Bitcoin is a digital money that operates without banks or governments. But what is Bitcoin, really? It is a decentralized currency that uses blockchain technology, allowing users to connect peer-to-peer and exchange value directly on its network.
Its proof-of-work consensus protocol ensures that all transactions occurring over the Bitcoin network are legitimate and secure. This work is crucial for the network’s security and rewards cryptocurrency miners for their efforts.
Bitcoin, also known as BTC, was created in 2009 by a mysterious person or group called Satoshi Nakamoto. As the first cryptocurrency, it has become one of the most valuable assets in the crypto industry.
This guide explains the basic knowledge of Bitcoin, how it works, its history, advantages and disadvantages, the latest developments in Bitcoin, and every important factor you must know about it. So, don’t miss even a single line, and have a quick sneak peek at the hot topic of Bitcoin.
History of Bitcoin
The saying is, “Those who fail to learn from history are doomed to repeat it.” It is exactly how Bitcoin and cryptocurrencies developed gradually. As a chronology of events that contribute to the development of these digital money systems, let’s have a brief look.
1998–2009: The Pre-Bitcoin Era
While Bitcoin has become considered the first and most successful cryptocurrency, there were attempts before this to construct a digital currency secured through cryptographic technology. The most notable ones are B-Money and Bit Gold. These revolutionary projects were far more theoretical, but they were never realized.
2008: The Year of the Mystery Satoshi Nakamoto
In 2008, a whitepaper entitled Bitcoin: A peer-to-peer electronic cash system was posted on a cryptography mailing list. Written by one or more persons or persons under the pseudonym Satoshi Nakamoto, its author was and is still unknown.
2009: The Launch of Bitcoin
When the open-source software behind Bitcoin was released, it entered the public domain. The software generated Bitcoins and new ones as it ran in parallel to recording and verifying transactions on the blockchain.
2010: Bitcoin Gets a Monetary Value
At present, Bitcoin has no money value since it is mined only. The first real-life transaction in Bitcoin was in 2010 when 10,000 Bitcoins were exchanged for two pizzas. Today, those Bitcoins are worth over $100 million.
2011: Rival Cryptocurrencies Emerge
Other cryptocurrencies were developed because of Bitcoin’s popularity (generally dubbed altcoins). In some respects, these alternative cryptocurrencies appeared to replace Bitcoin while providing faster transaction times or more privacy. Early altcoin examples are Namecoin and Litecoin. Today, thousands of cryptocurrencies are circulating, with more new ones being released regularly.
2013: Bitcoin’s Price Volatility
In 2013, Bitcoin crossed the $1,000 milestone for the first time. However, the price dropped sharply to just below $300. Bitcoin did not regain the $1,000 mark for over two years.
2014: Scams and Security Breaches
Some newcomers do not know what is Bitcoin and its mechanism. There are some red flags for those people. Due to its anonymous and decentralized nature, Bitcoin has become a target for criminal activities. If you’ve ever traded on Mt. Gox, the largest Bitcoin exchange, you know how it went offline in early 2014. Still, the disappearance of 850,000 Bitcoins, worth $450 million in 2017, hasn’t been explained. If those Bitcoins were found today, they’d be worth over $4.4 billion.
2016: The Emergence of Ethereum and ICOs
2016 was the year of Ethereum, a new blockchain platform. It’s the cryptocurrency of Ether, which is used for smart contracts and decentralized apps (DApps). Initial Coin Offerings (ICOs) also took the red carpet this year, where investors would buy tokens to fund startup projects. However, the US Securities and Exchange Commission (SEC) warned that there were risks of scams with little governmental oversight, while China banned ICOs altogether.
2017: Bitcoin Surpasses $10,000
With more merchants accepting Bitcoin, its market value grew, followed by its adoption. At the end of 2017, Bitcoin hit the $10,000 mark, and the market capitalization for cryptocurrencies soared from $11 billion to well over $300 billion. It also gained attention for the underlying blockchain technology, which kicked off a revolution in the financial technology fintech sector.
From 2018 to 2024, Bitcoin has had many developments, including steep price swings, regulatory alterations, and growing institutional cryptocurrency adoption.
2018-2019: Market Correction and Recovery
In December 2017, Bitcoin’s price rose almost to $20,000, falling sharply throughout 2018, reaching nearly $3,200 by December 2018. We often refer to this as ‘the crypto winter,’ where there was more regulatory scrutiny around these tokens and a tapering off in speculative investment. The market rebounded in 2019 as Bitcoin’s price climbed as high as $7,200 by the end of the year, a return of investor interest.
2020-2021: Institutional Adoption and Market Expansion
As 2020 began, major companies and institutions began acquiring Bitcoin as a treasury reserve asset. MassMutual invested $100 million, Square Inc. $50 million and MicroStrategy $250 million in Bitcoin.
PayPal’s support also meant Bitcoin had gained some legitimacy in finance, opening up its use to the mainstream in the U.S. Bitcoin crossed $1 trillion in market capitalization for the first time in February 2021. In September 2021, Bitcoin and the U.S. dollar were legal tender in El Salvador. Last year, the SEC approved the first Bitcoin futures exchange-traded fund (ETF) listed on the CME.
2022: Market Volatility and Regulatory Challenges
In 2022, Bitcoin’s price showed a fair amount of volatility influenced by global economic and regulatory matters. In May and June 2022, the price fell after the collapses of TerraUSD, a stablecoin, and Celsius Network, a cryptocurrency loan company. These events served as a reminder of where risk lies in the cryptocurrency market and corresponded to a call for more regulatory oversight.
2023: Technological Innovations and Market Resurgence
Ordinals, non-fungible tokens, or NFTs on Bitcoin went live in 2023, showing that the network can change. The price of Bitcoin came back, and there were more trading volumes and renewed investor interest for the year. The first 11 U.S. spot Bitcoin ETFs started trading by January 2024 to expose Bitcoin to American stock exchanges directly.
2024: Milestones and Future Outlook
People would not believe it if you don’t know what is Bitcoin and how much it recently surged. Bitcoin breached $100K in price in December 2024 under expectations about President-elect Donald Trump’s pro-crypto stance and claim that the U.S. will be the “crypto capital of the planet.” The millions who’ve gained mainstream acceptance in this asset class have enriched many investors and added much of the class’s total value of more than $3 trillion. With Bitcoin price volatility, the outlook is positive, with huge inflows into Bitcoin ETFs.
How Bitcoin Works?
After getting some insights into what is Bitcoin there is a question that arises: what is the mechanism of this cryptocurrency? Bitcoin is a digital asset that can be stored on a cryptocurrency exchange or in a digital wallet. A coin represents Bitcoin market value at a given time, but you can also own partial ownership of a coin. A Satoshi is the smallest unit of Bitcoin, named after Bitcoin’s creator. Like many users, ownership of fractional Bitcoin is commonplace, as a Satoshi is one hundred millionth of a Bitcoin.
Blockchain Technology: Blockchain is the open-source software on which Bitcoin operates. This technology creates a shared, tamper-proof public ledger of all transactions in blocks safely chained or ‘linked.’ By checking the blockchain, you can always be sure whether someone owns some amount of Bitcoin.
Keys for Transactions: To carry out safe transactions, you need a Bitcoin wallet with a public and private key. These keys allow users to start and sign transactions that move Bitcoin ownership around while keeping things secure.
Bitcoin Mining: Mining verifies the validity of transactions in the Bitcoin network. This ensures that new transactions are consistent with the historical transaction record, as it fails transactions if new transactions would enable double spending or spend bitcoin that the user does not own. The Bitcoin network integrity relies on mining.
Bitcoin Advantages and Challenges
Every field has its own pros and cons. Like others, Bitcoin also has some advantages and disadvantages, which are elaborated below. After getting the basic knowledge of what is Bitcoin, it’s necessary to have a sneak peek at the ins and outs of this cryptocurrency.
Advantages of Bitcoin
- Efficient Transactions: The ability to quickly send funds at a lower cost than the traditional financial network makes Bitcoin attractive. The transaction can be initiated anytime as it is convenient and flexible.
- Enhanced Privacy: One way to work with Bitcoin is that it does not require personal information like names or credit card numbers, meaning nobody knows who you are. Transactions are usually more private than traditional payment methods, and while sometimes they can be linked to some wallets, they are the most private way to use the blockchain.
- Decentralized System: It can be considered an independent financial system founded by banks, governments, or overarching authorities. The vital thing about this decentralization is that it meets the needs of individuals looking for an alternative financial system, especially during an economic downturn like the Great Recession.
- Potential for Growth: Bitcoin’s big value potential appeals to some investors, who think it could be a long-term opportunity as it becomes more widely accepted and trusted.
Challenges of Bitcoin
- High Price Volatility: The price of Bitcoin fluctuates wildly, and investors’ returns depend deeply on when they buy or sell, something they have little control over.
- Security Risks: Perhaps contrary to what you might believe, Bitcoin’s robust blockchain technology behind it does not save it from hacking instances, something that raises a question about the safety of digital assets.
- Lack of SIPC Protection: Cryptocurrencies like Bitcoin are not backed by securities insured by the Securities Investor Protection Corporation (SIPC) to up to $500,000 if an investor is stolen or a brokerage fails.
Hot Wallet vs. Cold Wallet: Which is Best for Bitcoin Storage?
For Bitcoin purchases, you require a secure storage option. There are two main types of digital wallets to consider:
- Hot Wallet: A type of wallet that stores your cryptocurrency online. Many exchanges where you buy Bitcoin will offer you integrated storage solutions. In addition, there are independent online storage providers that you can access through web browsers, desktop applications, and mobile apps.
- Cold Wallet: A Bitcoin cold wallet is an off-the-shelf physical device the size of a USB stick. It stores the coins offline in an encrypted manner.
The key difference lies in connectivity: For convenience in transactions, users connect hot wallets to the internet, while cold wallets do not connect to the internet for increased security. First, you’ll need a hot wallet to transfer Bitcoin to a cold wallet in that order.
How To Buy Bitcoin?
Even if you’re new to cryptocurrency and you know that what is Bitcoin, then you’ll navigate towards buying it. For this exercise, Investors typically use Bitcoin to enter the crypto space. As Bitcoin reached record highs in 2024, topping $100,000 in December, crypto interest has soared after a multi-year price slump.
While Bitcoin is one of the older established cryptocurrencies, getting it and using it in your day-to-day life can be a little difficult at first if you’re used to using traditional financial systems. Thankfully, one can buy Bitcoin in many different ways, from stock brokers and cryptocurrency exchanges to even in-app purchases. Investors can also start as little as $25 and purchase fractional shares.
Here are six common methods to buy Bitcoin:
1. Cryptocurrency Exchanges
One of the most popular ways to buy Bitcoin is through cryptocurrency exchanges. Some exchanges provide cryptocurrencies, some focus on Bitcoins, and others on other cryptocurrencies. Fees and levels of consumer protection vary between these platforms, so blockchain research is essential before selecting one. Gemini, Kraken, Coinbase, and Crypto.com are widely known exchanges.
2. Traditional Stockbrokers
Only a few traditional or regular stockbrokers allow you to trade Bitcoin. For example, Robinhood replicates its approach to trading stock by enabling users to trade Bitcoin without fees. Fidelity is among other brokers also starting to integrate cryptocurrency options.
3. Bitcoin ATMs
Like regular ATMs, Bitcoin ATMs are just machines to buy and sell Bitcoin. These are usually machines in convenience stores or other public places that allow users to carry out transactions with either cash or cards. But if you do not, consider associated fees and make sure you have a secure wallet to hold your Bitcoin.
4. Bitcoin Exchange-Traded Funds (ETFs)
Bitcoin ETFs, which have been approved by the Securities and Exchange Commission in 2024, are spot Bitcoin ETFs that facilitate trading Bitcoin on major exchanges. These ETFs track Bitcoin’s price, which makes it easy for traditional investors to gain exposure to Bitcoin through normal brokerage accounts.
5. Peer-to-Peer Money Transfer Apps
Some apps like PayPal, Venmo, and Cash App can buy, store, send, and sell Bitcoin. However, this method provides convenience and ease of use for people acquainted with these platforms.
6. Wallet Software
Some blockchain-based apps, like crypto wallets and games, allow users to buy and sell Bitcoin within the app. These services also frequently rely on third-party providers like MoonPay to help with transactions. While exchanges are not without their fee, they still work quickly and provide convenience at a slightly higher cost.
There are several potential ways to buy Bitcoin. Each method has unique benefits and costs, so they must be evaluated against what will meet an individual’s needs and financial goals.
What Is A Singular Bitcoin Worth Today?
On December 16, 2024, Bitcoin (BTC) hit another all-time high and recently traded at approximately $106,533.
According to the Reuters report, President-elect Donald Trump’s confirmation of a U.S. Bitcoin strategic reserve, similar to a strategic oil reserve, has helped fuel this price hike and massively increased investor interest.
Technical analysis shows bullish momentum for Bitcoin. The Relative Strength Index (RSI) is at 66.021 (buy signal). Moving averages also support the buy signal, with 11 buys and 1 sell. The Moving Average Convergence Divergence (MACD) is at 767.4, further supporting the buy signal.
Considering these technical indicators and the bullish market sentiment caused by the possibility of government adoption, Bitcoin’s price could continue to rise.
