What is Bitcoin?

May 4, 2024

A comprehensive exploration of the world's leading cryptocurrency and its global impact.

Unless you've been detached from the world of technology over the past decade, you're likely familiar with the term Bitcoin. This digital phenomenon has captivated global attention, sparking conversations across various domains.

When discussing cryptocurrencies, Bitcoin often takes the spotlight, and it has been credited with propelling the popularity of crypto in recent years. Prior to 2008, blockchain technology was relatively obscure. Despite its existence preceding Bitcoin, it hadn't found substantial practical application.

After its launch, Bitcoin rapidly gained recognition, becoming a household name. This, in turn, piqued public curiosity about blockchain technology, leading to the introduction of numerous other cryptocurrencies. Bitcoin effectively paved the way for this diversification and expansion of the crypto market.

For those curious about this digital marvel, you're in the right place, as we plan to provide you with a comprehensive overview of the fundamental aspects of the world's most popular and impactful cryptocurrency.

The Beginnings of Bitcoin

Let's start by delving into the origins of this groundbreaking cryptocurrency. While its creator (or creators) is believed to be Satoshi Nakamoto, there is still a distinct lack of concrete evidence to support this, apart from a whitepaper published by Satoshi in 2008. 

Some speculate that the reason for Satoshi’s anonymity was privacy preservation, while others are of the opinion that they had an intention to evade taking responsibility for the potential disruption to global financial stability.

At any rate, Satoshi’s whitepaper meticulously described the mechanics of the Bitcoin network, which has since become a cornerstone in the realm of cryptocurrencies. Satoshi took the previously devised concept of blockchain, which utilized timestamps for recording digital information, with data verification mechanisms that eliminated the need for third-party intervention.

This fusion resulted in the birth of a digital currency characterized by a finite number of coins and a network that is seemingly immune to manipulation, as historical data couldn't be altered retrospectively.

A historic moment unfolded in January 2009, marking the beginning of Bitcoin mining, famously known as the "genesis block." Thus began the journey that catalyzed the development of the diverse range of cryptocurrencies present today.

Basic Understanding of Bitcoin as a Cryptocurrency

In order to grasp Bitcoin’s foundational concept, it's important to have a basic understanding of how a cryptocurrency operates and functions. While it's often simplified as "digital money," delving a bit deeper into the fundamental principles of this technology can greatly enhance your comprehension.

At its core, cryptocurrency functions within a network structure built on decentralized blockchain technology. Unlike traditional systems that rely on a central server, this network operates across multiple devices where transactions occur.

The decentralization aspect is pivotal. It means that transactions involving cryptocurrencies like Bitcoin occur directly between individuals without any intermediary involvement. There are no banks, brokers, or government entities in this process; it's a purely peer-to-peer exchange. This inherent design contributes to the heightened security and safety of trading Bitcoins and other cryptocurrencies.

Security is also rooted in the nature of blockchain. To get a clearer understanding of what a blockchain is, picture a database — a library or a digital folder on your computer. Blockchain essentially functions as a digital library, too, but with one crucial difference. Any piece of information added to this database becomes immutable — something like being "written in stone." Once recorded, it cannot be altered. These entries form blocks, and these blocks, in turn, create a chain, hence the term "blockchain."

This structure ensures that blockchain networks operate with remarkable transparency. Every single transaction ever executed can be traced, which effectively prevents fraudulent activities such as double-spending. Importantly, this transparency doesn't compromise user anonymity.

Additionally, this architecture serves as a robust defense against cyber-attacks. Operating on the principle of a 51% majority, a potential alteration to the blockchain requires the consensus of more than half the network's participants. Consequently, attempting to hack such a decentralized system would necessitate owning a majority stake of 51%, a formidable challenge that is far from easy to achieve.

In essence, Bitcoin's foundation lies in the ingenious combination of decentralization, blockchain immutability, transparency, and security, all of which contribute to its distinct and influential position in the world of finance and technology.

The value of Bitcoin

Bitcoin, distinguished by its decentralized structure, anonymity safeguards, and robust security measures, has attracted substantial investors during its relatively short existence. While its initial value was notably modest, often priced at a mere $2 per Bitcoin, this year it reached an ATH of around $73,000.

What triggers these fluctuations in Bitcoin's price?

The interplay of supply and demand serves as the core driving force. Bitcoin functions as an asset, much like traditional resources such as gold or oil. However, a critical distinction sets Bitcoin apart – its inherent scarcity. Unlike gold or oil, the quantity of Bitcoin is strictly limited. Precisely 21 million Bitcoins will ever exist, which represents its definitive cap.

This scarcity lends itself to positioning Bitcoin as an effective hedge against inflation and a store of value. The value it holds is fundamentally determined by the price people are willing to pay for it. This unique characteristic has contributed to the extraordinary attention Bitcoin has garnered over recent years, culminating in a remarkable surge in its market value.

Investors are drawn to Bitcoin due to its potential to safeguard against the eroding effects of inflation on traditional fiat currencies. Its finite supply bolsters its attractiveness as a digital equivalent to precious commodities, with the added advantage of being easily transferrable across borders.

The dynamics of Bitcoin's price fluctuations, therefore, stem from a balance between its limited supply, the perceived value it holds in an increasingly digital financial landscape, and the ever-evolving market sentiment. This intricate interplay generates considerable volatility in Bitcoin's valuation that has captured the attention of investors worldwide.

Bitcoin Mining

Undoubtedly, you might be intrigued by the question: How does the supply of Bitcoins come into play? The process behind acquiring new Bitcoins is referred to as Bitcoin mining. This intricate process involves computers solving intricate mathematical puzzles. Upon successful resolution, the computer is rewarded with freshly minted Bitcoins. This mining method is called Proof-of-Work.

However, Bitcoin mining goes beyond merely minting new coins. It serves a pivotal role in validating and confirming transactions before they are integrated into the blockchain, a measure taken to prevent the occurrence of double-spending. This verification mechanism forms the foundation of the Proof-of-Work mining method. Miners are rewarded with new BTCs for successfully establishing their role in confirming a specified number of transactions.

Each transaction is identified through a unique identifier known as a hash. These hashes are subsequently combined to form a 64-digit number constituting a block. The first computer to correctly determine this number is awarded the newly generated Bitcoins.

Nonetheless, it's important to note that this process has evolved into a far more intricate endeavor than its initial simplicity suggests. As the number of participants in the mining network has grown, the overall system has become more complex as well, rendering the participation of average computers insufficient. Today, the deployment of specialized processors known as ASICs is imperative to amass the computational power necessary for effective mining at a substantial cost.

Electricity consumption poses another formidable challenge. Modern Bitcoin mining mandates the use of immensely powerful computers, a demand that translates into substantial electrical expenses. The pursuit of discovering new coins incurs substantial financial costs for electricity, with no guarantee of successful block confirmation.

The figures usually represent the energy requirements of Bitcoin mining. Consequently, unless access to abundant and cost-effective electrical resources is at your disposal, the path of least resistance to obtaining Bitcoin is through direct purchase.

In essence, Bitcoin mining's evolution from a simplistic concept to an intricate and resource-intensive process highlights the technological arms race and economic considerations that underpin the contemporary cryptocurrency landscape.

How to Buy Bitcoin

Obtaining Bitcoin is a straightforward process primarily facilitated through cryptocurrency exchanges. These platforms, which can be readily found online, expedite the acquisition of Bitcoin with efficiency. Some of the most notable current exchanges are Coinbase, Binance, and Bitstamp, to name a few. Furthermore, our trading platform, Ping Exchange, also provides an avenue for Bitcoin purchases.

At Ping Exchange, Bitcoin can be purchased using other cryptocurrencies within a diverse range of pairings, including ETH, LTC, USDC, XCB, and CTN. Ping’s seamless and, above all, secure user experience is facilitated by the CorePass ID app. And its focus on cold storage is the cornerstone of its security framework. It is important to note that Ping Exchange will gradually include a much larger number of cryptocurrency offerings in the near future.

And what is next?

How to Keep Bitcoin

If you wish to join the "HODL" community, a term signifying the decision to hold onto your cryptocurrency rather than sell it, a crucial aspect is the secure storage of your assets.

Opting for a "cold wallet" represents your safest choice. These wallets possess a notable advantage – they operate offline, effectively minimizing the risk of theft. Cold wallets manifest in various forms, such as paper wallets or USB-based hardware wallets, each preserving the holder's private key. 

Conversely, if you find yourself regularly engaged in BTC trading, the necessity arises to maintain immediate accessibility to your BTC holdings through an online wallet, termed a "hot wallet."Hot wallets provide the advantage of swift transactional response. However, this convenience is juxtaposed with inherent risks, chief among them being the susceptibility to a variety of cyber threats. Although most exchanges offer a plethora of advanced security measures, the human factor always introduces an element of vulnerability.

A significant illustration of these risks materialized in the 2018 breach of the Japanese crypto exchange Coincheck, wherein hackers managed to drain 523 million NEM cryptocurrency, amounting to a staggering loss of $534 million, from an online wallet.

In summary, your approach to Bitcoin storage hinges upon your engagement level – cold wallets provide a secure haven for long-term holders, while hot wallets cater to the demands of active traders, albeit accompanied by a heightened exposure to potential risks.

No Longer a Newcomer

Public perception of Bitcoin and cryptocurrencies is a mixed bag. While skepticism and concerns about bubbles and potential criminal usage persist, the reality attests to Bitcoin's emergence as a substantial asset and a recognized participant in the market. The adoption of Bitcoin as an inflationary hedge is being embraced by an increasing number of investors, companies, and funds, signifying its credibility.

A noteworthy testament to Bitcoin's legitimacy is its recognition as an official form of payment in El Salvador, a milestone achieved in September 2021. This pivotal move, made by President Nayib Bukele, was motivated by the country's heavy reliance on income from the United States. The burdensome fees and prolonged processing times associated with conventional remittance methods compelled numerous individuals to seek out an alternative solution.

Enter Bitcoin – a solution offering minimal transaction costs and significantly reduced processing times. In this context, Bitcoin shines as a remedy to the challenges faced by families dependent on foreign income. The technology's decentralized nature, coupled with its efficiency, serves as a means to empower the citizens of countries reliant on income from abroad.

Bitcoin's multifaceted utility goes beyond just being a long-term store of value or a lucrative investment asset. It emerges as a tool that actively enhances the lives of thousands of families in economies where external income sources are a lifeline.

As the global financial landscape continues to evolve, Bitcoin's role as a disruptor and a solution to real-world problems is becoming increasingly evident. Its decentralized nature and ability to process efficient cross-border transactions make it a promising potential addition to financial systems worldwide. Though only time will tell how effective and reliable Bitcoin can be, so far, time seems to be saying that Bitcoin's journey toward mainstream adoption and acceptance appears to be firmly on track.

Recent articles

© 2018-2023 Ping Exchange

SO-FIT is a self-regulatory organization approved by the Swiss Federal Supervisory Authority financial markets (FINMA) for the supervision of financial intermediaries referred to in Article 2 paragraph 3 of the Swiss Federal Law concerning the fight against money laundering and the financing of terrorism in the financial sector (AMLA).