What Is Bitcoin? [Everything You Need To Know!]

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By PrimeXBT

Reviewed by Dirk Hartig

April 13, 2021
Reading Time: 11 min
What Is Bitcoin? [Everything You Need To Know!] - blog primexbt btc

Bitcoin is the first ever cryptocurrency designed by Satoshi Nakamoto. Before its existence, there was nothing at all like it in the finance world. Since its creation, an entire asset class has been created in its vision.

Many other technologies attempted to make a peer-to-peer form of digital cash, but failed. Bitcoin picked up where those projects left off, merged with some aspects of each, and solved the double-spend problem plaguing these other early versions of electronic money.

But this is only scratching the surface on a technology that has been compared to the Internet and personal computers in terms of transformative power. 

This guide will explain all there is to know about the decentralized blockchain network that the Bitcoin cryptocurrency powers.

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Introduction To Bitcoin: The First Every Cryptocurrency Asset and Blockchain Protocol

Bitcoin is a new type of digital currency that could someday replace all fiat currencies in the world. It is a bold statement, but price predictions for the asset range as high as $100,000 to $1 million per BTC.

With so much potential, it is easy to see why Bitcoin became the talk of the finance world in 2017 when the asset rose from $1,000 to $20,000 in less than a year.

Today, the asset is maturing and finding new use cases, such as a safe haven asset and a contactless payment technology.

It is primarily used at this current moment as an electronic payment method, a store of wealth, a hedge against inflation, as a speculative investment, or a trading instrument due to its extreme volatility.

Bitcoin Definition: What Exactly Is Bitcoin?

Bitcoin, by its very definition, is the first form of peer-to-peer electronic cash. However, its meaning is different depending on the individual and what they need it for.

It may have been designed as a new currency option, but it has since evolved in a number of ways, demonstrating the incredible potential of the emerging financial technology.

At its core, Bitcoin is a cryptocurrency that underpins a blockchain protocol by the same name. Bitcoin is the blockchain network, and bitcoins are the asset that powers it.

Cryptocurrencies like Bitcoin, can be used as a means of money transfer or transfer of value. This is how the asset served as a peer-to-peer form of electronic cash. Using the Bitcoin network, users can act as their own bank account and send bitcoins (BTC) to and from other addresses and wallets on the Bitcoin network.

Bitcoin was designed to be fully autonomous, operating without a need for a central authority. The network is powered by a process called proof-of-work, where miners utilize energy-intensive machinery to solve complex mathematical equations.

Miners are issued a block reward incentive of BTC for their efforts and for keeping the network secure and in operation. It is this ecosystem that acts as the fundamental base to Bitcoin’s underlying network’s health.

Only 21 million BTC will ever exist, and even less are currently in circulation. Millions of BTC are said to be lost or locked away forever, making the asset even more scarce than it may appear.

It is this hard-coded digital scarcity that is said to give Bitcoin some of its other beneficial attributes, such as acting as a hedge against inflation or a safe haven asset.

Bitcoin shares many similarities with gold, which is also used as a safe haven asset and hedge against inflation. The two assets have a similarly scarce asset supply; however, Bitcoin is hard-capped while there’s no telling how much gold is left to be mined beneath the Earth’s surface or even in outer space.

Bitcoin only exists in cyber space, giving it benefits beyond what gold can provide. Storing gold presents risks and or potential costs. With Bitcoin, however, storing assets is as simple as a few clicks and takes up no physical footprint.

The main benefit of gold over Bitcoin is the relative stability compared to the highly volatile crypto asset. Over the last two years, both gold and Bitcoin have performed neck and neck in terms of two-year ROI; however, gold’s rise has been stable and steady, while Bitcoin was a rollercoaster ride. These results are typical of the leading cryptocurrency by market cap.

As Bitcoin stabilizes and its volatility decreases as adoption occurs, the asset will act more as a store of value and a possible replacement for fiat currencies.

Many top thinkers of the tech world, including Twitter CEO Jack Dorsey and Apple co-founder Steve Wozniak, believe it could replace the dollar as the global reserve currency, or usher in a new digital age of money for the internet.

Bitcoin has been compared to everything from gold, to the internet, to tulips, but the reality is, there’s nothing else like Bitcoin. Not even other cryptocurrency assets compare to Bitcoin in terms of distribution, decentralization, brand power, regulatory acceptance, and more.

Any comparisons to the internet or PCs, such as comments made from billionaire dot com investors Marc Andreessen, are only in Bitcoin’s transformative potential to change the world in ways we don’t yet envision, and won’t fully understand until it happens.

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The History of Bitcoin: Over A Decade Of The Emerging Financial Technology

There is no company behind Bitcoin, no marketing team, and no lead developer. It was created and released into the wild by a pseudonymous individual or group of individuals by the name of Satoshi Nakamoto, who has since disappeared without a trace.

Bitcoin was created in the wake of the 2008 economic recession, where the housing market crashed, and banks began to fold due to the weight of enormous debt. Governments stepped in to bail out banks at the expense of taxpayers. The monetary impact is still being felt today through inflation, thanks to that money being printed out of thin air and adding to central bank balance sheets.

Fed up with the mismanagement of money and the current monetary system, Satoshi Nakamoto sought out to develop a form of virtual currency that included cryptography, a layer of anonymity, didn’t require a central authority to validate transactions, and shared many of the same attributes with gold.

The digital currency earned itself the moniker of digital gold, but Bitcoin even has more benefits beyond the precious metal. For example, Bitcoin exists without a physical form, making it a lot easier to move and store.

Bitcoin has since been dubbed digital gold primarily due to those attributes, which included a limited supply of just 21 million BTC to ever exist. There also cannot be any counterfeit Bitcoin, a problem that plagues the gold market even today.

Satoshi Nakamoto first invented the cryptocurrency in 2008. The domain name ‘bitcoin.org‘ was registered on August 18, 2008, marking the first mention of the asset by name.

Later that year, in October 2008, Satoshi Nakamoto shared a link to the Bitcoin white paper via a cypherpunk cryptography mailing list. 

In January 2009, the open source code known as the Bitcoin core client was released into the wild on SourceForge. From that point on, the fully autonomous blockchain network has been unstoppable.

The asset started out virtually worthless, mostly being created through a process called mining. Early users of Bitcoin were able to mine BTC using their PC. Later, as difficulty increased, computer GPUs became the method of choice, and eventually, specially designed machines were created.

As it grew in interest, it also grew in value. Bitcoin really began to take off after it reached over $100 per BTC. Soon, it increased to $1000, before entering its first extended bear market.

After that, it rocketed from $1000 to $20,000 in less than a year and took the entire world by storm. Today, it is the largest crypto asset by market cap, and a whole altcoin revolution has been created in its honor.

Some of these other coins hope to fix the many issues with Bitcoin, such as scaling, while others claim that these assets don’t even need to exist when Bitcoin already does.

How Does Bitcoin Work? All About the Protocol BTC Underpins

Bitcoin operates through a process called “proof-of-work.” Proof-of-work, which takes place through Bitcoin mining, keeps the whole network in operation, provides additional security, and much more.

Miners operate energy-hungry equipment specially designed to solve mathematical equations that unlock a BTC block reward. The higher the hash miners generate, the higher the chance they successfully unlock the BTC reward. Any unlocked BTC gets stored in a related account.

Rewards are unlocked every ten minutes as each new block gets validated and added to the blockchain. This process also confirms any Bitcoin transactions sent in the corresponding block. Bitcoin block size is just 1MB and takes roughly ten minutes for each to be processed.

The reward miners receive gets slashed in half roughly every four years in an event called the halving. Each halving lowers the supply of BTC slow trickling into the supply chain. When this process runs out, the Bitcoin network will self sustain and reward miners through transaction fees alone.

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What Can You Do With Bitcoin? Buy, Sell, Hold, Trade, and More

Bitcoin is a speculative asset because its use cases aren’t fully understood yet or have been fully adopted. Like the internet before it, it will take time for developers and front end solutions to catch up with other modern technologies that help to bring the crypto asset into the mainstream.

For now, here are the most common things you can do with Bitcoin the cryptocurrency and via the decentralized network.

Mining BTC And Powering the Network

There was once a time when no one knew what Bitcoin was, nor did it have any value at all. The only way you could earn BTC is by contributing processing power, or hash rate.

This is how all early Bitcoin came to be and is the process at which the Bitcoin blockchain protocol runs. It was an early experiment that cypherpunk and other tech enthusiasts toyed with using their spare time and computer. 

Today, Bitcoin mining is a big business where major corporations pay close attention to profit margins and energy costs.

Still, individuals can mine BTC and contribute to the Bitcoin network themselves and is just one of many ways anyone can first get started with Bitcoin.

Holding For The Long-Term

Among the first terms crypto investors hear when they first get started, is the incorrectly spelled term “HODL.”

Originating from a BitcoinTalk forum user who misspelled “hold” the term stuck somehow, this implies users should “hold on for dear life.” The recommendation comes to assist new investors in coping with Bitcoin’s unwieldy and notorious volatility.

This strategy is simple investing – buying and holding on to the asset for the long term. However, this isn’t always the best strategy with Bitcoin, as many have learned the hard way.

Those who bought Bitcoin at its current peak, are down nearly 50% almost three years later if they chose to “hold on for dear life.” 

Trading Bitcoin For Profits

In another example, Bitcoin investors that bought the 2018 bottom at $3,200 and held, had a chance to sell their BTC at $14,000. Those who didn’t watched their investment fall back to $3,800, erasing most of the gains. 

Had they traded Bitcoin instead of investing, they could have sold their 1 BTC bought at $3,200, for $14,000, then bought 3.5 BTC back at $3,800 with all the profit from the first trade.

Spot cryptocurrency trading like BTCUSD pairs involves selling the asset at a higher price, then buying it back again at a lower price. Margin trading Bitcoin involves leverage shorting and long positions using derivatives like CFDs instead of the asset itself. 

The cryptocurrency trading market is unregulated, so be careful when selecting an exchange. Hands down, using leverage is the best trading strategy to make money with Bitcoin. It can be even more lucrative when trading BTC for altcoins and not just BTC to fiat pairs.

Buying, Selling and Other eCommerce 

Because Bitcoin was initially designed as a peer-to-peer form of electronic cash, it very well can be used just like any other currency and be used to make payments or receive them for buying and selling goods online.

Bitcoin can be used on any e-commerce platform that accepts it or be sent from peer-to-peer. Several payment solutions exist for merchants, or users can accept BTC directly by being their own bank.

This has fallen out of favor since Bitcoin took the world by storm in 2017, as investors either hold or trade the asset in hopes of price increasing beyond the previous peak. The asset is expected to reach prices of $100,000 to $1 million BTC, making it extremely difficult for some people to part with Bitcoin just to pay for something.

In the past, a person spent 10,000 BTC on two pizzas. Today, those two pizzas would cost over $90,000,000. While this person kicked off Bitcoin as a payment system back then, they’re probably kicking themselves in the behind for missing out on what could have been life-changing wealth.

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The Future of Bitcoin: Global Reserve Currency, Or Fall To Zero?

Bitcoin’s future is incredibly bright, with enormous potential if adoption continues to take place. If, for some reason, the asset fails as a financial experiment, its price could theoretically go all the way to zero. Others call for astronomic price forecasts of hundreds of thousands of dollars to millions.

Bitcoin is only over a decade old and has nowhere near the level of adoption or acceptance necessary to reach the mainstream public.

This process took the internet decades and still hasn’t reached full market penetration. It is said if Bitcoin follows the same rate of internet adoption, it will take all the way until 2043 to achieve the same market penetration across the globe.

If Bitcoin were to become fully adopted, it could potentially replace all fiat currencies and become the global reserve currency. The dollar is the current global reserve and has spent the last 100 years reigning supreme. Historically, currencies have only stayed in power for roughly 100 years, before a new superpower comes along and ends the reign.

If it is the dollar’s turn to topple, instead of another country’s currency taking the throne, it could be a non-sovereign currency like Bitcoin. Because Bitcoin has no central authority or third-party controlling it, it could be extremely appealing as a currency connected to no country.

It would level the playing field in terms of the currency wars and keep countries from ever growing too powerful again in the future.

The United States may do everything in its power to stop such a scenario from occurring, and regulation hasn’t truly yet begun. It’s factors like these that could send Bitcoin to zero ultimately, but because the asset is currently unstoppable due to its design, the dollar and the US may be left to watch as the cryptocurrency takes over the world.

Storing Bitcoins In A Cryptocurrency Wallet

Bitcoin exists on the blockchain, and there’s where all transactions take place and where assets are stored inside a wallet.

Wallets are nothing more than an interface to access a Bitcoin account to make transactions. These can exist as “hot wallets” or web-based wallets that are in some way connected to the internet, or as “cold storage” wallets that are locked away from the internet in some fashion.

Important Facts About Crypto Wallets:

  • Hot wallets are faster, easier, and more flexible, but provide a loophole for hackers to access. Cold storage wallets are impervious to attacks, however, keep crypto investors at arm’s length from their assets.
  • Cold storage has the added risk of losing private keys and passphrases, but web-wallets do leave assets exposed to hacks and more.
  • Web-wallets are oftentimes attached to cryptocurrency exchanges, where they may involve added security such as two-factor authentication or even crypto asset insurance.

Conclusion: Buy and Trade The Most Profitable Asset Ever On PrimeXBT

Now that you know all there is to know about Bitcoin, if it is a good investment, how it works, and that it is more profitable to trade BTC than invest in it, it is time to get registered on PrimeXBT to buy and trade Bitcoin.

PrimeXBT is an award-winning Bitcoin-based margin trading platform, offering long and short positions on CFDs for forex, commodities, stock indices, and cryptocurrencies like Bitcoin.

All accounts are denominated in BTC, letting users settle any trades on any asset in their favorite cryptocurrency. Users can even easily buy Bitcoin for the first time using PrimeXBT and a debit or credit card.

After either buying Bitcoin directly from PrimeXBT’s dashboard or making a 0.001 BTC deposit, users can get started trading any of the over 50 assets available on the platform.

Built-in charting software and other advanced trading tools are included, along with a lucrative, four-level referral system.

24-7 customer service is always available via online chat and ready to assist with any account related questions or trading needs.

FAQ: Frequently Asked Questions

What is Bitcoin?

Bitcoin is the first ever cryptocurrency, designed by Satoshi Nakamoto

When was Bitcoin created?

Bitcoin was first created in 2008 during the Great Recession and economic crisis.

Is Bitcoin a currency?

Yes, Bitcoin is a currency that is cryptographically protected but is also many other things.

Is Bitcoin a commodity?

Yes, in a way, Bitcoin is also a commodity. Commodity price fluctuations are based on supply and demand, much like Bitcoin. The United States Commodities Futures Trading Commission deems it a commodity. Satoshi Nakamoto sought to give Bitcoin a commodity like quality, similar to a collectible. 

Should I buy Bitcoin?

Yes, after careful research, Bitcoin is a great investment. Consider registering to PrimeXBT to buy Bitcoin and trade Bitcoin-based CFDs for forex, commodities, stock indices, and crypto.

What is a Bitcoin Wallet?

A Bitcoin wallet is an account that exists on the blockchain network that allows the storage of BTC coins. Users can use a visual interface to interact with the wallet and use it to send or receive BTC anonymously.

Is Bitcoin a good investment?

Bitcoin has enormous potential and a bright future. It is also very young in terms of being a financial asset. Therefore, Bitcoin is considered a good investment, but it is recommended to do your own research. 

Risk Disclaimer
Investing in or trading gold or other metals can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing in gold CFDs is done at your own risk.
The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

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