Bitcoin: The First Crypto Currency
Unless you have been living under a rock since 2009, then you should have heard of Bitcoin. It was the first crypto currency and it is still the king of the crypto currency universe! So let's get started and dive into what Bitcoin is, its background, what it does and where it is going.
Background: Who is Satoshi Nakamoto?
Bitcoin was launched in 2009 after years of development by Satoshi Nakamoto. He used blockchain as the basis of the crypto currency, we’ll cover that in the next section. You may be wondering who Satoshi Nakamoto is? Well, everyone is wondering that too. All we really know is that he is the mysterious inventor of Bitcoin. At the end of 2021, there was a court case to decide who Satoshi really is. There was a verdict issued by a court in Miami, FL that determined Australian Computer Scientist Craig Wright as Satoshi. However, most people don’t buy into it. He was awarded $54 Billion USD in Bitcoin despite having to pay damages of $100 million to another company that claimed he stole the technology. You can read more about the trial here.
Now, let's get to the Blockchain technology.
What Can You Do with Bitcoin?
You can use bitcoin to buy things, pay people, send money around the world, and do what most people do, invest and save. Bitcoin is a great store of value because it gains so much value over a short time. Since it appreciates so quickly, it's a great hedge against inflation, which the world is seeing a lot of right now. Bitcoin is dubbed digital gold, which is crazy when you think about it! It's even more than digital gold because it's worth so much!
Due to the technology constraints, which we will get to later in this article, it is important to note Bitcoin is really just becoming more of a store of value due to slowness in technology and relatively high costs to send and receive Bitcoin. Think of it more of a savings account than anything.
Despite the slowness in tech, some countries are embracing Bitcoin to save their economy. El Salvador made Bitcoin an official currency alongside their national currency. As a payments system it is not very good when compared to the third generation crypto currencies. In Turkey, people also are adopting Bitcoin as a hedge due to inflation and a plummeting Lira destroying purchasing power.
As you can see, you can do many things with Bitcoin.
What is Blockchain Technology?
Bitcoin is the first digital currency that operates on blockchain technology. A blockchain is a series of blocks containing all the transactions that occurred in the past 10 minutes. New blocks are generated every 10 minutes.
Before creating a new block, the current block must be verified. Once it's verified and all the transactions in that block are confirmed, it can never be overwritten. After a block and its transactions have been verified, the miners are rewarded with parts of Bitcoin. We’ll get into how miners are paid later in the next section.
Bitcoin's blockchain is an immutable distributed ledger. In other words it's a transparent list of transactions anyone can explore. The transactions don’t display any usernames, only wallet addresses. Now you may be wondering who is monitoring and verifying these transactions? The miners are doing this. So let's get into what miners and miners fees do for Bitcoin.
What are the miner fees used for?
These fees give incentives to the miners to verify the blocks. Miners verify each block using mining machines that crunch the numbers on the cryptographic puzzles. When the miners complete a block, they receive some Bitcoin as a reward.
When it comes to rewards, miners can prioritize which transactions they include in a block. The higher the miner fee, the higher the chances the miner will include it in the current block. In some cases, like if your transaction carries a lower fee, it might take a few blocks until a miner picks up your transaction, puts it into a block, and verifies it. That way the mining system is incentivized for the miners, too.
Bitcoin blockchain can’t progress without the miners who complete transactions. That's why the miners and their fees are critical to the Bitcoin ecosystem.
Now you’re probably asking: how do I pay the miners’ fees? Well, don’t worry: most wallets will include that in your transaction. They’ll deduct the miners’ fees from the amount you’re sending. Currently, fees are around $1.50 per transaction, but this hasn’t always been the case.
Miner Fees Explained
Miner fees are dynamic, and they always make the news when they become so high. They’re not always so high, but Bitcoin has gone through several periods where network congestion made miner fees very high. In other words, if many transactions are happening in the system, then the miners’ fees would likely be very high due to the congestion. That's comparable to Uber rates during rush hour.
To put things into perspective, in April and May 2021, many transactions were happening on the market, making fees as high as $50. They were also very high back at the end of 2017 when Bitcoin hit a price record, just shy of $20,000.
Imagine you want to send a friend $20 worth of Bitcoin, but the fee alone costs $50. Transaction fees like that would make you not want to use it, except for larger transactions. People went into a frenzy to jump on the Bitcoin bandwagon when its price skyrocketed. All that activity led to high miners’ fees, which got a lot of complaints. Now, fees are generally much lower.
The number of inputs on a transaction could also cause higher fees. If you send some bitcoin and it's broken up into smaller pieces, these smaller pieces add more memory to the transaction. That means they’ll be processed with larger memory size, and the miners’ fees will increase as they incur a higher cost.
Now that we have a handle on how the fees work, let's jump into the tokenomics of how Bitcoin works.
Tokenomics
Since Bitcoin is the first cryptocurrency, the tokenomics of it are relatively simple. You see, Bitcoin was created as a store of value and a digital way to pay for goods and services. The only real tokenomics system is the miner rewards system which is a fee based system from the users. However, the mining unlocks new Bitcoins that are added to circulation, but that will stop when Bitcoin reaches its limited supply cap of 21 million Bitcoin. Next we’ll cover historical price action.
The Highs and lows of Bitcoin
The above graph speaks a thousand words. You can see that Bitcoin has had tremendous growth over the past 12 years. The above graph highlights data points for every Jan 1 of each year. For the most part each year the price of Bitcoin is generally higher than the previous year. However, towards the end of the graph, you can see that it appears that the price is reaching a plateau. Is it temporary? Maybe? Could you imagine another 10 years of price history added on? Could this plateau just be a small one in the grand scheme of things? These are questions that are hard to answer. In 2022, there is a lot of turbulence in world markets, inflation is at highs not seen for 40 years, we are exiting a 2-year pandemic, seeing the worst war in Europe since World War II. It's hard to say where Bitcoin will go. While we are on the topic, it's important to state that Atomic Wallet does not offer any investment advice. Please do your own research before investing in any assets, crypto or traditional.
The Bubbles and the Crashes
2016-2017 was the time when there was a run up on the crypto market. Crypto was finally getting some attention and Bitcoin was leading the pack. Everyone was talking about Bitcoin and there was Bitcoin Cash too, adding fuel to the crypto frenzy. Back in that time there were only a handful of crypto currencies that everyone was rallying on: Bitcoin, Bitcoin Cash, Litecoin, Ethereum and that's about it. At the end of 2017, prices went higher and higher until there was a major sell off right around the new year of 2018, when prices came tumbling down. A crypto currency winter set in and many got out of the market assuming Bitcoin was dead and so were the altcoins. At the time, it seemed like it. It appeared that the rally was over, there was blood in the street. It remained that way until mid 2019, when crypto markets seemed to trickle back to life. Just as things seemed to get going again, in 2020 Corona came a long dragged down the markets again, but only for a short time. 2020 saw an unprecedented change of events in traditional markets: the rise of the retail investor! Robinhood users shook the traditional market and Bitcoin and the altcoins were up once again. However, it was short lived. The end of 2021 marked a slump in prices and things have been down since. Pushed down by inflation and war woes.
Bitcoin has had a lot of history since it was the first crypto currency. It has strong staying power since it is a first mover and has been deemed the digital gold. With prices at $40K USD per coin, it's no wonder people are calling it digital gold! While Bitcoin is still the king of the cryptos it is plagued by old technology.
Bitcoin is a first generation crypto currency
Bitcoin, despite being the king, is plagued by old, and outdated technology. It's 12 years old! And in terms of tech, that's ancient. Bitcoin is old, and it has a block time of 10 minutes. That means in 10 minutes you gotta cram most of the transactions in that block to have them verified. Good luck with that. Comparing Bitcoin to Solana, which is a third generation cryptocurrency, you’ll see that Solana can process a block every second with millions of transactions per block! Say What? Yeah, so if I send you a SOL, you’ll have it immediately give or take some latency from your wallet trying to catch up. If I send you a Bitcoin, it's going to take awhile. I’d suggest you go meet a friend for a coffee and come back and check if you got your Bitcoin. It's that slow. Due to its slowness, it prompted Blockchain developers and crypto enthusiasts to work on developing new technologies to solve the problem, which has led us to the third generation of crypto currencies. There are also second generation cryptocurrencies that we can compare Bitcoin to - Ethereum for example. Bitcoin compared to Ethereum is able to execute 7 transactions per second compared to the 30 of Ethereum.
Atomic Bitcoin Wallet
Atomic Wallet offers you a great place to store your Bitcoin tokens. Besides just being a wallet for storing, sending, and receiving, you can do much, much more with an Atomic wallet. Atomic Wallet has some great features such as having a built-in decentralized exchange/swap where you can buy more than 300 crypto currencies and have them securely stored in your Atomic Wallet. What's more is that you can stake a number of tokens right in the Wallet! On top of that, for each transaction you make in Atomic Wallet, buying, selling, or swapping, you are eligible to get up to 1% back per transaction paid out in Atomic Wallet's native token, AWC.
Want to learn more about Bitcoin?
If you want to learn more about Bitcoin, please view the resource links at the end of this article. The links can give you all the information you’d ever want to know about Bitcoin. This article already gave you a great primer.
Atomic Wallet has many features that basic wallets don’t offer. It's also simple and easy to use and makes setting up a Bitcoin wallet a piece of cake. At this stage, you’re ready to get your wallet–if you haven’t already–and start using Bitcoin!
FAQ
How many times did Bitcoin fork and create a new crypto currency?
Bitcoin hard forked 5 times and created new Bitcoin versions (in order): Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited, Bitcoin Cash and Bitcoin Gold. The latter two are the most well-known. Bitcoin Cash had a lot of controversy that surrounded it's offering on Coinbase.
How many other Bitcoins are there? Non forked
Here is a non-extensive list of Bitcoins that are not hard forked from the original:
- Bitcoin BEP2 – BTCB
- Bitcoin SV – Satoshi Vision – BSV
- Wrapped Bitcoin – WBTC
- Bitcoin Atom – BCA
- Bitcoin Diamond – BCD
- Bitcoin Green – BITG
- Bitcoin Standard Hashrate Token – BTCST
Where do Bitcoins come from?
Bitcoin's circulation comes from users like you and me sending and receiving the coin. Miners receive new Bitcoins (really, fractional Bitcoin) as rewards for verifying transactions. In total, 21 million Bitcoins exist, 18.9 million of which are in circulation. Each mined block mints 6.25 Bitcoins into circulation. The world still has 2 million Bitcoins to mine. Some Bitcoins are also lost and essentially out of circulation.
When will the last Bitcoin be mined?
It's predicted that the last bitcoin will be mined in 2140. That's because Bitcoin halves the number of rewards paid to miners every 4 years. Needless to say, we won’t see it in our lifetime. Looking back to 2008, miners got 50 Bitcoins per block. Then in 2012, this number went down to 25 Bitcoins per block, then in 2016, it was down to 12.5.Right now, it's 6.25, and in 2024 it’ll be halved to 3.125.
As time goes on, the reward becomes less and less, reducing the number of Bitcoins that come into existence until all the Bitcoins are mined. Based on this, Bitcoin isn’t going anywhere anytime soon. Its economy will continue to grow until 2140. We’ll have to wait 119 years until the final Bitcoin is mined.
What Is Crypto Currency?
CryptoCurrency is a digital asset that takes its value from generally providing a service of some sort or just being a store of value and being scarce. Crypto Currency has evolved so much to encompass more than just being a store of value. There are not entire digital ecosystems built on a digital currency.
