You would be forgiven for not knowing the roots of what Bitcoin is and how it is made. That’s because Bitcoin, or BTC for short, is the world’s first cryptocurrency and is only recently beginning to pick up steam in the mainstream.
However, as Bitcoin becomes increasingly adopted by some of the world’s largest and well-known companies, knowing the ins and outs of crypto’s #1 digital asset is more important than ever. Starbucks, Whole Foods, Twitter, and AT&T are just a handful of the globally recognized companies adopting Bitcoin as a payment option.
Thankfully, Bitcoin is not as complicated as you may have thought. To take advantage of the financial opportunity represented by BTC, it pays to know more than the average person. So, let’s get right into it.
A Brief History of Bitcoin
In 2008, a whitepaper penned by Satoshi Nakamoto was circulated online. It was titled “Bitcoin: A Peer to Peer Electronic Cash System” and described a revolutionary digital cash system based on a new network type called blockchain. As it later turned out, no one actually knew who Satoshi Nakamoto was – their true identity remains a mystery to this very day.
No one thought Nakamoto’s identity was very interesting anyway. Instead, what really piqued people’s interest was Bitcoin. For the first time ever, it was possible to send a digital payment anywhere in the world for incredibly small fees and within mere minutes. The Bitcoin network went live in 2009 and, ever since then, has operated without downtime or security compromises like hacks.
To Understand Bitcoin, You Must Understand Blockchain
Bitcoin is a digital currency, but below the digital currency is the Bitcoin blockchain. A blockchain is, in a nutshell, a network that is decentralized instead of centralized. Examples of centralized networks include Visa, PayPal, and Mastercard. They’re centralized because all transactions must pass through a single source to be deemed valid or invalid. Basically, Visa has the final say about your transaction.
The Bitcoin blockchain, in contrast, is decentralized and isn’t owned by anyone. Instead, the network is supported by a vast network of participants called miners (more on them later). To confirm if a transaction is true or false, all the network participants vote on it, and if the majority says the transaction is true, it is added to the latest block.
Transactions are added to blocks, and new blocks are chained to older ones, hence blockchain.
Miners Create Bitcoin
Currently, there are 17,810,875 BTC in circulation, and only 21,000,000 can ever exist. So where are they coming from? The answer is mining.
Mining is a competition between network participants called miners. Each miner competes with the others uses computing resources to guess the number that will unlock each block. Each block contains a reward in BTC – the current block reward is 12.5 BTC. When a miner correctly guesses the unlock number (called a target hash), they receive 12.5 BTC which are freshly minted on the spot.
In this way, miners unlock and mint BTC, which then goes into the general circulation when they sell it to pay for mining costs like hardware and electricity.