money. You can also buy it in fractions with as low as 100 rupees.
How Bitcoin Works?
So, how does a bitcoin transaction take place?
For example- If a person A wants to send money to B then this transaction would have to be verified by someone. In the traditional financial system the Bank plays this role as an intermediary. But in Bitcoin transactions there is no intermediary! Then who is responsible for verifying the transaction? So, there are people around the world who are willing to verify these transactions. They are called miners.
Now, to understand the process, whenever a transaction takes place, a mathematical puzzle is generated that is to be solved to add the transaction to the blockchain. So, these thousands of people all over the world called ‘Miners’ try to solve this problem. How do they solve this? Using pen and paper? No. Using a normal laptop? No. They use very powerful computers that have enormous computing power so that they can be the first one to solve the problem. Now, what is the advantage of being the first one to solve the problem? Do they get something as a reward? The answer is Yes. Currently the reward they get is 6.25 BTC for verifying a transaction and adding the block to the blockchain. In this way we say that they are mining bitcoins and this type of system is also known as Proof of Work. So, miners have to prove that they have done this computational work to get the reward and this is how bitcoin works.
Bitcoin as Alternate Currency
Some people want to use Bitcoin as an alternate currency by replacing the Rupee or Dollar, but currently it is mainly used as a form of investment. So, it is being thought of as a store of value like Gold and hence it is also known as Digital Gold.
It is not yet widely accepted as a payment method but this can soon change in the coming years. We can already see companies like JPMorgan, PayPal, Visa, and Tesla supporting, holding, and accepting payments via Bitcoin. Though Tesla stopped accepting Bitcoin payments in May 2021 because of the environmental effects due to mining, it seems that the time is not far when bitcoin payments will resume being accepted as majority of the energy used in Bitcoin mining is coming from Environmentally friendly sources now.
But there is still a technical challenge with Bitcoin because of which it is hard for Bitcoin to be used in daily transactions and mass adoption.
Bitcoin mining takes time and it can take around 10 minutes to get a transaction verified. And this is where the Solana and Cardano projects come into picture. They aim to solve this issue and I’m really a huge fan. If you want to know about these consider following me on my Twitter and YouTube to get notified whenever something new comes out.
Present day use of Bitcoin
Foreign funds transfer: Banks usually charge a very high amount in the name of foreign funds transfer and also take around a day or two for the transaction to go through. This is where Bitcoin is more economical because it doesn’t charge such high transaction fees and also takes relatively very less time. Similarly, cryptocurrency can be more economical compared to credit cards. This is the reason Banks and credit card companies are against cryptocurrencies because they are getting some tough competition.
Why do I invest in Bitcoin?
I believe in blockchain tech and it is here to stay. The whole idea behind blockchain technology is what made me invest in it.
Understand one thing, I have researched a lot into Bitcoin and cryptocurrencies in general and you should also do the same before putting your money into anything!