Bitcoin

What is Bitcoin?

A simple method to define Bitcoin is by comparing it to fiat currencies. Bitcoin operates in a manner akin to fiat currencies like the Dollar, Euro, Ruble, and Rial in terms of functionality. But there are two major differences between Bitcoin and fiat currencies, which are "origin of creation" and "nature".

In contrast to common currencies generated by central banks, Bitcoin can be mined by any individual. As we outlined in the basics of money, a currency can become widely accepted as common money if it involves a difficult mining process. In Bitcoin, individuals can mine it using their computers, but it may not be conventional, we will delve into later; Thus, fiat currencies are generated by governments and central banks, whereas Bitcoin can be created by any individual through the process of mining.

Fiat currencies are inherently subject to control by governments and central institutions, allowing them the ability to produce as much currency as they deem necessary, Which contributes to the ongoing inflation at this stage. However, Bitcoin is not under the control of a centralized or sovereign entity; instead, it operates on a system where all participants can monitor and engage in decision-making processes.

Bitcoin Overview

Bitcoin was introduced in 2008 by Satoshi Nakamoto, an anonymous individual or group whose identity remains unknown. The first Bitcoin block, was indeed mined in 2009, officially initiating the Bitcoin network. During its initial years, Bitcoin faced numerous challenges and experienced notable growth, including the hacking incident at Mt. Gox and various other issues. Nevertheless, Bitcoin has gained recognition and acceptance as a digital currency, being utilized by individuals, businesses, and institutions to a significant extent.

In recent years, Bitcoin has witnessed a remarkable surge in its price and has been embraced by major corporations like Tesla and PayPal. In 2022, the nation of El Salvador made Bitcoin its legal tender. While the future of Bitcoin remains uncertain, it holds significant potential to revolutionize the landscape of financial transactions.

How many bitcoins are there?

There are a total of 21 million bitcoins that can ever be mined, with approximately 19.2 million already in circulation. The final bitcoin is projected to be mined by the year 2140, after which no additional bitcoins will be created. Satoshi Nakamoto did not specify the rationale behind the 21 million bitcoins limit in the Bitcoin white paper, leaving it to speculation.

(A white paper serves as a persuasive document designed to encourage readers to undertake a specific action, such as purchasing a product or service. It is typically tailored for a commercial or technical audience. In the context of blockchains, a white paper is utilized to explain the functionality of the blockchain, provide technical details, and outline other relevant information pertaining to its operation.)

It's interesting to note that an estimated 4 million bitcoins, equivalent to about $188 billion, have been lost thus far due to individuals losing their private keys and consequently unable to access their bitcoins. This means that the total number of bitcoins in circulation stands at 15 million bitcoins.

The first recorded Bitcoin transaction involved the purchase of two pizzas, where a person exchanged 10,000 bitcoins for 2 pizzas. This transaction is often considered one of the most expensive pizza purchases in history, amounting to roughly $470 million for just two pizzas! In every situation, individuals decide based on their unique circumstances and lack foresight about the future. Exploring this case purely for amusement proved intriguing.

Bitcoin Mining

If you recall, it was explained in the sections on cryptocurrencies and basic monetary principles that money should be difficult to obtain and exist in limited quantities. The limit of bitcoin is set at 21 million coins, primarily to manage inflation within the currency. The challenging process of acquiring bitcoin is referred to as mining.

Perhaps the idea of mining remains unclear for some individuals, so we will simplify it by providing an example. We're all familiar with the fact that the blockchain consists of blocks. Let's imagine that each block contains a certain amount of coins or Bitcoin. However, in order to access the coins contained within each block, one must solve a puzzle or computational problem. This puzzle is intentionally challenging because the mining process needs to be difficult, especially since you're aiming to obtain valuable bitcoins. Literally, Mining involves solving a challenging puzzle in order to obtain the cryptocurrency coins within the same block.

To improve the likelihood of solving the puzzle, individuals often work together in groups. Upon solving the puzzle, the prize money is distributed among the members of the group. This concept is referred to as "mining pools" in the blockchain sphere.

Currently, the reward per block in Bitcoin mining is 6.5 bitcoins. Initially, this reward stood at 50 bitcoins. Moreover, mining rewards undergo a halving process every 4 years.