Bitcoin—A Revolution in the World of Finance. When asking what Bitcoin is and what its essence is, you'll find quite complex definitions, such as a peer-to-peer payment system, global consensus network, and others.
The Essence of Bitcoin
In simple terms, Bitcoin (Bitcoin, BTC, "bit") is:
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The first cryptocurrency
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A digital currency
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A new type of asset not controlled by the state
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Freedom that cannot be manipulated
BTC is a unit of exchange and accounting for operations in a global distributed ledger where transactions are carried out without intermediaries like banks and other financial controllers.
Any person owning Bitcoins can participate in this system. We'll discuss how to earn or acquire them later. To answer the question "what does Bitcoin really mean?", we can say: freedom. But it's also great responsibility.
A Bit of History
The idea of implementing cryptocurrency—a new form of assets where cryptography laws completely replace state laws—emerged around 1998 and materialized (as Bitcoin itself) in 2009 when the first 50 coins were generated.
Officially, the creator of BTC is considered to be Satoshi Nakamoto—a mysterious individual or group of people. Cryptocurrency emerged as society's response to banks' and states' extreme control over financial flows, high commissions and transaction fees.
How Bitcoin Is Created
The method of obtaining Bitcoin is mining. Essentially, mining is solving mathematical problems that require large amounts of computing power. Interestingly, many miners solve the same problem simultaneously, but only the one who finds the solution first gets the reward.
If the problem is solved successfully—a new block appears in Bitcoin's database, and the reward for finding it is a certain amount of new coins that the miner receives.
The emission of coins occurs according to rules established in advance in the protocol, so it doesn't depend on decisions of government bodies, financial organizations or individuals. The number of coins that will exist is limited by the protocol to 21 million BTC, and mining them becomes more difficult each year.
Where Bitcoin Is Stored
Bitcoin, like any cryptocurrency, is stored on separate addresses in the blockchain. Storing, exchanging, and making transactions with cryptocurrency on an address is enabled by special software—cryptocurrency wallets.
There are several types of wallets: hardware, desktop, online/web, mobile, and paper. Their detailed analysis is a topic for a separate article.
Before acquiring cryptocurrency, it's important to decide what you plan to do with it and which wallet functions are important to you.
Note that the most convenient wallet for everyday use is considered to be a mobile Bitcoin wallet. For example, Trustee Plus.
How Transactions Occur
Transferring Bitcoin differs significantly from transferring regular money. Here we're not talking about transferring some value, but about changing information in a distributed ledger (blockchain).
As a result of the transaction, all blockchain participants update data about how the balances of the sender and recipient have changed. Network confirmation is required to complete a transaction. This may take some time.
The reflection of current transaction information simultaneously by all network participants is one of Bitcoin's key security features—this information cannot be falsified.
What Bitcoin Is Worth and What It Equals
Initially, Bitcoin's value was proposed to be determined by the cost of electricity spent on its generation.
In September 2009, 5050 Bitcoins were worth approximately $5. In 2010, you could buy 2 pizzas with delivery for 10,000 BTC, meaning Bitcoin's market price was $0.0025.
By December 2017, Bitcoin equaled almost $20,000, and in March 2024, Bitcoin's price exceeded $70,000.
What Backs Bitcoin
Bitcoin's exchange rate isn't tied to any existing official currency, nor to the value of securities, precious metals or other material goods. Generally, fiat currencies aren't backed by anything either, except political decisions, trust in government and state economies.
But cryptocurrency has an advantage—transparent "rules of the game": the emission protocol and circulation rules are written in the code in advance.
What Bitcoin Depends On, What Affects Its Price Rise and Fall
Today Bitcoin's price is a balance of supply and demand—it's worth what people are willing to pay for it.
Judging by recent events, more and more people are willing to pay for it. It's important to understand that Bitcoin's exchange rate is an extremely unstable value.
What factors affect the rise or fall of cryptocurrency prices? The main ones include:
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Constantly increasing mining difficulty and cost
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Limited number of coins
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Availability on exchanges
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Trust from financial market leaders
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Laws of supply and demand
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Mass media influence
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Regulation of circulation
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Economic crises
Bitcoin's Strengths and Weaknesses
Many have written about why users need cryptocurrency and what's good about Bitcoin.
Here's a list of its advantages:
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Freedom. You can transfer any amount, anywhere, anytime.
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Decentralization. Transactions occur without intermediaries, delays, extra fees or control.
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Security. Bitcoins can't be counterfeited, and transactions can't be invalidated.
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Anonymity. You can store crypto, pay for goods and services without revealing your identity.
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Speed. No dependence on bank working hours, account blocking, or cross-border transfer delays.
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Transparency and reliability.
There are also some disadvantages:
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Hacker and fraudster activity. But this only confirms Bitcoin's merits, since many want to acquire it. No one is safe from wallet theft with regular currency either.
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Low transaction speed compared to some other coins (altcoins). According to eyewitnesses, transaction confirmation can sometimes take up to several days.
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For many people, BTC is still a "bubble," pyramid scheme, or means for money laundering.
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Volatility. Bitcoin's exchange rate fluctuations scare away many potential users. But this same feature inspires bolder ones.
How to Earn or Get Bitcoin
We'll cover mining as a method of obtaining Bitcoin in another article, as it's a broad, complex topic not for beginners. Now we'll focus on simpler, more accessible ways to acquire cryptocurrency:
- First, you can receive Bitcoin as payment for your goods or services. For this, you just need to download a Bitcoin wallet and offer this payment method to potential buyers or post your offer on special platforms.
- Second, you can purchase cryptocurrency directly in the Trustee Plus wallet. Top-up is done directly from a bank card in EUR, after which an exchange is made for Bitcoin or other cryptocurrency as desired.
- Third, you can buy BTC using the Trustee Wallet cryptocurrency wallet—its built-in SmartSwap system will find the best market rate.
How to Use Bitcoin
After reading this longread, you might wonder: "what do I need Bitcoin for? What should I do with it?" Here's what:
Store, Invest
Judging by analysts' forecasts, Bitcoin's value will grow (but this isn't certain). Investing in Bitcoin is risky since its price is hard to influence.
But if BTC's price is beyond your control, securely storing acquired assets is quite manageable.
The most secure storage today is considered hardware crypto storage (on a device resembling a flash drive, without internet connection), but mobile wallets aren't far behind.
Buy Goods/Services with Bitcoin
You can pay with Bitcoin for goods and services when you don't want to "be visible." Moreover, you can buy completely ordinary goods and services with Bitcoin—pay restaurant bills, higher education, airline tickets, diamonds, or hotel rooms.
The thing is, it's advantageous for sellers to accept crypto: lower fees, faster and more secure payments, no chargebacks. The downside is volatility.
Interestingly, some Canadian provinces and Switzerland allow paying real estate taxes with Bitcoin. El Salvador even adopted Bitcoin as a second national currency.
Trade on Exchanges
Trading on crypto exchanges is similar to traditional financial markets. The point is making profit from cryptocurrency price differences. BTC's high volatility plays into traders' hands. You can trade within one platform or across different ones: buying cheaper on one exchange, transferring to another and selling higher (cryptocurrency arbitrage).
