Bitcoin (BTC)

Bitcoin (BTC) is a decentralized digital currency launched in January 2009 after being introduced in a 2008 whitepaper by an individual or group of people using the pseudonym Satoshi Nakamoto. Operating on a peer-to-peer basis, this system enables transactions directly between network participants without the need for intermediary financial institutions. Nakamoto's vision for Bitcoin was to facilitate internet payments directly from one party to another, bypassing traditional banking systems.

Bitcoin stands as the inaugural cryptocurrency, not merely proposed but also achieving widespread adoption, setting it apart from previous decentralized digital money concepts. The identity of Bitcoin's creator, Satoshi Nakamoto, remains unknown over 15 years after its inception.

The foundational whitepaper, released on October 31, 2008, laid out the blueprint for a decentralized digital currency system using blockchain technology. This system was designed to secure transaction records cryptographically in blocks. After mining the first block on January 3, 2009, Nakamoto introduced the world's first cryptocurrency, initially valued at zero. Early on, BTC could be mined using standard computers and software. A notable early transaction was the purchase of two pizzas for 10,000 BTC on May 22, 2010, which, at today's Bitcoin value, would cost hundreds of millions of dollars. Bitcoin trading commenced in July 2010, with prices ranging from $0.0008 to $0.08 per coin.

Although Satoshi Nakamoto is the founder of Bitcoin and authored its first version, he transferred control of the network alert keys and the code repository to Gavin Andresen, who later became the lead developer at the Bitcoin Foundation. Over the years, numerous developers have contributed to the evolution and improvement of the cryptocurrency, addressing bugs and introducing new features.

The Bitcoin code on GitHub is maintained by over 750 contributors, with notable contributions from Wladimir J. van der Laan, Marco Falke, Pieter Wuille, as well as Gavin Andresen, and Jonas Schnelli, among others.

What sets Bitcoin apart is its pioneering status as the first cryptocurrency, fostering an international community and giving rise to an industry with millions of enthusiasts engaged in developing, investing, trading, and daily using Bitcoin and other cryptocurrencies. This breakthrough in digital currency laid the groundwork for a technological and conceptual foundation that has inspired thousands of alternative projects.

Today's nearly $2 trillion cryptocurrency market is built on principles established by Bitcoin’s price. This system enables the exchange of money between individuals worldwide without the involvement of traditional financial entities such as banks or financial companies.

Thanks to its innovative approach, BTC continues leading in the fast-evolving cryptocurrency market despite being over a decade old. Even with a reduction in absolute dominance, Bitcoin remains the largest cryptocurrency by market capitalization. It exceeded $1 trillion in 2021 when its price of bitcoins reached an all-time high of $64,863.10 on April 14. This growth is driven by increasing interest from institutional investors and the expansion of infrastructure supporting BTC use, including wallets, exchanges, payment systems, online gaming, and other services.

The total amount of Bitcoin (BTC) currently in circulation is strictly capped by its programming code at 21 million coins, a threshold that will not be exceeded. New coins are generated through mining, wherein miners select transactions from the network, compile them into blocks, and secure them using advanced cryptographic methods.

Miners are rewarded with new coins for every successfully mined block added to the blockchain. Initially, the reward for mining a block was 50 coins, but this amount halves every 210,000 blocks, approximately every four years. By 2024, the block reward will decrease to 3.125 BTC.

Bitcoin was launched without any pre-mining, meaning there was no initial distribution of coins to the founders before it became publicly available. In the early days after Bitcoin's launch, mining competition was relatively low, allowing early network participants to accumulate significant amounts of coins through mining. It is widely believed that Satoshi Nakamoto, Bitcoin's mysterious creator, owns over a million BTC.

How is the Bitcoin network secured?

Bitcoin employs the SHA-256 algorithm, part of the SHA-2 family of hashing algorithms, which is also used by its fork, Bitcoin Cash (BCH), and several other cryptocurrencies.

What Role Does Bitcoin Serve as a Store of Value?

Bitcoin occupies a unique place in the financial world as the first decentralized peer-to-peer digital currency, representing an innovative model of financial relations. Its main advantage lies in functioning as a decentralized store of value, allowing users to have ownership rights over digital assets akin to physical property. This feature likens Bitcoin to precious metals in their role as a store of value. However, its capability to serve as a reliable unit of account remains a topic of debate among experts.

As seen by many crypto enthusiasts and economic experts, the adoption and proliferation of Bitcoin could radically transform the existing financial system, elevating it to a new level where transactions can be conducted in the smallest units, making financial operations more available and easy for a wider user base.

The smallest possible Bitcoin unit, a satoshi, named after its enigmatic creator, Satoshi Nakamoto, facilitates transactions involving tiny amounts, offering unique opportunities for microtransactions previously unattainable in traditional financial systems. Comparing Bitcoin to gold in its role as a long-term store of value highlights a trend toward viewing cryptocurrencies not merely as mediums of exchange but as significant financial assets suitable for accumulation and capital preservation. This perception of cryptocurrency as "digital gold" motivates many to buy and hold Bitcoin for the long term, contrary to its use for daily purchases. This approach, known in the community as HODL, is based on the belief in Bitcoin's long-term value growth, reflecting an investment strategy in high-value assets with the expectation of future appreciation.

Thus, Bitcoin and its smallest unit, satoshi, have not only introduced a new currency into the global economy but also proposed a new philosophy of financial relations based on principles of decentralization, accessibility, and security. These features render Bitcoin a tool for financial transactions and a symbol of a new era in the global economy, where every individual can control their funds without intermediaries and restrictions imposed by traditional banking and financial systems.

The advancement of Bitcoin technology is marked by significant protocol modifications known as hard forks, which render previously invalid blocks and transactions valid. These updates are incompatible with former protocol versions, meaning that all nodes must transition to the updated version post-hard fork to maintain smooth functionality. Otherwise, they remain part of the old blockchain version, which continues to operate independently but becomes segregated from the updated network and its users.

In contrast, soft forks involve protocol changes that invalidate some previously valid blocks and transactions while maintaining backward compatibility, allowing older nodes to recognize new blocks as valid. It requires only a subset of miners to update their software to adhere to the new network rules.

Cryptocurrency history is replete with hard forks that have led to the emergence of new currencies. For instance, as a result of a hard fork in the Bitcoin network Bitcoin Cash emerged, while disputes within the Ethereum community gave rise to Ethereum Classic. These events not only split communities but also initiated new projects with distinct operational principles and objectives.

Bitcoin Cash underwent a hard fork, leading to the birth of Bitcoin SV. These splits highlight the depth and complexity of relationships within the cryptocurrency community, emphasizing diverse perspectives on blockchain technology development and scaling.

The differences between Bitcoin, Bitcoin Cash, and Bitcoin SV illustrate the variety of approaches to solving scalability and governance issues in cryptocurrency projects. Each hard fork reflects its creators' and communities' unique ideological and technical preferences, underscoring the importance of choice and adaptability in the evolving blockchain landscape.

What is Taproot?

Taproot is a significant update to the Bitcoin blockchain implemented through a soft fork, incorporating Bitcoin Improvement Proposals (BIP) 340, 341, and 342. It aims to enhance scalability, increase transaction efficiency, and improve privacy by introducing several innovative technologies.

One key innovation is the Merkelized Abstract Syntax Tree (MAST), which offers greater flexibility and privacy in smart contracts by allowing the concealment of unexecuted contract conditions. It simplifies transactions and enhances security, making the Bitcoin blockchain more adaptable to various financial scenarios.

Another critical element of Taproot is the introduction of Schnorr signatures, offering a more efficient and private way to sign transactions. It allows multiple signatures to be aggregated into a single signature, significantly reducing the data required for processing. It leads to smaller transaction sizes and, consequently, lower transaction fees, making Bitcoin usage more economically viable for network participants.

The Taproot update opens new horizons for Bitcoin network development, providing advanced tools for smart contract creation. It expands Bitcoin's applicability beyond simple transactions, making it more competitive with other blockchains like Ethereum, which are traditionally seen as more suitable for decentralized app and financial instrument development.

Implementing Taproot could herald a new era in Bitcoin's evolution, offering users broader possibilities for anonymity, security, and economic efficiency. This update has the potential to significantly expand Bitcoin network functionality, including enhanced privacy mechanisms and broader opportunities for DeFi (decentralized finance) and other innovative financial solutions. As a result, Bitcoin will strengthen its position as the leading cryptocurrency and gain new tools for further development and integration into the modern digital economy, becoming an even more powerful and flexible platform for decentralized application creation.

What is the Lightning Network?

The Lightning Network represents a groundbreaking layered payment protocol that is based on the Bitcoin blockchain and aims to accelerate and simplify microtransactions. This network enables instant payments between participants with minimal fees through bidirectional payment channels, significantly enhancing transaction privacy, speed, and scalability. Thanks to the Lightning Network, Bitcoin has become even more functional and competitive as a payment method, opening up new possibilities for its application in daily life.

The development of the Lightning Network is a response to the increasing challenges related to scalability and transaction processing speed on the main Bitcoin blockchain. This upgrade facilitates nearly instantaneous transactions without burdening the blockchain, making Bitcoin more appealing for individual users and businesses.

Large businesses' perception of cryptocurrency has notably shifted towards corporate investments in Bitcoin in recent years. Previously, investing in Bitcoin might have seemed to many as a risky and unjustified step; however, the situation has drastically changed since 2020.

MicroStrategy has led the way among large corporate players by investing substantial funds in Bitcoin, affirming its status as a reliable tool for capital preservation. MicroStrategy's purchase in 2020 of $425 million worth of bitcoins and price marked the beginning of a wave of corporate investments in cryptocurrency, followed by Tesla and other well-known companies.

By the end of August 2023, MicroStrategy's total BTC portfolio reached an impressive 129,699 coins, highlighting the company's confidence in the long-term potential of Bitcoin as an asset. This move not only strengthened MicroStrategy's market position but also encouraged other corporations to consider diversifying their reserves with cryptocurrency.

Companies such as Marathon Digital Holdings, Coinbase, Square Inc., and Hut 8 Mining Corp. have also joined the list of the largest corporate holders of Bitcoin, indicating growing recognition of cryptocurrency as a significant asset at the corporate level. These investments contribute to reinforcing Bitcoin's status in the financial market and open new prospects for its use as a means of payment and value storage.

Ultimately, Bitcoin's integration into corporate finance is a vivid testament to its growing legitimacy and potential as an investment tool. Given the dynamic development of the cryptocurrency market and blockchain technologies, it is expected that more companies will consider Bitcoin an essential part of their investment portfolio in the future.

Politicians' Attitude Towards Bitcoin

The political dimension of Bitcoin is gaining momentum, especially following the bold steps taken by El Salvador, which officially became the first country to recognize this cryptocurrency as legal tender. The decision by El Salvador President Nayib Bukele to integrate Bitcoin into the country's economic sphere sparked discussions and controversies not only among the local populace but also on the international stage, drawing responses from the Bank of England, the International Monetary Fund, and notable figures in the crypto industry such as Vitalik Buterin.

The law enacted in September 2021, making Bitcoin legal tender, was accompanied by an ambitious announcement of creating a Bitcoin City - a utopia for crypto enthusiasts that envisages using geothermal energy from volcanoes for mining BTC. Despite mixed reactions from the international community, this project highlights El Salvador's aspiration to be a pioneer in the cryptocurrency and blockchain field.

Speculations that other countries, like Mexico and Argentina, might follow El Salvador's lead underscore Bitcoin's growing impact on the global political and economic arena, although none of these countries has officially announced similar intentions.

Conversely, some countries have taken stringent measures against cryptocurrencies. For example, China declared all cryptocurrency transactions illegal within its borders in May 2021, marking the start of a widespread campaign against BTC mining and trading. It led to a massive migration of cryptocurrency enterprises to more crypto-friendly countries.

Despite China's anti-cryptocurrency policy, the country continues to play a significant role in the crypto economy, ranking second after the USA in contributions to the worldwide Bitcoin hash rate. It highlights the complexity and contradiction of state policies on developing the cryptocurrency industry.

In this context, Bitcoin represents a technological innovation and a new global economy and politics era, eliciting varied reactions from support to outright rejection. It has become a powerful tool that can unite and divide countries and their policies towards the digital economy, demonstrating the complexities of transitioning to a new financial system based on cryptocurrencies.

Bitcoin Energy Consumption

Public attention to ecological issues and sustainable development has increased in recent decades. People have become more aware of their contribution to climate change and the consequences of their actions on the environment. In this context, news about Bitcoin's high energy consumption and its potential negative impact on ecology has raised concerns and criticism from the public. Reports that processing a single BTC transaction requires an amount of electricity sufficient to power a typical American home for six weeks have sparked severe debates.

Publications of reports claiming that Bitcoin's annual energy consumption surpasses the energy usage of entire countries, such as Finland, have led to waves of criticism from various quarters, including tech entrepreneurs, environmental activists, and even political figures. The resonance peaked when Elon Musk, CEO of Tesla, announced the suspension of Bitcoin as a payment method for his company, citing environmental reasons.

These events triggered an active search for ways to reduce Bitcoin's energy impact and defensive reactions from cryptocurrency defenders, who pointed to a possible exaggeration of the issue. Some have proposed solutions to enhance Bitcoin's energy efficiency, including transitioning to renewable energy sources.

Indeed, many miners have already shifted towards renewable energy sources, with estimates suggesting that the share of Bitcoin's use of "green" energy could range from 40 to 75%. However, the debate continues over whether redirecting mining to renewable sources could divert these resources from other important sectors of the economy.

The increased use of renewable energy for Bitcoin mining could also stimulate the development of new projects in the green energy sector. The expansion of mining operations and increased energy demand may encourage the construction of new solar and wind power plants, facilitating the overall transition to renewable energy sources.

Thus, the issues of Bitcoin's energy consumption and environmental impact continue to be subjects of active debate and research. The possibility and necessity of improving mining technologies and finding a balance between innovative cryptocurrency development and ecological preservation are becoming increasingly relevant in today's world.

Bitcoin defenders often cite the energy consumption of gold mining and the traditional banking sector, claiming they use twice as much energy as cryptocurrency. This comparison demonstrates that criticism of Bitcoin's energy consumption may be unfounded. One of Bitcoin's key advantages is the transparency of its energy consumption, unlike other financial sectors where the full calculation of the energy footprint remains a complex task.

Defenders also emphasize that Bitcoin's energy expenditures are justified by its security. The mining process, requiring significant computational power, ensures the reliability and security of the system, making each transaction safe and irreversible.

It's important to note that Bitcoin's energy consumption encompasses the entire cryptocurrency lifecycle, including its creation, protection, use, and transfer. This comprehensive approach to calculating energy costs distinguishes Bitcoin from traditional financial systems, where many aspects, such as money printing, ATM operations, and infrastructure support, often go unnoticed in assessing the carbon footprint.

However, concerns about the cryptocurrency's environmental sustainability have raised alarms at national and international levels. For example, in the USA, Congressional hearings have been held discussing the future of crypto mining and its impact on the environment, especially related to the use of fossil fuels. The debates also explored the prospects of transitioning to renewable energy sources in the cryptocurrency industry.

Furthermore, various private initiatives, such as the Crypto Climate Accord and the Bitcoin Mining Council, are aimed at reducing the ecological impact of mining. They offer ambitious plans to achieve carbon neutrality in the industry by 2040, demonstrating the community's commitment to responsible energy resource usage.

Thus, while criticism of Bitcoin's energy consumption remains relevant, numerous efforts have been made to address this issue. The innovative potential of cryptocurrency, combined with efforts to transition to renewable energy sources, could contribute to creating a more sustainable and environmentally safe financial system in the future.

Crypto Wallets

Crypto storage options come in two main types: hot and cold. Hot storage options are always linked to the Internet and offer convenience due to quick access to funds, making them ideal for daily transactions. In contrast, cold wallets are intended for long-term storage of cryptocurrencies and provide enhanced security, as they are not connected to the Internet and thus are less susceptible to hacking attacks.

Devices like Trezor, Ledger, and CoolBitX are among the most recommended cold wallets. These wallets offer a reliable solution for storing cryptocurrencies, ensuring high security through advanced encryption technologies and physically isolating assets from potential online threats.

Exodus, Electrum, and Mycelium are especially popular in the hot wallets category. These wallets provide users with flexibility and convenience in managing their cryptocurrency portfolios while supporting various security levels, such as two-factor authentication and backup of secret keys.

Whether to pick a cold or hot storage - always depends on individual needs, such as the frequency of transactions, the volume of stored assets, and security priorities.

With the evolution of technology and the growth of the cryptocurrency market, the importance of a reliable cryptocurrency wallet cannot be overstated. Whether it's a hot wallet for active trading and payments or a cold wallet for secure storage, selecting the right wallet is crucial to managing cryptocurrency assets. Ultimately, carefully examining available options and understanding your needs will optimize your cryptocurrency experience and ensure maximum security for your investments.