What is Bitcoin

Let's start with explaining cryptocurrencies. Currency means “money currently in use”. US dollars, European euros, Russian rubles, and the Japanese yen are all government created money known as “fiat currency”. “Fiat” means an official order or authorization.

Apart from fiat, ”cryptocurrency only exists in digital form”. As your money on card works, the same way crypto does. You can send and receive them online, but they do not have any physical form.

Digital coins are stored in digital wallets and transferred to other peoples’ digital wallets. Transactions are recorded on a public digital ledger called a blockchain, and every process along the way is ”secured by cryptography”.

There is no need of going anywhere and register, or submit personal details, to open a wallet/ crypto ‘‘account’’. ”Transactions are then basically anonymous...

The Bitcoin story

Bitcoin story

The original purpose of Bitcoin was to built democratize currency and allow a peer to peer global transactions, without paying a fee to the middleman.


Video what is Bitcoin

Bitcoin was created in 2009, a year after a huge financial crisis, by an unknown person, or group of people, using the alias Satoshi Nakamoto. After Bitcoin was released, no one ever heard about Satoshi again. But it was him who created this independent global currency. It was also him (them) who decided, that only 21 million Bitcoins will ever exist.

Bitcoins runs on open source (protocol and software are published openly, everyone can review and use the code) and became an inspiration for creating all the other well-known cryptocurrencies.

Why there is only 21 million BTC?

21 milion bitcoins

Apart from the psychological effect of the limited amount of BTC, there are some practical reasons behind that number.

Bitcoin’s white paper suggests three phases that point out the calculation of the amount of 21 million:

  • A 50-bitcoin reward for each mined block
  • This reward is cut in half every 210000 blocks
  • The indivisible minimum Bitcoin unit is 0.00000001 Bitcoin (which corresponds to 1 Satoshi). Given these parameters and a 10 minute average time to mine a block, the total will be 21 million

Also, an assumption was made, that Bitcoin was meant to replace all the world money. There are a few ways to estimate the global money supply, one of them is referred to as M1. By the time Bitcoin was created, the global M1 money supply was approximately $21 trillion. Because dollars can be divided into at most 100 cents, the most pieces that global money supply can ever be divided into is 2100 trillion. (source: https://kryptotrends.com/2018/11/19/the-21-million-bitcoin-story-explained-why-is-the-number-special/)

Fun Fact: Due to the reward system, and the fact that Bitcoin is only divisible up to the 8th decimal place, the maximum amount of Bitcoins that can ever exist theoretically, is 20,999,999.9769. (source: https://bitcoinchaser.com)

How new Bitcoins are made

Bitcoin mining

New Bitcoins are generated in net through the mining process. Mined blocks are rewarded with Bitcoins every time they find out a solution for a specific math problem (when new block is created).

  • Block is processed accumulation of transactions which means that Bitcoin node selects transactions that are waiting for verification. The transactions are then arranged in a certain order and processed using the encryption protocol. The result of encryption is the so-called ‘hash’ (signature). The primary goal is to achieve as lowest hash as possible. The new block is stored in the blockchain.

The reward

Miners gain a Bitcoin and also transaction fees which are confirmed while mining. The block reward is halved every 210,000 blocks or roughly every 4 years:

  • In 2009, it was 50
  • In 2013, it was 25
  • At the time of writing (2019) it is 12.5
  • Sometime in 2020, it will halve to 6.25
  • In 2025 a 95% of Bitcoin will be mined, and the rest by 2140.
Bitcoin halving

How to mine as single person?

Times, when a solid computer was enough to mine Bitcoin, are gone. Today there are special hardware systems to mine, and the whole process consumes a lot of energy. For an individual is almost impossible to profitable mine. So there comes the mining pool idea.

Future in question

It is hard for an individual to find the correct hash Miners then forming their efforts and joining to so-called mining pools, which make use of the computational capacity of the individual miners. Finding a block in the mining pool is much easier and once somebody manages to find new Bitcoins, he shares then with the others according to the amount of the computational capacity they provide to the pool.
However, the top 10 mining pools consistently create about 90% of the blocks and China is involved in 60% of those.

Bitcoin mining pools

Security

In order to prevent users from cheating and sending each other more Bitcoins than they actually own, they must be some type of supervision. In the banking system it’s the responsibility of banks, but in the decentralized system users themselves must keep a wary eye on each other.

The Bitcoin network is fully decentralized (a peer-to-peer network), meaning there is no central computer within this network. So it’s impossible that someone would disable it. That’s why it’s difficult to damage or forbid this network.

Can we mine more than 21 million of BTC?

In case someone would want to mine more, there is a rule, written within the protocol (list of rules for Bitcoin). If anyone would ever try to mine more, a request will be declined by the system.

Currently, there are almost 17 million Bitcoins mined, but out of those, around 4 million are reported to be lost. Mostly due to forgotten passwords, or lack of protection overall. These cases come from the early buyers when most of them did not pay much attention to storage or keeping passwords since they only spent a few dollars on Bitcoin.

There is also whole 1 million Bitcoin hold by Satoshi, which is not spent yet and consider lost as well.

Acquiring Bitcoin

Coingi exchange graph

Since mining does not pay off as it used to, there are easier ways to get some Bitcoins:

  • Buy on an Exchange!

Number one choice. Several marketplaces called “crypto exchanges” allow people to buy or sell Bitcoin using different currencies. When registering on an exchange, you will usually need to provide your personal details to secure your account. Coingi exchange is fully protected against any kind of hacks. We are taking special security arrangements for our user's accounts.
We accept USD, EUR and also CZK.
Register with us: https://coingi.com/registration/

  • ATM, must be done personally.

You can buy Bitcoin through an ATM. Basically, you put in your fiat currency and get Bitcoin on your digital wallet.
Find the nearest one here: https://coinatmradar.com/

  • Earn - getting paid in Bitcoin

If you are lucky enough that your employer would be able to pay you in BTC, that is definitely a way to acquire some. If not, there are special websites which allows you to get hired and paid in crypto.
One of them is this subreddit: https://www.reddit.com/r/Jobs4Bitcoins/

  • Faucet

It basically means being paid for viewing ads. The payment is very small (usually around 1 Satoshi, which is a hundredth of a millionth BTC), but it is definitely another option for getting into the crypto world. You can check: FreeBitcoin, MoonBit.

How to use and store Bitcoin

bitcoin accepted here

Bitcoins transactions can be easily done through digital wallets. Basically by a simple app in a smartphone. In order to send Bitcoin, you need your private key and someone else's public key. A public key is generated from the private one and works like a bank account. Each transaction has a special digital signature.

bitcoin private and public key

Hardware wallets

The private key is best stored in hardware wallets. Each wallet has a generated password called ’’seeds’’. It is around 12 random English words you need to write down or memorize otherwise ou money will be lost.
This is a type of hardware designed especially for Bitcoins which store private keys so safely that no hacker can get to them. You then upload your 24 words on this hardware which will be used for generating your keys. All you need to do is to back up these words (and properly hide).

Bitcoin TREZOR one

Every transaction in the history of Bitcoin is stored in the network and able to be tracked down to the very beginning.
Bitcoin itself is just a note in the blockchain. Once you send a payment, it goes through confirmation process which miners take care of, and is stored in blockchain forever.

  • Blockchain is a linked list of all valid blocks that were ever created in the Bitcoin network. Since blocks contain data about all transactions, the blockchain could be also viewed as a ‘ledger’ or ‘account statement’ of all transactions that have taken place within the bitcoin network.

Spending Bitcoin

Just several years ago the was no way to spend Bitcoins. Now there are many stores and online services who accept Bitcoin and other cryptocurrencies. These places usually has a QR code which is simply scanned by your wallet app in smartphone - transaction done.

Pay with Bitcoin

Check the big map here: https://coinmap.org

Future of Bitcoin and why to own some

Future of Bitcoin

No one knows what will become of Bitcoin. It is mostly unregulated, but that could change in future since governments are concerned about taxation and their lack of control over the currency. Currently there are countries who starting accepting Bitcoin, same with countries who are strongly against.
But Bitcoin does solve several issues these days, so it's more likely to stay around:

1. Bitcoin makes payments easier

Lots of people who live abroad struggle to send money without high fees. Bitcoin is here to provide fast, secure transfers with no fees added.

2. Inflation protection

There are countries such as Venezuela, Argentina or Iran, which suffers from ups and downs of their currency. Bitcoin does not respond to inflation.

3. There are many influential people, who supports Bitcoin:

4. No need to have a bank account

You only need smartphone with an app to start using crypto.

5. No one can close your account - full decentralization

Bitcoins are issued and governed without any central authority. There’s no central government, company or bank that could have any control over this currency. It’s therefore completely impossible to counterfeit the currency, block accounts, control cash flows or cause inflation. There is no central point of control, or nobody else who could control the bitcoin network.
Many countries went through a crisis recently, All of a sudden, government/banks, denied access to many personal accounts, during a crisis in Greece. People had limits for cash taken from ATM (https://money.cnn.com/2015/06/28/news/economy/greece-banks-ecb/index.html).
This just cannot happen with your crypto.

6. Many places to pay with

As crypto awareness rising among countries, even big companies recognize potential customers in crypto holders and offering crypto payments. That also includes small restaurants, coffees, online stores and physical places like Subway or KFC.

7. No card fees

Business owners appreciate no credit card fees and customers the simplicity of a whole process, which was level up by adding Lightning Network recently
Plus international payments are easy and cheap because Bitcoin is not tied to any country or subject to regulation.

8. Investment

Bitcoin is also used as an investment. Since it was the first crypto coin which gained huge attention and still remains one of the most stable coins on market. Bitcoin is often compared to a modern gold, it is worth to keep some!

Threats

Bitcoin secure

Despite Bitcoins popularity, it is a risky investment. Bitcoin is the most stable coin on market so far, but even here were rapid price changes over the past years.

Few things to remember about crypto overall:

  • There is no way you can cancel a payment once it was sent (can’t call to any "bank").
  • Once you lose your password, you will join the people who already lost 4 million of Bitcoins, because they did not store these details properly. Once the password is lost, your Bitcoins with it.
  • Cryptocurrency is not (yet) legally recognized or controlled by the government. You can’t pay taxes with it and you can’t settle any debts in court with it. At least now.

Bitcoin has inspired thousand other projects who designed their own crypto coins. More and more companies are including blockchain technology into their products and also governments are reacting to the ''new money'', whether its in term of regulating them or accepting them. Bitcoin is just the beginning of future "internet money", a term frequently used by crypto-evangelist Andreas Antonopoulos.