The Development Of Bitcoin And
Other Cryptocurrencies
While the rise of a financial crisis in 2008 highlighted some of the risks associated with the traditional banking system, 2008 was also the birth year of Bitcoin — the first cryptocurrency to be created.
In contrast to fiat currencies, such as the US dollar or British pound, Bitcoin and other cryptocurrencies are decentralized, which means they are not controlled by a national government or central bank. Instead, the creation of new coins is determined by a predefined set of rules (protocol).
The Bitcoin protocol and its underlying Proof of Work consensus algorithm ensure that the issuance of new cryptocurrency units follows a regular schedule. More specifically, the generation of new coins is reliant on a process known as mining. The miners are not only responsible for introducing new coins into the system but also for securing the network by verifying and validating transactions.
In addition, the protocol establishes a fixed max supply that guarantees there will only ever be a total of 21 million Bitcoins in the world. This means that there are no surprises when it comes to the current and future supply of Bitcoin. Moreover, the Bitcoin source code is open-source, so anyone is able to not only check it but also to contribute and participate in its development.
What is Bitcoin used for?
People use Bitcoin for a number of reasons. Many appreciate it for its permissionless nature — anyone with an Internet connection
can send and receive it. It’s a bit like cash in that no one can stop you from using it, but its digital presence means that it can be transferred globally.
What makes Bitcoin valuable?
Bitcoin is decentralized, censorship-resistant, secure, and
borderless.
This quality has made it appealing for use cases such as international remittance and payments where individuals don’t want to reveal their identities (as they would with a debit or credit card). Many don’t spend their bitcoins, instead choosing to hold them
for the long-term (also known as hodling). Bitcoin has been nicknamed digital gold, due to a finite supply of coins available. Some investors view Bitcoin as a store of value. Because it’s scarce and difficult to produce, it has been likened to precious metals like
gold or silver.
Holders believe that these traits — combined with global availability and high liquidity — make it an ideal medium for storing wealth in
for long periods. They believe that Bitcoin’s value will continue to appreciate over time.
How are new bitcoins created?
Bitcoin has a finite supply, but not all units are in circulation yet. The only way to create new coins is through a process called mining —
the special mechanism for adding data to the blockchain.
How many bitcoins are there?
The protocol fixes Bitcoin’s max supply at twenty-one million coins. As of 2020, just under 90% of these have been generated,
but it will take over one-hundred years to produce the remaining ones. This is due to periodic events known as halvings, which
gradually reduce the mining reward.
What if I lose my bitcoins?
Because there’s no bank involved, you’re responsible for keeping your coins secure. Some prefer to store them on exchanges, while others take custody with a variety of wallets. If you use a wallet, it’s crucial that you write down your seed phrase so that you can restore it.
Can I revert Bitcoin transactions?
Once data is added to the blockchain, it’s not easy to remove it (in practice, it’s virtually impossible). This means that when you make
a transaction, it can’t be undone. You should always double- and triple-check that you’re sending your funds to the right address. For
an example of how you could theoretically reverse a transaction, see What is a 51% Attack?
Can I make money with Bitcoin?
You can make money with Bitcoin, but you can also lose money with it. Typically, long-term investors buy and hold Bitcoin believing it will rise in price in the future. Others choose to actively trade Bitcoin against other cryptocurrencies to make short- to mid-term
profits. Both of these strategies are risky, but they’re often more rewarding than low-risk approaches.
Some investors adopt hybridized strategies. They hold bitcoins as a long-term investment while simultaneously trading some (in a separate portfolio) in the short-term. There isn’t a correct or incorrect way to allocate assets in your portfolio — each investor will have a different risk appetite and different goals.
Lending is an increasingly popular form of passive income. By lending your coins to someone else, you can generate interest that
they will pay out at a later date. Platforms like Binance and other Cryptocurrencies
