A lot of people have tried to understand this topic, however, it is more complicated than it seems. Many articles have been published to discuss what Bitcoin really is, yet, the underlying curiosity still lingers. Probably, Bitcoin is the first piece of the Web3 jigsaw.
Will we ever fully understand the idea behind such a revolutionary invention? Continue reading this article to know more.
What is Bitcoin?
Bitcoin (BTC) is the first-ever digital currency or cryptocurrency created, it was invented in 2009 by a programmer or group of developers whom we know as Satoshi Nakomoto.
The success of bitcoin gave birth to the creation of tonnes of other digital currencies like Ethereum, Solana, Shiba Inu, etc., following the same pattern. But what exactly is bitcoin? We are about to find out.
Bitcoin is a form of decentralized cash or asset that only exists virtually but can be used to perform real-world transactions. Its system is designed in such a way that only 21 million units can exist and the last piece is proposed to be mined by 2140.
What is Decentralization?
Unlike regular bank transactions that must be verified by a central bank, bitcoin works entirely differently, it is completely decentralized and anyone anywhere with an internet connection and a mobile device can own a fraction or even a whole unit or more of bitcoins.
You can buy, sell or trade this currency without the intermediary of a central bank or even the government. Its transactions are recorded on the blockchain in a peer-to-peer network of nodes using the cryptography protocol particular to bitcoin.
How are Bitcoins Created?
Bitcoin is created through a process called mining. Bitcoin Mining is the use of enormous amounts of electricity and expensive computers to compete and solve very complex math problems, this is done to successfully add a block to the blockchain which in turn creates more bitcoins.
A miner may be able to earn up to 6 bitcoins for adding a single block to the blockchain.
However, the process involved in mining is quite expensive and energy-consuming as it was assessed that an average of 143,000kWh is used to mine a single bitcoin.
According to the statistics provided by the New York Times, bitcoin mining consumes more electricity than Finland and Norway and that is about 0.5% of all global electricity and also 7 times the energy used by google to carry out all its operations. That's incredible, isn't it?
How to Buy Bitcoin
Bitcoins can be actively traded against the US dollar on Crypto exchanges. A crypto exchange is a platform that allows you to buy, sell and trade all forms of digital currencies. Some exchanges are decentralized while others are not.
Exchanges provide users with pairs of currencies to make it easy for trading, for example, the US dollar is usually paired with other currencies, so buying bitcoin and other currencies becomes easy. All you need to do is fund your exchange wallet with sufficient USD and buy the pair you want to buy for example bitcoin USD (BTC/USD).
Most exchanges have other currency pairs aside from the US dollar, they essentially have a native coin that will suffice in purchasing any crypto within that exchange.
Examples of exchanges are- Binance (The world's largest crypto exchange), Kucoin, Huobi, Coinbase, Bitfinix, WazirX, etc.
Uses of Bitcoin
Since its inception, bitcoin has gained a lot of use cases some of which are:
a. A store of value:
Some analysts claim that the 13-year-old Bitcoin is rapidly replacing Gold as a store of value. However, it is subject to high volatility as bitcoin prices may rise or fall dramatically, hence, experts have advised you to keep only a fraction of your money (one that you can afford to lose) in bitcoin.
Also, when people do not wish to save their money in the bank. Bitcoin could serve as an alternative means of saving money and at the same time expecting returns in the long run.
b. A mode of exchange:
One of the most renowned bitcoin transactions happened 12 years ago on May 10 when a Floridian programmer Laszlo Hanyecz purchased two large pizzas for 10,000 bitcoins which was supposedly worth $40 at the time of the transaction but now valued at approximately $300 million.
This paved the way for many other transactions globally and bitcoin is now a global means of exchange.
Bitcoin has also been regarded as a source of income to many as a result of the incredible rises over the years. Investors who wish to make money from the system learn to hold the currency for years and become profitable eventually.
Bitcoin as a Legal Tender
By definition, a legal tender is anything that is legally accepted within a state or country as a financial means of exchange, it is valid by the public for payment and to settle debts and also meet any financial obligations including paying taxes, legal fines, damages, etc.
In September 2021 El Salvador became the first country to make Bitcoin a legal tender, however, this decision was frowned at by many economists as its price volatility puts the economy in an uncertain state. However, the President of El Salvador still remains positive about the future of Bitcoin and how it can replace gold as a store of value.
The CAR (Central African Republic) is also another country that has accepted Bitcoin as a legal tender.
Where are Bitcoins stored?
Just like money is kept in the bank, bitcoin can be kept in something similar. It is called a digital wallet. These wallets can either be hardware-based or web-based and can reside inside a mobile phone or a computer.
Some crypto exchanges provide a means where users can have their wallets to store their assets, however, these exchanges do not provide any insurance on your money the same way as banks do. The question many may ask is. How safe are these wallets?
The safety of the funds in a user's wallet depends on how that user manages the wallet and a few other factors. Every wallet has a set of private keys without which no one including the owner can access. So what happens when I lose my private keys to my bitcoin wallet?
Let's take a look at some dangers you may encounter when you store your bitcoins in digital wallets.
Dangers Of Digital Wallets
Carelessness is a common attribute we humans have always lived with, sometimes we tend to lose even the most valuable things we own to carelessness. Such is the case with private keys, one must keep one private key safe at all cos because the loss of a private key is categorically the loss of whatever bitcoin or asset it contains.
Sometimes we may keep our private keys safe but get robbed of them. It is intriguing to know that whoever has a complete set of private keys has full access to whatever it contains, with or without the consent of the original owner.
Aside from the loss of private keys, especially in a bear market, hackers or scammers keep bringing new ways to gain access to other people's wallets.
A user's computer may malfunction and erase all data resulting in the loss of private keys. Once this happens and the user does not have the keys stored somewhere else, they may never gain access to it ever again
The best way to keep your wallet safe is to write the private kets on physical paper and keep them somewhere only you are familiar with. That way it is difficult for anyone to locate its presence and you do not suffer the consequences of loss of funds when you lose your computer or it crashes.
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NFA: Not Financial Advice. IYOPS or the author(s)/editor(s) are not registered investment advisors or brokers/dealers. All investment opinions expressed are from the personal research and experience of the author/editor and are intended as educational material. Despite our best efforts to make the information available as accurate as possible, occasionally, we err, as humans do.
DYOR: Do Your Own Research before making any investment decisions based on your personal circumstances. We recommend taking professional advice before making any investment decision.
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Abdulhafeez Yusuf is a content writer at the International Youths Organization for Peace and Sustainability. He is currently an Agricultural student at Bayero University in Kano, Nigeria. His passions include web design, digital marketing, real estate, and Web3.
Inputs and Edits by Aswin Raghav R.
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