What is Bitcoin?

Bitcoin is the most well known and the first broadly adopted digital currency in the world.

From its mysterious inceptions through its rise to global dominance, the buzz around Bitcoin only continues to grow, driven by its potential to revolutionize how we perceive and use money.

Trade Bitcoin on Backpack Exchange.

Understanding Bitcoin is crucial for anyone interested in the evolving landscape of cryptocurrency. Before we dive into the nitty gritty details, let's start with the simplest terms. At its core, Bitcoin offers a way to make transactions without a central authority like a bank or government overseeing things.

Instead, it is run by thousands of computers scattered across the world, which is what makes it a "decentralized" currency.

Bitcoin is open-source, so anyone, anywhere can participate by downloading and running the code. It is this decentralization or resistance to censorship, ability to transact 24/7, and unique security mechanisms that make Bitcoin so fascinating and widely adopted.

One more important thing as we begin to dive in. Bitcoin is the name for the network, while bitcoin (lowercase b) is the currency itself who’s ticker symbol on exchanges is BTC.

Bitcoin was introduced in 2008 by an anonymous individual or group known as Satoshi Nakamoto.

Their release of the Bitcoin whitepaper, titled "Bitcoin: A Peer-to-Peer Electronic Cash System" outlined a new form of electronic cash that operates on a decentralized network. This innovative approach sought to eliminate the need for trusted third parties like banks. 

Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.

What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.

Bitcoin: A Peer-to-Peer Electronic Cash System

In 2009, the Bitcoin network was launched, marking the birth of the first cryptocurrency. Nakamoto mined the first block, known as the "genesis block," embedding a message that hinted at the motivations behind creating Bitcoin. This event set the stage for a new era in digital finance, challenging traditional financial systems and introducing the world to the concept of decentralized currency.

At the heart of Bitcoin is blockchain technology, a decentralized ledger (like a record book) that records all transactions across a network of computers. This public ledger is maintained by a network of nodes (computers), each running a complete copy of the blockchain. 

Roughly every 10 minutes the network batches new transactions and stuffs them into a “block” of data. Each block is attached to the block before it, thus making a chain of blocks or “blockchain”.

“Mining” is a critical component of Bitcoin's success. Before a transaction can be added to the blockchain it needs to be verified to ensure it is correct. This work is done by “miners”, who solve complex mathematical problems.

The first miner to solve each puzzle gets to add the new blocks of transactions to the blockchain. In return, the winning miner received newly created Bitcoins (this is called the “block reward” as well as any transaction fees.

This whole mining process is known as Proof of Work (PoW), and ensures the security and integrity of the network. Miners are incentivized to correctly verify transactions, and in return receive block rewards and transaction fees for their efforts.

Because Bitcoin is decentralized, it means that no single entity controls the network, enhancing its security and resilience against attacks.

There are more than a few unique things to note about the Bitcoin network. 

• Decentralization - Bitcoin's decentralization removes the need for a central authority, offering benefits such as increased security, transparency, and resistance to censorship. 

• Permissionless - Anyone with access to the internet can participate in the Bitcoin network, whether to run a node, or send and receive transactions, without authorization from a central authority like a bank or government.  

• Limited Supply - The Bitcoin supply is hard capped at 21 million coins, which means there will never be any more in circulation. This mechanism helps prevent inflation.

• Divisibility -  Just like physical dollars, each bitcoin can be split into smaller units called “Satoshis”. This ensures that if the price of bitcoin rises, it still allows people to use it to transact in smaller amounts. And to dispel the common myth: you don’t have to buy a whole bitcoin, you can buy tiny increments over time. 

• Transparency - Every single Bitcoin transaction is stored in the public ledger which is visible (but not changeable), by anyone across the world. In the traditional banking system users rely on the banks to privately track and verify transactions.

• Security - The network's strong security features, including cryptographic techniques and decentralized validation by miners, makes it appealing as a digital asset. Bitcoin's immutable (unchangeable) ledger ensures that once a transaction is recorded, it cannot be altered, providing a high level of trust and reliability in the system.

Bitcoin is often compared to traditional stores of value like gold due to its limited supply.

Many people use it as a hedge against inflation, as the fixed supply cap creates scarcity. Over the past few years both institutions and individuals have increasingly adopted Bitcoin as a form of digital gold, recognizing its potential to preserve wealth over time. 

Remember when we talked about “block rewards” for miners? The Bitcoin code was written so that every 210,000 blogs (roughly every four years) those block rewards are divided in two.

Thus the “halving”. Since those rewards are the only way that new bitcoin comes into circulation, this step function ensures that the supply becomes more and more limited over time.

The last halving was April 20th, 2024  and the next one is projected to be around March 29th, 2028. 

Purchasing Bitcoin is quite easy and can be done through various methods, including centralized and decentralized exchanges.

Exchanges like Backpack Exchange offer user-friendly interfaces for buying, selling, and trading Bitcoin.

Trade Bitcoin on Backpack Exchange.

Once acquired, Bitcoin can be stored in hot wallets (connected to the internet), or cold wallets (offline). Each type of wallet has its own set of advantages and security considerations. 

Hot wallets, such as mobile or desktop wallets such as the Backpack Wallet, are convenient for frequent transactions, while cold wallets are great for long-term storage. Security best practices are essential for safeguarding your Bitcoin holdings.

Bitcoin's significance as the pioneer of the cryptocurrency space cannot be overstated. Its potential to reshape the financial landscape, coupled with ongoing developments and innovations, makes it the key player in an ongoing shift towards a more inclusive and resilient financial system.

For any inquiries, please contact support@backpack.exchange