Bitcoin (BTC) is a virtual currency and a decentralized payment system that's free from the centralized control of a government or other entities. It was created in 2008 by an anonymous person or group of people known by the pseudonym Satoshi Nakamoto.
Bitcoin and the revolutionary blockchain technology underpinning it are considered the catalyst for the flourishing cryptocurrency industry we know today. Bitcoin is currently the largest cryptocurrency by market capitalization.
How does Bitcoin work?
Bitcoin is entirely digital and operates on a decentralized blockchain network — a virtual public ledger that records all transactions made on the Bitcoin blockchain. Bitcoin transactions are sent electronically to nodes that verify their validity. Once confirmed, a transaction is grouped with others to create a 'block' of information, which is then added to the blockchain. This process is known as Proof of Work, and it helps to protect the network's security.
The blockchain ledger is immutable, making it virtually impossible to be removed or altered. The ledger is freely accessible to anyone and transactions can be made anonymously, bringing privacy and transparency to the network. Being decentralized, Bitcoin can be traded freely between anyone with an internet connection through peer-to-peer (P2P) trading.
Who created Bitcoin?
Bitcoin was created by the individual or collective group known as Satoshi Nakamoto as a response to perceived issues with the traditional banking system. Bitcoin was launched immediately after the global economic crash of 2007 and 2008, and its purpose was revealed to the world through a white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. Ultimately, Bitcoin was designed to help create a fairer, more equitable, and more democratic financial system for all — free from the control of banks and centralized entities.
Over the years, various figures have claimed to be Bitcoin's creator, and some media titles have incorrectly identified individuals as such. But, to this day, Nakamoto's true identity has never been revealed.
What is Bitcoin used for?
Bitcoin is considered by many to be a store of value, which is why some refer to the asset as "digital gold". The currency also provides a decentralized payment system through which other digital assets can be traded and transferred.
Bitcoin is widely traded speculatively, and is growing in adoption as a form of payment for goods and services. What's more, some companies allow their employees to be paid a portion of their salary in Bitcoin. Many people see Bitcoin as a hedge against inflation, given its historical resilience and alleged outperformance during inflationary periods.
Bitcoin price and tokenomics
Part of the uniqueness of Bitcoin comes from the fact that its value is determined by the collective opinion of the community. Where fiat currencies are backed by physical commodities or government guarantees, Bitcoin is simply backed by data and shared beliefs.
Bitcoin's price and value is also influenced by the demand for the asset relative to its available supply. From the asset's inception, its supply was limited to 21 million Bitcoin to create scarcity and theoretically increase the asset's value over time as demand increases. Factors outside of Bitcoin's controlled supply and scarcity also have an impact on its value. One major factor is the sentiment surrounding Bitcoin news and how it influences public opinion to either buy or sell the asset.
The supply of total Bitcoin is managed by a process known as 'mining', which is also decentralized and open to anyone with the required connectivity, knowledge, and resources. BTC mining involves using computers to solve complex equations to validate transactions and store them on the blockchain. Miners earn Bitcoin as a reward for solving these equations. Not only does this incentive increase the supply of Bitcoin, it also helps to strengthen the network's security.
What is the Bitcoin halving?
Bitcoin's code has been deliberately designed to reduce the rewards given to miners through an event known as Bitcoin halving. The amount of Bitcoin awarded to miners for successfully adding blocks to the blockchain is reduced by half after every 210,000 blocks, or approximately every four years. To date, the Bitcoin network has witnessed a halving event in November 2012, July 2016, and May 2020, with the next Bitcoin Halving expected during April 2024. The Bitcoin halving progressively reduces the rate at which new BTC enters circulation until the total fixed supply of 21 million Bitcoin is mined. Following the next halving event in 2024, the mining reward will be cut from 6.25 BTC to 3.125 BTC.
How to trade Bitcoin
There are numerous ways to acquire and trade Bitcoin, and one of the most common is through an exchange. Although Bitcoin was built on the idea of decentralization, what's known as a centralized exchange provides access to the currency. On a centralized exchange, you can purchase Bitcoin using traditional currencies such as USD and EUR, or using other cryptocurrencies include USDC or ETH. Alongside providing an avenue to purchase Bitcoin, centralized exchanges also match buyers to sellers so you can trade Bitcoin with ease.
Decentralized exchanges are an alternative to centralized services. On a decentralized exchange, buyers and sellers interact directly without the involvement of an intermediary to trade cryptocurrencies. This is known as P2P. Although decentralized exchanges may be hosted by a centralized entity, it has no influence over the transactions between users, and only provides the platform for exchanges to take place.
Alongside the trading of Bitcoin for other digital assets, it's possible to obtain Bitcoin through mining and also via Bitcoin ATMs. Like a conventional ATM but one that's connected to the blockchain, Bitcoin ATMs allow you to effortlessly exchange BTC for cash or cash for BTC.
Latest Bitcoin news
2024 has been a noteworthy year for Bitcoin. One major development for the currency came with the approval of a Spot Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC), which was announced on January 10, 2024. Eleven proposals from issuers including Grayscale, Blackrock, ARK, and VanEck were approved, marking a major shift towards the mainstream adoption of Bitcoin.
Around three months after the approval of the Spot Bitcoin ETF, the virtual currency will experience its fourth Bitcoin Halving since launch, which is due to happen during April 2024. The Bitcoin Halving will cut the reward granted to miners on the Bitcoin network from 6.25 BTC to 3.125 BTC. There's much speculation around the impact the Bitcoin Halving event will have on the asset's price. Historically, Bitcoin's value has experienced a major spike in the months following the halving event. Following the last halving on May 11, 2020, Bitcoin's price jumped from $8,821 to $10,943 in the 150 days from May 11, 2020.
Events such as the Spot Bitcoin ETF approval, the upcoming halving event, and bullish sentiment for the crypto market broadly helped Bitcoin to reach a new all-time high price of $73,787 on March 13, 2024.
