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Bitcoin was decades in the making prior to its October 31, 2008 (whitepaper) and January 3, 2009 (blockchain mining software) origins. Since, BTC has been running near-flawlessly the last ten years as a base-layer financial electronic payments network. Bitcoin is the pioneering virtual currency that finally figured out how to successfully crack the crypto-code to the future of finance we are so fond of here. We hope this easy-to-understand, yet mind-bending tutorial on why Bitcoin’s blockchain-based digital asset nature is so important and innovative is heart-felt in advancing the world as a whole.
How Does Bitcoin Work? A Look at Satoshi, Timeline Origin, & Development History
Today, Bitcoin is a household name. It is traded on hundreds of cryptocurrency exchanges worldwide and has gone through multiple ups and downs. But just where did Bitcoin come from? Was it a system that magically appeared on the internet? Or is it a program that has been in the works since the beginning of the internet?
Keep reading to discover what is bitcoin, who created bitcoin, where bitcoin came from, and a complete history of bitcoin. This is our comprehensive guide to everything you need to know about bitcoin.
What is Bitcoin?
Bitcoin is a digital currency that exists entirely over the internet. It’s the best-known virtual currency in the world today – although most people don’t really understand how it works.
To a layman, Bitcoin is best described as internet money transferred using special software without the need for a central authority – like a bank. Instead of a bank, bitcoin is based on a decentralized peer-to-peer payment network. You can send digital money to someone for products or services. Every day, millions of dollars’ worth of bitcoin is sent around the world.
Who Created Bitcoin?
The idea of cryptocurrency has existed for a long time. The roots of Bitcoin can be traced way back to 1998, when the term “cryptocurrency” was used for the very first time by Wei Dai on an online mailing list. This futuristic currency was proposed to be a new form of money fueled by the internet that would use cryptography to govern its creations and transactions – two things that are typically governed by a central authority in most modern currencies.
The creation of Bitcoin itself, however, is traced back to a man named Satoshi Nakamoto. Satoshi published the first proof of concept for Bitcoin in 2009 in a cryptography mailing list. Satoshi’s involvement with Bitcoin ended in 2010, at which point the currency’s development was undertaken by many developers around the world.
Satoshi is one of the most mysterious parts about Bitcoin. The man himself has never been identified. It’s unknown if Satoshi Nakamoto even is a man – Satoshi could be a woman or a group of people. The Wikipedia page on Nakamoto claims that “Satoshi Nakamoto is a person or group of people who created the Bitcoin protocol.”
In any case, Satoshi’s anonymity doesn’t mean much today. The Bitcoin software is entirely open source and available for anyone to review: it’s not some hidden scheme created by an evil genius. As a result, Bitcoin.org claims that:
“the identity of Bitcoin’s inventor is probably as relevant today as the identity of the person who invented paper.”
How Does Bitcoin Work?
Most people have heard of bitcoin – but few people actually understand how bitcoin works. Fewer still can explain how bitcoin works.. So how exactly doesBitcoin work?
To an average Bitcoin user, Bitcoin is just a mobile app or computer software program. You manage your Bitcoin wallet using this software and can send and receive Bitcoins with the software. For most users, your extent of knowledge about how Bitcoin works can safely end there.
But there’s plenty more information about Bitcoin behind the scenes. Behind the scenes, the Bitcoin network shares a public ledger called the blockchain. This block chain lists every single Bitcoin transaction ever processed. Each user’s computer/app can verify the validity of each transaction by checking this ledger. All Bitcoin transactions are protected by digital signatures that correspond to the sending addresses.
If you have specialized computer hardware, you can actually use your processing power to help process Bitcoin transactions. This is called “mining” and users are rewarded in Bitcoins for their processing power.
How Do You Send and Receive Payments with Bitcoin?
All Bitcoin users have an address. This address typically looks something like this:
That may look like gibberish, but it’s a unique identifying code of 26 to 35 alphanumeric characters. The address always begin with the number 1 or 3.
Getting a new Bitcoin address is easy. Using Bitcoin software, you typically just click the “New Address” button. You can create a new bitcoin address when you download a bitcoin wallet app on your phone.
You can send Bitcoins anywhere in the world simply by typing in the recipient’s address. You can also tap phones together to exchange addresses using NFC technology in your smartphone. Or, some users simply scan a QR code. A merchant might display a QR code at the checkout counter, for example. You scan that QR code to send payment in exchange for a product or service.
Advantages of Bitcoin
Bitcoin isn’t locked into any country, any hours, or any markets. It’s a currency free from any national restrictions. You can send and receive an unlimited amount of money to and from anywhere in the world at any time of the day. You don’t have to be restricted by banking holidays. You can enjoy complete control of your money.
Bitcoin payments can be made with no personal information attached to the transaction. This is why Bitcoin is popular with privacy advocates and criminals alike. Bitcoin users are also in complete control of their transactions because merchants cannot add fees at the point of purchase.
Minimal Transaction Fees:
Most Bitcoin transactions have minimal fees. Most bitcoin transaction fees are extremely small. You can view transactions on the blockchain where people have sent $200 million from one wallet to another at a cost of $0.50 or less. Try doing that with an ordinary bank or PayPal!
Transparent and Neutral Currency:
When you own most of your wealth in US dollars, your financial security is inexorably linked to the success of the American economy and decisions of the American government. Bitcoin isn’t tied to anything. All information about Bitcoin is readily available online. Average people can look at the block chain to verify its authenticity in real time. No organization can control or manipulate Bitcoin due to its cryptographic security. No other currency in the world can claim to be this neutral, transparent, and predictable.
Disadvantages of Bitcoin
It’s Not Available Everywhere:
Most people have heard of Bitcoin today. But most people don’t own a Bitcoin wallet. You can’t walk into a McDonald’s and pay for your Big Mac meal with a fraction of a Bitcoin. Of course, Bitcoin is still in its very early days, so we can expect acceptance to grow. But still, at this point, it’s a big hurdle to cross.
Bitcoin isn’t backed by any concrete asset. Therein lies its most fundamental value – neutrality – and its fundamental weakness – volatility. Today, Bitcoin hovers around $300 to $400. In the past, it has hit highs of $1100+.
A Complete History of Bitcoin
The ten year anniversary of bitcoin took place on January 3, 2019. Although the bitcoin whitepaper was published online on October 31, 2008, the first bitcoin block was mined on January 3 by Satoshi Nakamoto. The bitcoin network has produced a block every 10 minutes since that date.
Today, we’re publishing a complete history of bitcoin from its early beginnings in the 1980s and 1990s to its state today.
1980s and 1990s: The Beginning Of Electronic Gold
Satoshi, like many inventors, stood on the shoulders of giants when he created bitcoin. Bitcoin wasn’t the first proof of work system ever created, nor was it the first form of digital gold. Throughout the 1980s and 1990s, there were multiple proposals for a bitcoin-like system of electronic gold. Until Satoshi’s release of the bitcoin whitepaper in 2008, however, nobody had put all of these concepts together as effectively as Satoshi.
The earliest beginnings of electronic, cryptographically-secured cryptocurrency was in 1981 when American cryptographer and computer scientist David Chaum published a paper called, “Untraceable Electronic Mail, Return Addresses, and Digital Pseudonyms”. The paper discussed the concept of secure digital cash. In the paper, Chaum proposed the notion of e-Cash, which was described as an automated system to process payments where third parties were left out of the loop.
The ideas in Chaum’s paper would later form the cypherpunk movement that began in the late 1980s. Satoshi was a huge supporter of the cypherpunk movement, and the work of Chaum and others is believed to have motivated Satoshi to create bitcoin. Chaum himself would later found a company called DigiCash in 1989, in Amsterdam, described as an electronic money corporation. By 1994, that company was sending its first electronic payments. Chaum later left the company, although his contributions to secure digital cash – including digital signatures – would later be seen in bitcoin. DigiCash, meanwhile, would later declare bankruptcy.
Stefan Brands built a similar electronic cash system around this time. Adam Back, meanwhile, also paved the groundwork for bitcoin by developing a proof of work scheme called hashcash. The system was designed to reduce spam: computers would have to “prove” they did the “work” in order to send email to someone’s inbox. A computer that wanted to spam millions of computers would have to complete a lot of work, thereby reducing spam. Back, meanwhile, continues to contribute to bitcoin to this day as the CEO of bitcoin developer Blockstream.
In 1998 two more early cryptocurrencies were proposed, including B-Money and Bit Gold. B-Money was the concept of proof-of-work (PoW) system that would create the currency by using a mathematical computation. The idea for B-Money was brought to the community by Wei Dai. Later in 1998, Nick Szabo would propose the Bit Gold which would cut out the middleman and by solving the PoW would allow the user to obtain bits while the last bit on the chain would be utilized to create the string for the following transaction.
American computer scientist Hal Finney contributed to the early forms of digital cash by creating a reusable proof of work (RPOW) system based on hashcash.
Bitcoin borrowed from all of these systems. Some even believe any of the people I mentioned above were Satoshi Nakamoto.
2007 To 2008: The Writing Of The Bitcoin Whitepaper And Early Bitcoin Development
It took 26 years and historic contributions from several different people for Bitcoin to be born.
It’s largely believed that the bitcoin protocol and whitepaper were created starting in 2007. It’s possible that development started before 2007, but most rumors suggest that major development began in late 2007 and early 2008, led by Satoshi Nakamoto. It’s unclear if Satoshi Nakamoto was a single developer or a group of developers. During this time period, however, the development of bitcoin was done in complete secrecy. As far as we know, only Satoshi knew about bitcoin.
There is speculation as to who wrote the whitepaper for Bitcoin. While the paper was published under the name of Satoshi Nakamoto, history has proven that this name is not affiliated with anyone. It was a pen name used by a person or group of people who saw a need for digital currencies and brought to the table a mesh of former ideas melted together to what has now become the biggest cryptocurrency in the world today.
August 18, 2008: Bitcoin.org Is Registered
On August 18, 2008, Satoshi Nakamoto registered the Bitcoin.org domain. Again, the domain registration went unnoticed, and the bitcoin project continued in secrecy for another 2 months.
October 31, 2008: The Bitcoin Whitepaper Is Published
On October 31, 2008, the bitcoin project “came out of stealth”, so to speak. On October 31, Satoshi Nakamoto posted his whitepaper to a cryptography mailing list. Members of that mailing list included Hal Finney and other cryptography advocates. The whitepaper was titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” It explained how bitcoin would work, including how bitcoin solved crucial problems like the Byzantine generals problem and the double spend problem – neither of which had been effectively solved by other cryptocurrency proposals to date. The whitepaper also detailed future plans for bitcoin, including the idea of a safe, secure, peer-to-peer electronic cash system functioning around the world. It explains how bitcoin would utilize PoW and hashing to create a secure chain of blocks (Satoshi never actually wrote “blockchain” in the whitepaper) while cutting out the middleman – like banks and financial institutions – that Satoshi seemed to despise.
January 3, 2009: The Genesis Block Of Bitcoin
On January 3, 2009, Satoshi Nakamoto mined the genesis block of bitcoin. Satoshi embedded a now-legendary message into the coinbase of the Genesis block:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Like a good kidnapper, Satoshi used a headline from that day’s newspaper. The headline from The Times was referring to a second bailout for banks in the U.K. Satoshi appeared to be making a statement on the problems of modern banking, including the issues created by fractional reserve banking. Satoshireceived 50 bitcoins as the block reward from this first block.
January 9, 2009: The Release Of The Bitcoin Open Source Client
The first open source bitcoin client was released on January 9, 2009. It could be downloaded from SourceForge. From this point forward, any technologically-literate person could download the client and begin mining for bitcoin. Any miners could compete with Satoshi to mine bitcoin. Certain early supporters, including Hal Finney, downloaded the software the day it was released. It has also been reported that Nick Szabo and Wei Dai downloaded the first open source bitcoin client the day of release (or soon after).
January 12, 2009: The First Bitcoin Transaction
Hal Finney’s name comes up again on January 12, 2009, which is the date the first bitcoin transaction was sent. Satoshi sent Hal Finney 10 bitcoin as a test transaction. Up to this point, bitcoin had never been transferred: it had only been mined.
May 22, 2010: Someone Puts A Value On Bitcoin By Buying Pizza
May 22, 2010, is a notable date in bitcoin history. On this date, someone put a real world value on bitcoin for the very first time. A man named Laszlo Hanyecz paid 10,000 BTC for two pizzas from Papa John’s. Today, it’s known as “Pizza Day” in the crypto community. The deal was arranged by Hanyecz via the Bitcoin Talk forums. Essentially, Hanyecz sent 10,000 BTC to another user, and that user bought two pizzas and sent them to Hanyecz’s address.
It’s easy to look back at Hanyecz as the stupidest man in the world: 10,000 BTC was worth $200 million at one point in 2017, making those pizzas the most expensive pizzas ever created. However, bitcoin had – quite literally – no real value at the time. There was no place to sell bitcoin for USD. There was no marketplace or price discovery mechanism in place. Bitcoin was just a few bytes on the internet.
July 2010: Mt. Gox Established
In May 2010, bitcoin had limited value, and there were no real places to use or spend bitcoin. By July, however, a growing number of users were transferring bitcoin from one person to another for various online tasks. One businessman noticed that there was a need for a trusted digital exchange platform, so he founded Magic The Gathering Online Exchange, better known today as Mt. Gox.
Mt. Gox allowed users to buy and sell bitcoin. By 2013, Mt. Gox was responsible for processing about two thirds of all bitcoin payments in the world. Over the years, however, Mt. Gox was repeatedly hacked. Suddenly in 2014, the exchange realized it was insolvent: bitcoins that were thought to be secured in cold storage were totally gone. An estimated 850,000 BTC were missing. Although several hundred thousand bitcoin were later recovered, the Mt. Gox attack had devastating effects on the bitcoin world. Many users lost all of their bitcoin. To this day, many bitcoin users refuse to leave bitcoins stored on an exchange because of the security lessons they discovered from the collapse of Mt. Gox.
February 2011: The Launch Of Silk Road
In February 2011, Ross Ulbricht created a darknet marketplace where users could buy and sell virtually anything. The marketplace was established as some sort of libertarian utopia based on the principle that, “People should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.” That sounds good. But Silk Road quickly became a hub for criminals and drug dealers.
Within a few months of its launch, Silk Road had become infamous across the internet. Gawker published a piece on Silk Road in June 2011 highlighting all of the illegal items available for purchase.
During this time, many Silk Road transactions were paid with bitcoin. To this day, bitcoin struggles to shake its reputation as a tool for darknet transactions.
October 2011: The Birth of Litecoin
In October 2011, someone looked at bitcoin’s code and decided they could make it better. That person was former Google engineer Charlie Lee. Lee launched Litecoin by forking the bitcoin core client. Lee changed a number of things about bitcoin. Two of the biggest changes included reducing block time 4x and increasing total supply by 4x. Litecoin has a block time of 2.5 minutes and a total supply of 84 million – 4 times that of bitcoin.
During this time, some people started realizing that we needed a lighter, more versatile version of bitcoin. Bitcoin functioned well as digital gold but was unlikely to be used as an instant payment protocol.
June 2012: The Launch Of Coinbase
San Francisco-based Coinbase is one of the largest and most influential companies in the crypto space today. Launched in June 2012, Coinbase made it easier than ever for users to trade fiat currencies for cryptocurrencies. Coinbasealso added an air of much-needed legitimacy to the crypto world. Coinbaseworked with regulators and legislative officials. Coinbase worked within the boundaries of American law. Today, Coinbase continues to grow. They received an $8 billion valuation in October 2018.
November 2012: Bitcoin’s Block Reward is Cut in Half
In November 2012, the bitcoin network did something it had never done before: it went through its first halving. The bitcoin network is designed to do this automatically every four years. For the first 4 years of the network, the bitcoin block reward was set at 50 BTC per block. After every 210,000 blocks, however, the block reward gets cut in half. In November 2012, the block reward was reduced to 25 BTC. A second halving occurred in July 2016, with a third scheduled for May 2020.
November 2013: Ethereum Whitepaper Published Online
Litecoin and Ethereum were not the second and third cryptocurrency projects in the world, but they were two of the most notable projects. Ripple, Dogecoin, and several other cryptocurrencies also played a role during the early days of crypto. In November 2013, however, Vitalik Buterin published a whitepaper on Ethereum. Some see this as the launch of “blockchain 2.0”. It proposed systems that had never been previously seen on blockchains, including smart contractsthat could be programmed, essentially allowing users to build software programs on the blockchain. Users could launch their own tokens.
March 2014: Satoshi Nakamoto Is Unmasked
Satoshi Nakamoto disappeared from the bitcoin project in 2011. He never posted online again under his Satoshi identity (aside from a few random posts that are believed to be the work of hackers).
In March 2014, journalists at Newsweek published an article claiming to have uncovered the identity of Satoshi Nakamoto. After months of work, Newsweek’s team identified a man named Dorian Nakamoto as the man behind bitcoin. Nakamoto was a quiet, 64-year old computer engineer living in California. Journalists swarmed Nakamoto’s house. Nakamoto, however, denied any knowledge of bitcoin.
In one of the most interesting coincidences in the history of bitcoin, one of Dorian Nakamoto’s neighbors did play a crucial role in bitcoin. Living just down the street from Dorian Nakamoto was a man named Hal Finney. Finney was the man who received the first bitcoin transaction back in January 2009. Although the incident appears to have been a huge coincidence, others believe it wasn’t a coincidence at all.
December 11, 2014: Microsoft Allows Users To Spend Crypto Online
Microsoft became one of the world’s biggest companies to adopt crypto back in December 2014. This was a huge day for bitcoin, and Microsoft added bitcoin support totally by surprise. Overnight, Microsoft customers could spend bitcoin on apps, games, and videos from various Microsoft online stores.
October 2015: The Launch of Gemini
The Winklevoss twins, well-known for their involvement in the early days of Facebook, are well-known in the crypto space today. The Winklevoss twinslaunched a New York City-based cryptocurrency exchange called Gemini in October 2015. Like Coinbase, Gemini focused on complying with local laws and regulations, giving the crypto space an added degree of legitimacy. Gemini was one of the first to successfully apply for a BitLicense, for example, which was a crypto-focused law recently created by the State of New York. The Winklevoss twins are also rumored to own approximately 1% of the total supply of bitcoin.
August 2016: Bitfinex Hacked
In August 2016, major cryptocurrency exchange Bitfinex was hacked, leading to the loss of 120,000 bitcoins. At the time, Bitfinex was the largest cryptocurrency exchange by trading volume. The price of bitcoin plummeted 20%.
April 2016: The Failure Of The DAO
The DAO was an ambitious project based on the Ethereum blockchain. The goalwas to create a Decentralized Autonomous Organization (DAO) run using smart contracts on the Ethereum blockchain. Investors would pool their money together into The DAO, then make investment decisions as a community. Some saw it as a futuristic hedge fund or venture capital fund. Unfortunately, one hacker found a flaw in the smart contract used by The DAO during its token sale. The hacker was able to seize one-third of the Ether (ETH) that had been contributed to the project.
The DAO incident led to a split of the Ethereum blockchain into Ethereum (ETH) and Ethereum Classic (ETC), with the former deciding to “roll back” the blockchain to recover the split tokens and the latter moving forward with the tokens frozen.
March 2017: The Bitcoin ETF From The Winklevoss Twins Is Rejected By The SEC
In the early days of 2017, the price of bitcoin skyrocketed. Bitcoin’s momentum would continue throughout the year, culminating in its all time high of close to $20,000 in December 2017. The Winklevoss twins quickly saw the investment potential of bitcoin. They decided to create an investment product based on bitcoin. Unfortunately, the SEC rejected the ETF proposal from the Winklevoss twins, and then rejected the proposal again in 2018. To date, the SEC has rejected all ~20 bitcoin ETF proposals that have come across its desk.
August 1, 2017: Bitcoin Hard Forks Into BTC And BCH
Throughout summer 2017, there was deliberation in the bitcoin development community on how to scale the cryptocurrency. Some believed off-chain scaling was the solution. Others believed on-chain scaling, including higher blocksize limits, was the best way forward according to the vision of Satoshi.
The latter group – the one that wanted on-chain scaling and higher blocksize limits – would eventually launch a bitcoin hard fork called Bitcoin Cash (BCH). On August 1, 2017, the bitcoin network split into two chains, including BTC and BCH. The price of BCH fluctuated wildly during the early days of the network, although it eventually settled at a value and market cap approximately 10% the size of BTC.
December 2017: The Launch Of Bitcoin Futures
Bitcoin futures were launched in December 2017 by two Chicago-based futures trading giants: CBOE Global Markets and the Chicago Mercantile Exchange. For the first time, investors could purchase futures contracts to “bet” on the future price of bitcoin.
The weeks following the launch of bitcoin futures were some of the craziest in bitcoin, culminating in the all-time high price of bitcoin later in the month.
December 17, 2017: Bitcoin Hits Its All Time High
On December 2017, bitcoin hit its all time high of $19,783.06 USD. By the end of the day, bitcoin would drop to $19,500. Overall, bitcoin’s price rose 1,824% between January 1 and December 17. Other altcoins – including ETH, LTC, and BCH – would hit similarly impressive all time highs in January 2018. Since then, the markets have been in a prolonged bear spell, and the price of bitcoin currently sits at around $3,500.
January 2018: Facebook And Google Ban Crypto Advertisements
2017 was the year of the ICO. ICO scams were a dime a dozen. There were hundreds of projects that appeared online and disappeared soon after. BitConnect (BCC), a Ponzi scheme that fooled thousands of gullible investors, rapidly collapsed in January 2018, leading to the loss of millions of dollars. Facebook and Google banned crypto advertisements later in the month, although the ban was quietly reversed by mid-2018.
Summer 2018: The Summer Of Bitcoin ETF Proposals
Throughout summer 2018, the SEC received a number of proposals from companies seeking to launch a bitcoin ETF. The SEC has postponed or denied all of these ETFs to date, although several are still making their way through the regulatory system. The final decision on these ETFs is expected to be made in January 2019, with the final deadline being February 2019. Some believe the approval of the ETF is going to knock us out of this prolonged bear market, while others claim bitcoin ETF denial is going to kill crypto.
November 2018: The Bitcoin Cash Hashwar
Bitcoin Cash was launched due to a disagreement between BCH and BTC developers. About one year later, Bitcoin Cash went through a similar hard fork. Two sides could not agree on various changes to the Bitcoin Cash network – including opcodes and blocksize limits, among other issues. This disagreement came to a peak on November 15, 2018 when the two sides launched a hashwar. This led to the creation of two versions of Bitcoin Cash: Bitcoin Cash ABC and Bitcoin Cash Satoshi Vision. Within days, it was clear that Bitcoin Cash ABC had won the hashwar. Today, most exchanges refer to these two versions as Bitcoin Cash (BCH) and Bitcoin SV (BSV).
BTC Highs and Lows: Bitcoin Price Movement Over the Years
Bitcoin didn’t immediately surge in value right away. At first, bitcoin had no value compared to the USD or any other fiat currency. It was just a piece of data that you swapped online. On January 12, 2009, the first bitcoin transaction took place when Satoshi sent Hal Finney 10 BTC. The BTC was valueless at the time. By the end of 2009, however, the first bitcoin exchange services had started to appear. By late 2009, bitcoin had a value of 1,309.3 BTC to $1 USD.
In May of 2010, bitcoin was used to purchase two pizzas, marking the first time bitcoin had been used in a real world transaction. The cost of the pizzas was 10,000 BTC, or roughly $25 at the time. After the transaction took place, the world stopped and realized the value of Bitcoin and began taking note of how it could change the way people did business online.
By November, the market cap of bitcoin had surpassed $1 million.
By early 2011, the price of bitcoin had reached $0.20, then $0.30, then $0.40. By spring, bitcoin was flirting with USD parity. Before long, 1 BTC was worth the same as $1 USD.
By June 2011, BTC was worth over $30 apiece. Elated by the surging price, long-term hodlers sold their bitcoin, causing the price to tumble back down to $10 per token.
In 2012, bitcoin’s market cap was challenged by upstart altcoins like Litecoin. Still, bitcoin remained king and continued growing, hitting the $100 mark in 2012.
In 2013, bitcoin surged to a price of $1,000 in an unprecedented bull run. People began to hear about bitcoin for the first time and jumped on board for fear of missing out on the new “digital gold rush”. The price continued soaring.
2014 – 2016
Bitcoin’s price plummeted after tickling the $1,300 mark in 2013. For a multi-year period, bitcoin was in a prolonged bear market. The price of bitcoin reached lows of $200 to $300 in the depths of this bear market, testing the resolve of long-time hodlers who had purchased when bitcoin was above $1,000.
2017 was a massive year for Bitcoin. Not only did it finally hold at $1,000 per token, but it also managed to break out and hit $3,000 per BTC by June. This was the year people outside of the tech and internet space began really hearing about bitcoin. It wasn’t just your computer scientist friends talking about bitcoin; it was your barber and your grandma. The surging popularity also created an unprecedented surge in trading volume on the network. This growing volume led to soaring transaction fees. A dispute over how to scale the network would eventually lead to BTC and BCH. The price of BTC surged above $5,000 by August 2017 before reaching an all time high of $19,783 in December 2017. BCH would remain consistent at a price of around 0.10 BTC for much of its early history.
2018 was a step back for the price of bitcoin. After reaching unprecedented heights in 2017, bitcoin plummeted out of the gates in 2018, quickly dropping past the $15,000 range in January before slumping to the $6,000 range for most of the year. Despite occasional surges and drops – including a brief surge to $10,000 at one point – bitcoin eventually leveled out at around $6,600. Then, in fall 2018, the bottom fell out of the bitcoin market once again. Bitcoin slipped below $5,000, then dropped further to $4,000. By the end of the year, bitcoin was sitting below $4,000, a drop of around 80% from its all-time high.
Bitcoin’s price movements have entered 2019 the same way they left 2018: limited movement in the $3500 range. Bitcoin has remained in the $3500 range throughout January, periodically dropping below $3400 and rising above $3600 as we move into February 2019.
Twenty Questions to Assess your Bitcoin Knowledge as a Beginner
Twenty Questions To Assess Your Bitcoin Knowledge As A Beginner
How well do you understand bitcoin? Comprising on 20 questions, this quiz will help you try your knowledge of Bitcoin, providing you a general measuring stick to assess where you fit. If you are not aware of the answer to a particular question, you can feel free to check anywhere on the web.
We have four levels to determine where you stand in terms of bitcoin knowledge. After your quiz, you can calculate your score and determine where you stand. The levels are:
- Level 0 – Newbie: This is for those who barely know what bitcoin is or how to even spell it. We all have to begin somewhere, right? Now, this is the starting point! You got 5 or fewer questions correct.
- Level 1 – Beginner: You get at least 10 correct answers on the first try. Don’t get too excited yet; it does not mean you’re ready to invest in the cryptocurrency.
- Level 2 – Intermediate: If you manage 15 correct questions (75% or more), then you are on this level. It means you know just enough to invest a few bucks into bitcoin.
- Level 3 – Expert: If you manage to get more than 18 out of 20 questions correct, then you’re an expert. You should consider teaching about the cryptocurrency.
Twenty Questions to Gauge Your Bitcoin Knowledge: Beginner
- Who created bitcoin?
- Paul Kraugman
- Notoshi Sakamoto
- Satoshi Nakamoto
- Gavin Andresen
- What’s the name of the academic paper used to describe Bitcoin?
- The Bitcoin Whitepaper
- The Bitcoin Constitution
- The Origins of Money
- Fifty Shades of Grey
- What’s the name of the Japan-based bitcoin exchange that went down in 2014?
- Dow Jones
- How many bitcoins will be created?
- 21 million but could be adjusted through Bitcoin Foundation majority vote
- What two countries have prohibited their banks from servicing companies related to bitcoin?
- Which of the following isn’t really an altcoin?
- Which of these statements falsely describes what a bitcoin wallet is?
- A backup email account where you store your bitcoin password file
- A digital container to store bitcoin
- A piece of paper or file explaining your name, address, and date of birth
- A piece of paper containing your bitcoin private key and address
- What name is given to the general ledger responsible for tracking all bitcoin transactions?
- The block-link
- Ledger link
- The blockchain
- How many major price bubbles for bitcoin have there been?
- How often does the bitcoin ledger reconcile itself?
- Quarterly (every three months)
- Every 10 minutes
- Every day
- Every three minutes
- Where is the central bitcoin server based?
- London, England
- Washington DC, USA
- Undisclosed location
- None of the above
- How many new bitcoins are released each day?
- When did the bitcoin network launch?
- May 2010
- January 2009
- November 2008
- April 2013
- Computers that verify bitcoin transactions are known as?
- Bitcoin Foundation member units
- An illegal underground market discovered and shut down by FBI for selling drugs and other products for bitcoin was called?
- Silk Road
- Woolen Way
- Satin Street
- Cotton Drive
- Which two of the following four people are NOT fans of bitcoin?
- Richard Branson – Virgin Galactic’s owner
- Warren Buffet – Billionaire investor and Berkshire Hathaway founder
- Marc Andreessen – Web browser investor
- Paul Krugman – Economist
- Bitcoin can be divisible up to the eighth decimal point. What’s the name of that unit?
- The form of encryption used to protect bitcoin is called?
- Acme 9000
- Which of the following is not a valid method for obtaining bitcoin?
- Buy a graphics card and mine from home
- Sign up for an account with Mt. Gox
- Use Coinbase
- Ask a friend on Facebook to send you bitcoin from quickcoin.co
- What’s the shortest period you can receive or send a bitcoin payment without verification?
- Six hours
- 2 minutes
- 10 minutes
Answers to Bitcoin Questions
So, how do you think you did?
Here are your answers: 1 – (c)Satoshi Nakamoto; 2 – (a)The Bitcoin Whitepaper; 3 – (c)Mt. Gox; 4 – (b)21,000,000; 5 – (a,d) China, Russia; 6 – (b) USAcoin; 7 – (a, c)not email backup, general ledger to store personal information;8 – (d)the blockchain;9 – (c) Three. June – November 2011, March to April 2013, November 2013 – April 2014; 10 – (d) about every three minutes; 11 – (d)none of the above; 12 –(b) 3,600; 13 – (b)January 2009; 14 – (c)miners; 15 – (a)Silk Road; 16 – (b,d)Warren Buffet, Paul Krugman; 17 – (b)Satoshi; 18 – (d) SHA256; 19 – (a, b)no mining with graphics card, Mt. Gox not working anymore; 20 – (a)Instantaneously.
8 Bitcoin Basics You Need to Know ASAP
Most investors are always on the lookout for a quick cash grab scheme, especially when certain monetary fads start to gain traction within the market at large. For example, late last year, Bitcoin brought in thousands of investors to today’s burgeoning crypto space, causing the price of the digital asset to soar above the $20,000 mark within the span of a few months. However, all through 2018, the crypto market at large has been gripped by bearish momentum which has caused the value of premier assets like Bitcoin and Ethereum to plummet by 60%, 80% (of their ATH value) respectively.
This year marks the 10th year anniversary of Satoshi Nakamoto’s original white paper discussing the concept of Bitcoin. However, a decade later, there are still quite a few niche’ aspects of BTC and its underlying framework that a lot of people do not clearly understand. In this article, we will look at some of the core fundamentals of Bitcoin that everyone needs to know about:
1. Bitcoin Does Not Need Middlemen:
One quick look at Nakamoto’s original whitepaper and we come across this gem of a paragraph:
“Commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties. … What is needed is an electronic payment system based on cryptographic proof instead of trust.”
One of the most important facets of cryptocurrency is the fact that the technology does not rely on a centralized authority/middleman such as a bank. While credit card companies let buyers reverse their transactions under certain circumstances, Bitcoin and other similar altcoins eliminate the need for third parties, thus making payments “reliable and irrevocable”.
2. Bitcoin Has ‘Only One’ Core Vulnerability
In the spirit of transparency, Nakamoto’s original paper described how through the use of fraudulent transaction chains and focused computing power, BTC’s integrity could be compromised— however that scenario is quite unlikely to ever occur.
Additionally, another issue that could limit Bitcoin’s use as a payment system is that of “potential double-spending”. The bitcoin whitepaper actually addresses this issue. Satoshi describes how someone could hijack the network with an alternate blockchain. However, Satoshi quickly points out that in order for a miscreant to carry out such an attack, “he/she needs to be fast enough so that their false blockchain gains acceptance”. Otherwise, if the attacker falls behind other nodes, the chances of reversing a past transaction will eventually become zero.
With that being said, Bitcoin’s trustworthiness arises from the fact that everyone knows about everyone else’s transaction history— thus allowing users to facilitate payments with full confidence and transparency.
3. POW Lays at the Core of Bitcoin’s Strength
A central reason for Bitcoin remaining so resilient over time is due to its use of the POW (Proof of Work) protocol. Additionally, as the BTC blockchain has increased in its intrinsic size, the chances of a third party hacker successfully taking over the BTC network have reduced to negligible levels.
4. The Bitcoin Ecosystem is Always Dynamically Evolving
As the use of Bitcoin has increased over the course of the past couple of years, one small issue that has plagued the asset is that ”not all nodes within the Bitcoin network simultaneously possess the latest version of the native firmware update”. As a consequence of this, certain transactions still have to be distributed within the blockchain, thereby allowing the network to then catch up with the backlog at a later stage.
5. Bitcoin Mining Can Be Very Lucrative
Since the very start of the ongoing crypto movement, Bitcoin mining has always been an attractive financial avenue for investors and casual enthusiasts alike. However, as the price of Bitcoin has shot up substantially from its sub-$100 days, a host of mining firms are now dedicating large amounts of their computing capacity to unlocking new blocks and grabbing up small amounts of bitcoin (when and wherever they can).
6. Scalability is a Challenge That Has Not Yet Been Solved
As Bitcoin’s mass appeal has grown in recent times, the currency’s native transaction speed too has become substantially slower. However, this issue has already been identified and addressed by Nakamoto in the original version of his whitepaper via the use of a method called “blockchain pruning”.
For those not familiar with the concept of pruning, it is essentially a technique wherein older blocks of data are compressed using shorter hashes once enough past transactions have accumulated.
7. Bitcoin Allows for ‘Variable-Sized’ Transactions
While regular fiat assets come in denominations such as $1 coins or $20 bills, Bitcoin can be used to facilitate “variable sized” transactions— which is a far more efficient and cost effective means of facilitating large payments. Not only that, it also removes many of the financial limitations (such as the amount of money one can transfer at any given time) that are regularly imposed by payment providers and banking institutions on their clients.
8. Privacy Lies at the Heart of Bitcoin
Many would agree that one of the most valuable aspects of using Bitcoin and other similar cryptocurrencies is their high level of privacy. While there are definitely some issues regarding Bitcoin’s overall security, one has to agree that when compared to conventional banking services, Bitcoin delivers a very high level of privacy and efficiency.
6 Things You Didn’t Know About Bitcoin
You might think you know bitcoin. Maybe you own some bitcoin. Maybe you’ve read the Wikipedia page for bitcoin. But there are plenty of things even crypto experts don’t know about bitcoin.
Tim Copeland at DecryptMedia recently wrote an article highlighting “nine things nobody tells you about bitcoin”, including everything from Chinese influence over bitcoin to the repeated predictions about the death of bitcoin.
Here are some of the things you didn’t know about bitcoin as explained by Tim Copeland.
Bitcoin Has Already Died 326+ Times
Bitcoin was launched in January 2009. The bitcoin blockchain is still running today, processing thousands of transactions every 10 minutes. Bitcoin hasn’t skipped a block since launch. However, that hasn’t prevented numerous people from predicting the death of bitcoin.
During bitcoin’s early struggles, someone finally decided to keep track of bitcoin’s death count. Today, the famous Bitcoin Obituaries page on 99Bitcoins.com gives us a hilarious glimpse into the history of calling for bitcoin’s death.
The most recent bitcoin death occurred on November 26 when bitcoin was called a “pyramid scheme” that “continues to collapse”. Bitcoin’s first recorded death, meanwhile, occurred on December 15, 2010, when The Underground Economist wrote an article titled, “Why Bitcoin can’t be a currency.” At the time, bitcoin was priced at $0.23.
Chinese Nodes Have Enormous Sway Over the Bitcoin Network
Chinese mining pools control approximately 80% of bitcoin hashrate. You’ve probably heard that the bitcoin network is decentralized. That’s true – but a large portion of the decentralized nodes exist in a single place: China.
Copeland explains that China’s influence over bitcoin is expected to get even worse:
“As the price of bitcoin drops, the only places where it’s profitable to mine are those where electricity prices are low. China has some of the cheapest electricity costs in the world, meaning Chinese mining rigs can afford to continue to mine when others would go bankrupt.”
The world’s largest bitcoin mining hardware manufacturers are also based in China, including Bitmain. Some of these hardware manufacturers, including Bitmain, also control some of the largest mining pools.
Of course, Chinese concentration of power might not be a bad thing. China is one of the world’s largest and wealthiest countries. It has a young and technologically literate population. It makes sense that China would play a big role in the bitcoin ecosystem. It’s also important to note that Chinese mining pools don’t technically control the hashpower of every miner within the pool, so their real power is more limited than it seems.
Fewer than 1% of Darknet Transactions Involve Bitcoin
Ask a bitcoin critic what bitcoin transactions are used for. They’ll typically say something like “drugs” or “hitmen”.
It’s true: bitcoin has a shady past. It was once the preferred currency for most darknet transactions – including transactions involving drugs and other illicit materials.
Today, however, things have changed. A recent Chainalysis study indicated that fewer than 1% of all transactions on the darknet use bitcoin. Out of 100 illegal purchases for drugs on darknet websites, only 1 transaction will involve bitcoin.
Bitcoin Isn’t Anonymous
“Bitcoin is anonymous,” a technologically illiterate family member might tell you at the Christmas dinner table. “Nobody can track anything.”
Unfortunately, that’s just not true: bitcoin is one of the least anonymous digital currencies on the internet today. All bitcoin uses have a wallet address. Anyone can view that wallet address to check the balance inside. Your transactions are visible on the blockchain at all times. In fact, every bitcoin transaction that has ever taken place can be checked on the bitcoin blockchain – including the very first bitcoin transaction from Satoshi Nakamoto to Hal Finney.
There Are Multiple Versions of Bitcoin
This point is sure to strike a nerve. Like it or not, there are now multiple versions of bitcoin. This has been true since August 1, 2017, when the bitcoin network went through its first major chain split, creating Bitcoin Cash (BCH) and bitcoin (BTC). The two currencies have a shared history but a different future.
Now, things have become even more complicated: the BCH side was unable to agree about the future of Bitcoin Cash, which led to the November 2018 hashwar between Bitcoin Cash ABC and Bitcoin Cash SV. Today, Bitcoin Cash ABC retains the BCH handle while Bitcoin SV is continuing as its own cryptocurrency.
All of these versions of bitcoin – BTC, BCH, and SV – claim to be the true version of bitcoin. However, they work in different ways and have different technology.
Bitcoin May Be More Stable Than Visa
Visa, MasterCard, and other credit card networks can process thousands of transactions per second. They beat bitcoin cleanly in that area.
However, bitcoin has an advantage over all of these networks: bitcoin is unlikely to ever go offline. Visa’s network crashed in June 2018. In July, MasterCard experienced a similar crash.
Bitcoin, meanwhile, hasn’t gone offline since the first block was mined on January 4, 2009.
Moving forward, it’s hard to see any feasible thing that could cripple the bitcoin network aside from a bug or a global internet outage. Let’s be honest: if the internet is down worldwide, we’ve got bigger problems to deal with than our missing bitcoin transactions.
Here’s What You Need to Know About Bitcoin Private Keys and How to Best Secure Them
In this day and age, it is essential that Bitcoin holders know how to adequately handle and protect their private keys. This helps minimize their chances of losing money to miscreants and hackers who are always on the lookout for unsuspecting individuals to steal their hard earned funds.
However, before we start going over the finer aspects of private-keys, crypto security, we need to first get a better understanding of this domain as a whole.
What are Private Keys? Why Are They Important?
Anybody who has been exposed to cryptocurrencies in some form or the other has heard of the terms “private and public keys” at some point. In their very essence, these keys can be thought of as a “set of numbers” that have the intrinsic ability to locate a wallet address as well as recognize the identity of its rightful owner.
To further break down the encryption process, we can see that a public key helps in the creation of a customer’s security code, while the private key serves as the decoder/decrypter for the aforementioned code. With this understanding, it is now clear that a ‘private key’ essentially behaves like an ATM/ Credit Card PIN and thus should be kept as safely and securely as possible at all times.
Are Private and Public Keys Safe? How Are They Connected to One Another?
When talking about things from the perspective of a currency like Bitcoin, we can see that a private key can be composed of numbers ranging from 1 to n-1 — where n is 1.158*10^77. What this basically means is that this key can contain integer values that extend anywhere between 1 and 10^77.
Similarly, in terms of the link that exist between a private and public key, we can see that both of them are associated with each other through the use of a mathematical signature. This code consists of a unique set of data that allows for “signing messages” and “authenticating signatures” in a seamless manner.
Private Keys – How Do They Actually Work?
A question that is naturally bound to arise when talking about private keys is ‘How do they actually work?”
From Bitcoin’s perspective, the asset’s ecosystem makes use of a “secure messaging protocol” that has been designed to facilitate transactions in the form of value-transfer messages. In this regard, private keys are able to help in “confirming these messages” by separating their identities from one another.
Also worth mentioning is the fact that Bitcoin’s security protocol makes use of two specific pieces of information to validate its messages, namely:
- A public key that works to identify a sender or a receiver.
- A private key which has the capability to create a secure message signature.
The Purpose of a Private Key
As is probably clear by now, private keys play a host of different roles within the Bitcoin ecosystem. However, to gain a better understanding of their importance, it is best to enumerate the various ways in which they help customers:
- Executing Merchant Transactions: If a person wishes to buy something using Bitcoin from you, then he/she needs to send the required sum of money to your public key (wallet address). However, for the transaction to be executed safely, a digital signature with its private key needs to be verified as well.
- Provides Complete Control Over One’s Assets: With the advent of the private key, investors are no longer obligated to keep their financial holdings or crypto assets in an exchange, bank or third party storage unit.
- Eliminates Chances of Forgeries: One of the biggest advantages of using a private key is that for every transaction to be processed, a digital signature verification is required. The only way to validate this signature is through the use of one’s private key, thus in a way this key allows users to stay in full control of their funds at all times.
The Best Ways to Safeguard Your Private Keys
- Cold Storage: One of the most secure means of keeping our private wallet safe is by creating a cold storage entity that allows users to keep their digital assets offline. As a result of our holdings not being connected to the internet in any way, the chances of hackers, miscreants gaining access to our funds are almost negligible.
- Hardware Storage: Another way in which users can store their private keys securely is by keeping their details locked in their smartphone devices. This method not only allows for more asset mobility, but is also more convenient. However, the major downside of this storage method is that it still leaves some room for scammers, phishers to access our phones.
- Hot + Cold Storage: One of the best means of safeguarding one’s keys is by using a hardware entity that has the capacity to stay offline as well as online— as and when required. While these devices may be a bit more expensive, they are definitely worth the money.
Times have now changed and the age old ‘username/password method’ for protecting customer accounts has long since been replaced with better, more efficient security protocols. In this regard, private keys have revolutionized the way in which the financial sector now works.
However, to stay up to date with all of the happenings in this burgeoning field, it is essential that investors, crypto enthusiasts educate themselves on the topics we have discussed in detail within this article.
Where Will Bitcoin Go Next? The Future of Bitcoin
The Bitcoin project is currently ongoing and it’s unknown where the technology will go from here. What we do know about the future of Bitcoin is that only 21 million Bitcoins will ever be created.
Nevertheless, that won’t really limit the currency: it just means that future transactions will be split into fractional denominations of Bitcoins. You can divide a single Bitcoin up to 8 decimal places (0.00000001 Bitcoins) using the current system.
While it is anyone’s guess where Bitcoin will go in the future, one thing is certain; it has proven to be a new form for payment that cuts the middleman out while providing security to its users.
Other than that, we also know that Bitcoin will always be governed by two important things: supply and demand. These are the two crucial forces governing bitcoin price movements – and all price movements – since the beginning.
2019 could be the biggest year in bitcoin history. Or, it could be one of the worst. The bear market could continue. Or, the bear market could suddenly snap. The launch of Bakkt in early 2019 could be a landmark moment in crypto as one of the world’s largest exchanges creates an institutional-grade crypto on-ramp. Or, the launch of Bakkt could be a non-factor. Bitcoin ETFs, scaling proposals, and other issues could also rear their heads throughout the year.