The Basics of Bitcoin

Lets first makes sense of Bitcoin. Bitcoin also known as BTC is based on algorithms and  coding technology known as a Blockchain. A Blockchain is a disturbed Ledger otherwise known as a DLT, that doesn’t have any central authority. This simply means that the Blockchain system that has made Bitcoin so popular is the Peer to Peer network it uses. What this means is that every transaction done is verified by thousands if not millions of computers plugged into the Blockchain.

Further reading – What is a blockchain

Bitcoin also known as BTC is a cryptocurrency that was founded in 2008 by Satoshi Nakamoto. It was primarily designed as an economic incentive to motivate programmers to look after the Blockchain. The genius behind Bitcoin is both why it was created AND how it was created. In Economic Game Theory the correct economic incentive brings people together and that’s the exact formula used by the Bitcoin founder. Precisely 10 bitcoin is released per block [every 10 minutes] and those that solve its complex mathematical formulas win the award i.e bitcoins. This incentive was developed to produce 2 valuable outcomes:

  • To maintain the blockchain
  • To ensure that it stays resilient against hackers

Side note: The reason for the term ‘blockchain’ is because it releases a new block every 10 minutes. This further incentives ‘miners’ to solve the maths in order to be the amongst the first to win the BTC award per new block. What’s amazing is that each block contains all the transaction history of the previous blocks. This is what makes the blockchain such a revolutionary technology and what has given bitcoin its present and growing market value.

The Bitcoin Blockchain was originally designed to solve key financial challenges that people experience on a daily basis. From here it has evolved into other important areas that need new solutions. Click here to learn more on what problems the Bitcoin Blockchain solves and how this has evolved.

Is Bitcoin an Investment

Many in the cryptocurrency community argue over whether Bitcoin is an investment like conventional assets or is it more a store of value. Bitcoin it seems is both and for good reason.  Here are the Top 4 reasons why bitcoin is so valuable:

  • A finite amount of bitcoins are available ever
  • Bitcoins are acquired through a process called mining
  • Due to a lack of supply and increase in demand its deemed value keeps rising
  • It is the Father to all other cryptocurrencies in circulation

There is a finite amount of Bitcoin left

Bitcoin has a finite amount available. The expected year that the last bitcoin will be mined will be 2140. There is a while to go but still, knowing that there is only so much to go around makes it more valuable. You may be wondering how many bitcoins there are so here are the figures:

At the time of writing this:

  • Total Bitcoin Supply – 21 Million
  • Current Bitcoin claimed – 16.8 Million
  • Estimated Bitcoin available – 4.2 Million

Mining is the way new Bitcoins are acquired

Mining is a term used by the cryptocurrency community to describe the process of acquiring new bitcoins. Mining bitcoin involves serious computer power which is used to solve the ever evolving complex mathematical challenges produced by the bitcoin blockchain. These math problems keep increasing in difficulty. Mining solves two important concerns associated with the blockchain.

  1. Mining the bitcoin blockchain maintains the blockchains integrity and security
  2. Being rewarded with bitcoins motivates the mining of it which again maintains the blockchain.

Lack of supply and increase in demand

Bitcoin was never as high in value as it is now. Back in July 2010 when it was in its infancy, the value of a single bitcoin was $0.08! As more people became aware of it and began to see the value its price just kept rising. Its value keep growing because there wasn’t and still isn’t enough to go around. Basic economics – supply and demand principles – have made bitcoin what it is today.

We find that as each block is released there become less bitcoin available for the world. This fact together with the volatility in the cryptocurrency market both increases and decreases bitcoins value on a daily basis. The greater the demand for bitcoin and other cryptocurrencies have created a world of uncertainty and lots of upheavel.

Bitcoin is the Genesis of Cryptocurrencies

As we know bitcoin is the first cryptocurrency and genesis blockchain. This has inspired many new cryptobased startups to develop their own blockchains and cryptocurrencies. As of writing this there are currently 1384 digital currencies in circulation! That’s a huge number and more are developing every day. Because bitcoin is seen as the Father of this revolution in digital currency and blockchain technology its value increases.

Several new cryptobased start-ups have developed their own blockchains intended to improve upon the original bitcoin blockchain protocol. One such major player is Ethereum. Their blockchain is designed for application development. This allows others to use the Ethereum blockchain for their own unique needs.

Video – Why we Need Digital Currency

 

The Future of Bitcoin

The future of bitcoin is on a solid trajectory and doesn’t seem to be slowing down. It has by all accounts catapulted in the last 18 months to super high values and increased attention from the public. The rapid adoption of Bitcoin and subsequent alternative cryptocurrencies such as Ethereum and Litecoin have shaken regulators and financial intuitions to their core. Many are unsure as to how and why the phenomenon of cryptocurrencies have increased so dramatically but they are here to stay and there are more on the way.

Bitcoin and other early cryptobased companies have firmly set the sails to global cryptocurrency adoption with thousands of ICO’s planned in the near future. Education is the most important tool for people and learning about the changing world of cryptocurrencies is very important.

Click here for more information on the first Cryptocurrency companies that came after bitcoin.

Current Legitimate concerns about cryptocurrencies

While many wont side with the current banks and regulators on the nature of cryptocurrencies, there is good reason to heed their warnings. When I began to research crypto I quickly saw the potential dangers which most people need to be aware off. For me the top 5 areas of concern are:

  1. No regulation
  2. No legal frameworks
  3. Highly volatile
  4. No market consensus to value
  5. Adopted to quickly

Regulation is important

Because bitoin and other cryptocurrencies are financial assets there needs to be regulation. This allows the public a degree of safety and security when investing in them. Regulation helps balance the hype and mania and bring about more realistic values for people. Regulation will also bolster confidence and the uptake of these digital assets by more institutions.

No legal frameworks

At the moment, if you purchase bitcoin and it is stolen from you there is nothing you can do about it. Yes, transaction info is untraceable but even if you knew the person that did steal from you, you have no recourse. Currently there are lots of people being scammed everywhere online but not much can be done about it. Without proper legal frameworks its really a mine field out there.

Digital currencies are really volatile

Volititly is at its highest levels from the date of writing this. Literally Billions of Dollars have been wiped out in a matter of a few days. The extreme volatility comes from the above 2 points: Lack of regulation and legal frameworks. Tread very carefully and remember that volatility is a natural by product of anything new and disruptive.

Moving onto the current global financial industry we find a lot upset bankers. There is arguably expected backlash from the banks and regulating authorities on the matter of Bitcoin and other cryptocurrencies. Cryptocurrencies are a major threat and have already proven to be highly disruptive in the value they offer. At the moment many banks and powerful nations are currently trying to ban these alternative currencies from continuing and/or will be trying to at the very least institute tax on them. The current space can be seen as a battle between the people and the Government but this is a naïve position to hold onto.

What CryptoHobbyist expects to unfold is regulation coming into effect instead of the demise of the cryptocurrencies. The sheer popularity and mass adoption is now at levels that cant be retracted. Therefore it makes more sense that the regulation will come into effect and that by doing so people will begin to feel a lot more secure with these new digital currencies.

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