What is Bitcoin? An Introduction to Cryptocurrency

Apple co-founder Steve Wozniak describes Bitcoin as “an amazing mathematical miracle that’s better than gold.” But what exactly is it?

by Uptime Staff / 2021-08-03

Bitcoin is a form of cryptocurrency, a digital asset that can be exchanged just like money - hence the ‘currency’ part of its name. While it may not have any correlation to any conventional currency, nor is it regulated by any government, bank, or centralised entity, it is still recognised, and used as a form of payment; in other words, it can be used to buy real-world things. 

quotation marks(Bitcoin provides) is the beautiful anonymity of cash, but cash that wasn't printed by governments.

- Christian Slater, narrator; in Cryptocurrency, Explained, by Joe Posner and Ezra Klein

Let’s take a step back in time. Bitcoin, one of the most famous cryptocurrencies, was created in 2008 by an anonymous person or group of people under the name of ‘Satoshi Nakamoto’. But how is it generated?

Bitcoin Mining

The term Bitcoin was initially coined (pun intended) to describe the reward given for a process called mining. This is how we ‘get’ Bitcoin. Mining involves solving a very complex mathematical problem.

Solving this adds a ‘block’ to Bitcoin’s ‘blockchain’, in turn generating a reward of (at the moment) 6.25 Bitcoins. That means that, at its peak, when each coin was worth almost $46,000 USD, the reward for adding one new block would be worth about $287,000 USD. 

Of course, it’s not an easy process (otherwise we would all be millionaires). It’s a process that requires enormous amounts of computational power and electrical energy, which is why it has come under scrutiny lately, as global social attention turns towards environmentally friendly options. 

While the time-consuming process can be automated, the rewards diminish over time. Once 210,000 blocks have been added to the blockchain, which is every four or so years, the reward (currently 6.25 Bitcoin) is halved.

Don’t think that you can just buy a computer and let it solve the problems for you, though.

The process is very much a gamble, with the chance of hitting the target answer around one in 16 trillion. In other words, you’re about 17,500 times more likely to be killed by a shark. 

The chances are likely to get even slimmer with time, too, because it is said that there is a limit of 21 million Bitcoins, which, according to today’s valuation, is the equivalent of approximately $830 billion USD. That’s not too far off the Netherlands’ GDP - the 18th richest country in the world.

Pros and Cons

The twenty first century world in which we live is dominated by a handful of individuals - figureheads of governments and other agencies. This makes many people feel uncomfortable and out of control.

The fact that this currency is decentralised, then, is a huge benefit, as it is a step away from the conventional big banks. 

quotation marks(Bitcoin is) a way to buy and sell things online without Big Brother watching.

- Christian Slater, narrator; in Cryptocurrency, Explained, by Joe Posner and Ezra Klein

Opportunities to make money from new cryptocurrencies have risen, too. While Bitcoin is one of the - if not the - most famous and popular ones out there, there are plenty of other options. 

Elon Musk, CEO of Tesla, for example - a big advocate of cryptocurrencies - often cites Doge coin, a coin that was initially created as a joke.

There are plenty of drawbacks, though. Being a new technology, there are fewer people familiar with it than with conventional cash, allowing more room for error.

Its long-term value is also uncertain, and it is particularly vulnerable to fluctuations, such as the rise and subsequent drop in popularity in 2020 and 2021, thanks to a few favourable words (and then followed by a few more unfavourable words) by the hugely influential Elon Musk. 

There is some degree of protection from payment fraud in using Bitcoin, but equally, the chances of getting a successful refund are slim, and black market activity is aplenty.

The most enticing thing seems to be that - owing to it not belonging to a centralised body - Bitcoin has become a multinational form of currency that allows for international transactions with no conversion fee.

Investing in Bitcoin

While it is a very new asset in terms of investing history, it has proven a good investment so far. It is believed that, with more interest from institutional investors like banks and pension plans, Bitcoin could continue to appreciate and prove a solid investment.

Don’t expect short-term gains: any type of investment should be considered in the long term. But equally, don’t expect any gains, and be prepared to lose everything given its uncertain nature: only invest what you’re happy to lose. That’s a key hack for any investment.

Spending Bitcoin

You may be fooled for thinking that Bitcoin only acts as a pot for investment, but some companies have started to accept it as a currency, allowing you to use it as a form of payment.

Wikipedia accepts donations in many currencies, including this popular form of cryptocurrency. Similarly, Microsoft allows customers to top up their accounts using Bitcoin. Fast food chains have dabbled in the field, too, including Burger King, KFC, and Pizza Hut.

There are even small, local and independent businesses that recognise the foothold that Bitcoin has in our wallets - including many examples that only accept it and reject any form of conventional money. ‘Bitcoin Coffee’, a cryptocurrency cafe in Prague, Czech Republic, is a notable example. 

Alternatively, if you have an investment in Bitcoin that's increased in value, you can take a risk and continue to watch it grow - or fall, maybe - or convert it back to your native currency and spend it as normal. 

Summary

In summary, we have learned that we’re uncertain of Bitcoin’s founder(s), but we do know that there is a cap on how many can be mined, giving us some indication as to its future. We also know that the process of mining is hugely power intensive, which should be noted especially by those trying to take steps to care for the environment. 

The future is uncertain - as indeed, is the present - but there are some big names that are keen to get involved, all of which begins to add to the cryptocurrency’s legitimacy, or at least notability. 

Ultimately, owing to the fact that it is hugely unregulated, it’s best to do extensive research before jumping into anything. If you’re unsure of where to start with your research, Uptime has a selection of five-minute Book Hacks, Course Hacks, and Documentary Hacks on the topic, all with highlighted key learnings and simplified, informative breakdowns.

Follow us & share:
InstagramTwitterFacebookLinkedIn
Top Tear

Start learning with Uptime today.

Thousands of 5-minute knowledge hacks from the world’s best books, courses and documentaries

Download now
Bottom Tear
© 2021 Uptime App LtdWe will receive a small commission from all purchases on Amazon