🪙Bitcoin 101 - What is Bitcoin (BTC)?

Bitcoin is regarded as a decentralized, transparent, and secure payment method, as well as a safe-haven asset, similar to gold, when people seek alternative value storage tools.

Who Created Bitcoin?

Bitcoin, often considered the "pioneer" of cryptocurrencies, was introduced in 2009 as the world’s first cryptocurrency. The creator of Bitcoin, under the pseudonym Satoshi Nakamoto, published a paper describing Bitcoin as a revolutionary peer-to-peer electronic payment system. This system allows secure, verifiable transactions without relying on intermediaries like banks.

How Does Bitcoin Work?

Bitcoin operates on a decentralized, public ledger called the blockchain, where all transactions are recorded and verified. Blockchain ensures transparency and is not controlled by any central authority. So, how does blockchain ensure that transactions are both secure and verifiable? Once a transaction is confirmed and recorded on the blockchain, it becomes immutable, meaning it cannot be altered or falsified. With its decentralized structure and a peer-to-peer network of connected devices (called nodes), blockchain lacks a central storage point. This makes it less susceptible to hacker attacks, enhancing security and trustworthiness. A node is a unit in the blockchain network, and each node maintains a complete copy of the transaction history on the blockchain. When a Bitcoin transaction is initiated, nodes play a crucial role in verifying the transaction, ensuring the sender has sufficient funds to complete it.

Why is Bitcoin Valuable?

Scarcity

• Bitcoin: The total supply of Bitcoin is limited to 21 million BTC. This means no more Bitcoins can be created once this cap is reached, creating scarcity similar to other precious assets like gold. This scarcity drives Bitcoin’s value as demand grows.

• Gold: Gold is also a scarce asset, with its supply limited by natural mining resources. However, gold mining can increase over time with new technologies or the discovery of new gold deposits, though this process is not quick.

• Other Cryptocurrencies: Many other cryptocurrencies have a similar supply limit or no supply cap, depending on their protocol. For example, Ethereum does not have a supply limit like Bitcoin, which can reduce its scarcity over time.

Security and Blockchain Technology

• Bitcoin: Bitcoin uses blockchain technology to record all transactions. Bitcoin transactions are verified and stored in a decentralized system, meaning no intermediary entity can control or alter confirmed transactions. This creates a highly secure and transparent system.

• Gold: Gold’s value comes from its rarity and physical properties. However, traditional gold transactions still require intermediaries such as banks and exchanges, and there is a risk of fraud, transportation, or storage issues.

• Altcoins: Other cryptocurrencies also use blockchain, but each blockchain may have varying levels of security. Some blockchains may be less secure than Bitcoin or more vulnerable to attacks due to their structure and code.

Decentralization

• Bitcoin: Bitcoin is fully decentralized. No government or financial institution can control or regulate Bitcoin. This makes Bitcoin an attractive tool for those looking to avoid government or banking interference.

• Gold: While gold is not controlled by a single entity, its trading and storage can be controlled by governments and banks.

• Altcoins: While many altcoins claim decentralization, some may be controlled by organizations or development teams. For instance, Ripple (XRP) has been criticized for its centralized control by a single company.

Liquidity

• Bitcoin: Bitcoin has high liquidity across multiple exchanges and can be traded with various currencies. Bitcoin is also gradually being accepted as a payment method in several countries and businesses.

• Gold: Gold has lower liquidity than Bitcoin in everyday transactions because transferring gold requires verification, physical transport, and often intermediaries. However, gold remains a stable asset and easy to convert into currency when necessary.

• Altcoins: Many altcoins have liquidity and can be traded on exchanges, but their real-world acceptance remains more limited than Bitcoin’s. Moreover, altcoins often experience more price volatility, making them less stable than Bitcoin.

Inflation Hedge

• Bitcoin: With its limited supply and unalterable code, Bitcoin is considered a hedge against inflation. As central banks print more money, fiat currency value can decrease, but Bitcoin retains its value because no more BTC can be created beyond the programmed cap.

• Gold: Gold has long been used as an inflation hedge because it is a tangible asset whose value is not directly affected by monetary policy.

• Altcoins: The level of inflation protection for altcoins varies, depending on their supply mechanisms. Some altcoins have high inflation rates, while others, like Bitcoin, are deflationary in nature.

Community and Investor Acceptance

• Bitcoin: Bitcoin has a large and growing community of users, ranging from institutional investors to individual users. It is also receiving significant attention from financial institutions and governments, with growing acceptance and legalization in various countries.

• Gold: Gold has been used as an investment vehicle for thousands of years and remains stable. However, gold lacks flexibility in quick transactions in today’s digital world.

• Altcoins: Despite rapid development, many altcoins still lack the community or widespread acceptance that Bitcoin enjoys. Some altcoins are more volatile and are not seen as long-term safe investments.

What Can Bitcoin Be Used For?

Bitcoin is a versatile digital currency that can be used for various purposes:

• Shopping and Payments: Bitcoin can be used to purchase goods and services from businesses that accept it as a payment method. This includes everything from retail shopping to online subscriptions and travel bookings.

• Investment: Many people view Bitcoin as a store of value, similar to gold, and invest with the expectation that its long-term value will increase. Bitcoin is also actively traded on cryptocurrency exchanges for short-term profit.

• International Money Transfers: Bitcoin allows for fast, low-cost international money transfers with instant processing, especially using the Lightning Network. It has become a popular choice for sending remittances across borders without the high fees of traditional financial systems.

• Donations and Charity: Bitcoin is increasingly used to donate to charitable organizations, providing a transparent and direct way to support global initiatives.

• Decentralized Applications: In some cases, Bitcoin is used to power decentralized applications or participate in blockchain-based projects that integrate Bitcoin.

Whether for daily transactions or long-term investment, Bitcoin’s flexibility and global acceptance continue to grow. The smallest unit of Bitcoin is the "Satoshi," equivalent to 0.00000001 BTC, allowing Bitcoin to be used for microtransactions.