What Is Bitcoin BTC: 6 Things You Can't Miss - Henry Harvin

In these days, cryptocurrencies, particularly bitcoin BTC, are buzzing in the investment markets, across the globe. The people who trade or invest in these currencies claim that it gives more dynamic results, transactions are easier, returns are very good, no third-party etc.

Hmm…. pretty interesting! But, a few questions do arise by hearing these claims:

  • What is bitcoin?
  • Are these currencies really worth them?
  • How valid these currencies are?
  • Am I safe in investing in these?
  • What is the basis on, which bitcoin has value?
  • Difference between bitcoin and actual investment?

In this blog, bitcoin BTC, the first cryptocurrency, which came into existence, will be discussed, so that you will get a better understanding of the concept of cryptocurrency;

get the answers to the above questions and can make a decision to whether to invest in them or not.

Table of Contents

1#. Bitcoin Background.

2#. Bitcoin as a currency.

3#. Bitcoin transaction methods.

4#. Bitcoin mining.

5#. Bitcoin as an investment.

6#. Difference between bitcoin and stock market.

Frequently asked questions.  

1#. Bitcoin BTC Background.

BTC is the symbol of bitcoin, a cryptocurrency, which was introduced by an anonymous person, known as Mr Satoshi Nakamoto, in 2009.

Bitcoin was introduced as open-source software, but gradually with time, became a medium of exchange and a virtual investment.

The identity of Satoshi Nakamoto is still unknown, up to date.

Satoshi, in 2010, disappeared and before that, he handed over the bitcoin software’s network key and control of code repository, to Mr Gavin Andresen,

who is the owner of bitcoin.org, till date.

2#. Bitcoin BTC as a currency.

Bitcoin as a currency

The currency of bitcoin is represented as BTC. Today, the value of 1 BTC is around 10000$.

BTC is volatile, unpredictable because of the random nature of human transactions and media hype.

These factors make it difficult to implement any stability-ensuring mechanism on BTC but, it has a pre-determined supply i.e. 21 million BTC’s.

This factor helped in representing BTC, in terms of fiat currencies like USD and euro.

BTC’s are divisible upto 8 decimal places i.e. 0.00000001.

0.00000001 BTC is called as 1 Satoshi.

a) Medium of Exchange

For a currency to be widely accepted, it has to stand high as the following:

Bitcoins have properties similar to other fiat currencies like USD, euros etc. like:

  • Portable: The transactions are electronic-based, for which, an internet connection is required. Transactions are easily done between people, regardless of the distance between them.

There is no involvement of any third-party like bank hence, the transactions are very convenient and the transaction fee is very minimal and thus, making it very popular.

  • Divisible: It is divisible up to 8 decimal places thus, promoting more number of transactions among the people.
  • Recognizable: It is widely accepted and recognized within many developed countries, with a variety of payment methods.
  • Scarce: If the bitcoin creation system is not altered, then there only 21 million bitcoins available for circulation thus, being a major reason for being so high in value

b) Store of Value

Bitcoin’s status, as a store of value, is weak. Its utility as a store of value is not good enough. This is attributed to being a new concept, it is seen with a sceptical viewpoint by many experts.

This leads to BTC having a low intrinsic value. Another lag is that BTC is not backed with a physical commodity or metal like crude oil, metal etc.

3#. Bitcoin BTC transaction mechanisms.

The bitcoin exchange mechanism is not centralized i.e. it is not monitored by governments or any third party like banks, insurance companies, stock exchange etc.

There are 3 ways of transacting bitcoins:

a) Bitcoins for assets

Bitcoins can be easily traded for assets between people or organizations, who accept BTC as a valid currency.

You can sell your asset to a person, who will transfer a subsequent amount of BTC’s into your BTC wallet, depending upon the value of BTC in the market.

The bitcoins, which you will get, are to be stored in a cryptocurrency wallet.

b) Bitcoins for money

Bitcoins can be exchanged for money through banks, which accept BTC as a valid currency.

A country-wise list of banks in the world, which accept BTC as a currency are:

  1. United States of America: Chime Bank, Ally, USAA, Goldman Sachs, Simple Bank.
  2. United Kingdom: Wirey, Bankara, Revolut.
  3. Canada: National Bank of Canada.
  4. Germany: Fidor.
  5. Estonia: Change.
  6. Czech Republic: Worldcore.

The procedure for doing a bank transaction for BTC exchange is as following:

  1. Log on to a bitcoin account, created by you, on a bitcoin network domain like coinbase etc. and complete the transaction verification process.
  2. Deposit (or buy) BTC’s into your bank account, through BTC wallet.
  3. Cash out your BTC to money or vice-versa via. bank transfer or Paypal etc.

c) Bitcoins for Bitcoins

A peer-to-peer nodal network, created by bitcoin.org, the stake holders of bitcoin, monitors the bitcoin transactions.

This network is spread across the world. Anybody can join this network, without any hustle as mentioned earlier, because there is no involvement of any third-party.

To join this network, all you have to do is to sign up with any bitcoin network domain like coinbase.com, kraken, bitminter.com etc. The details required for signing up are email id and mobile phone number.

After Signing up, in your account, you will be provided with 2 types of keys:

  1. Private Key.
  2. Public Key.

What are the purpose of these keys, will be explained with an example below:

Suppose the transaction is that a person A is transferring 1 bitcoin to person B. This transaction will be verified with a digital signature (private key).

 This process is called ‘signing’. Signing ensures that this transaction cannot be copied (double-spending).

This transaction’s data is shared within the bitcoin network, through the public key thus, validating this transaction, within the network.

The transaction data shared within the network, is called a ‘block’. The units of these blocks are bytes.

What purpose does these blocks serve, is that process, which is driving many tech-savy people mad.

This intriguing process is called bitcoin mining, which is discussed next. 

4#. Bitcoin BTC mining.

BTC minting

It is the most mind-boggling process, in this field of cryptocurrency(Don’t worry! It’s not as laborious task as this gentleman is doing, but yeah, it’s still as mind-boggling as this task is).

It is the process of creating bitcoins and collecting them, as an award for maintaining the records of your transactions, within the network.

a) Mining Process

These new bitcoins are generated in the bitcoin.org network, through solving an alphanumeric cryptography problem, which is developed by an algorithm, called SHA 256.

What SHA 256 (Single Hash algorithm) does is that it takes an input of any size (32 bit, 128 bit, 64 bit etc.), and gives an output of fixed size, which is 64 bit hexadecimal number.

Example: 0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ff

This lengthy sort of number will be the output to the cryptography problems.

The probability of solving this problem is 1 in a trillion chances (Wow! That’s too much to ask for!).

These problems are released at a rate of 1 problem per 10 minutes.

A question comes to mind is:

  • Whether all members of this network can get the award?

Ans. The answer to this question, to your dismay, is a simple ‘NO’. You will have to compete with all the eligible members of this network.

  • Who all are eligible for these awards?

Ans. The following conditions are to be met by a member, to get this award:

  1. The member has to validate blocks, worth of 1 Megabyte.
  2. The member has to solve the cryptography problem first.

After winning the award, the winner updates his/her block into a chain present in the bitcoin network, called the ‘blockchain’.

Blockchain Procedure

Initially, the award of updating a block in the blockchain used to be 50 bitcoins but, after every 210240 blocks added, the award is halved.

Currently, the award is 6.25 bitcoins per blockchain. By calculation, it is expected that by 2140, no new bitcoins will be created and 21 million bitcoins will be in circulation.

b) Why there are such predictions, is explained below in the following calculations:

It takes roughly 10 minutes to solve one cryptographic problem, by computers, which are specifically designed for solving these problems.

In one day, number of problems solved = 1440/10   

                                                                       = 144

Therefore,

Number of problems solved in 4 years = 144 * 1460

                                                                     = 210240 

After 210240 problems, these number of blocks are added to blockchain and the price is halved.

From 1st January 2008 to 1st January 2012, the award was 50 BTC coins per problem solved.

Number of coins created = 50*210240

From 1st January 2012 to 1st January 2016, the award was 25 BTC coins per problem solved.

Number of coins created = 25*210240

From 1st January 2016 to 1st January 2020, the award was 12.5 btc coins per problem solved.

Number of coins created = 12.5*210240

From 1st January 2020 to 1st January 2024, the award is 6.25 btc coins per problem solved.

Number of coins created = 6.25*210240

In this pattern, a geometric series of award btc coins is formed as:

50, 25, 12.5, 6.25, ……….

Which can be represented as An= 50*{(0.5)^n}, n>= 0

Where n is the number of 4 year cycles (2008-2012,2012-2016,…) and,

An is any number of this geometric series .

The least value n, for which (An < 10-8),is 33. After n>=33, the series doesn’t matter because btc quantity can’t be less than 10-8 (1 satoshi), hence 0 btc’s will be created.

Thus, the first year, in which no bitcoins will be created= 2008 + 4*33 = 2008 + 132 = 2140.

And, number of bitcoins created = 210240 * Sn

Sn= 50* [ 1- (0.5)n]/ (1-0.5), where Sn is the sum of the geometric series.

For n=33, S33 = 100. (For year 2140, n=33)

And, number of bitcoins created till 2140 = 210240 * 100, which is almost 21 million.

c) Mining Rig

To mine bitcoins is not an easy task at all! Bitcoin Miners need to be vigilant and have a very expensive computer system, to solve the cryptography problems, in the least time.

The computer system, required to perform these tasks is called a mining rig.

A typical, modern day mining rig, consists of the following components.

  • Application Specific Integrated circuit (ASIC).
  • Motherboard.
  • CPU (Central Processing Unit).
  • Power Supply.
  • Cooling
  • Frame.
13 GPU mining rig - Crypto Mining Blog | Crypto mining, Bitcoin ...
A 13 GPU ASIC Mining Rig

The cryptography problems, with time, are becoming more complex and so more advanced rigs are required to be setup.

Thus, the cost of purchasing mining rigs and the electricity bills are rising with time, because ASIC’s with higher hash rate are been required.

These rigs nowadays, cost thousands of dollars.

To adjust to these costs, miners join forces and form mine pools, which compete as a team, for bitcoin mining.       

5#. Bitcoin BTC as an investment.

An asset is called an investment, if it satisfies the following criteria:

  1. It should be under your control or someone’s control.
  2. Stability.
  3. It should be safe.
  4. It should give you good returns.
  5. Good Liquidity and store of value.
  6. Low Tax implications.
  7. Legality.

Let’s see how bitcoin stands up in the above mentioned criteria:

Bitcoin value chart

1. The value of BTC is very difficult to control and calculate because there is no data, policy, government bills or logic available to do so.

Its value is just a result of random transactions between random people.

2. It’s very volatile and the fluctuations per day are about an average of +- 30%, which is very high.

3. Its safety is less due to high volatility, unpredictable nature and uncertain future. In short, it’s highly risky.

4.If you are giving your due vigilance to bitcoins trading, you can get seriously good returns.

5. Liquidity is decent as with time, more people are using bitcoin as a medium of exchange but there are doubts on bitcoin as a store of value,

as it’s not backed by any physical commodity or precious metal like gold, crude oil etc.

6. Usually, governments impose quite heavy taxes on bitcoin trading as the governments don’t get any benefit from these transactions, they prey on investors, through taxes.

7. Bitcoin is illegal in many countries as the transactions are decentralized, bitcoins can be used for illegal activities like terror funds, tax evasion, money laundering etc.

A few negative inferences, which can be drawn from hearing the viewpoints of various veterans of investment business like Benjamin Graham, Warren Buffet, Rakesh Jhunjhunwala etc. are as follows:

  1. Bitcoin does not have any intrinsic value. People are buying it due to its hype, rather than its robustness and value.
  2. Its basis of growth and slump cannot be determined.
  3. It’s as contagious as plague.
  4. It does not have any long term value proposition.

Even though there are negative views about bitcoin, still it has emerged as an investment, with many people like Barry Silbert, Winklevoss brothers, Michael Novogratz etc.,

who were willing to take risks, actively trading in BTC’s and are now earning millions of dollars.

Now a question comes to mind is:

  • What these personalities did to mint millions of dollars, in spite of bitcoin been discarded by many leading investors in the world?

Ans.  The answer to this question is given in points given below:

1. They were willing to take risks. These personalities are mostly from USA,

a country where 50 % of the population is engaged in the stock market and taking risks is synonymous with Americans.

2. They knew that the supply of bitcoins was pre-determined (21 million coins), and the demand was increasing with time.

This would give them an opportunity to gain some seriously good returns.

3. They started investing in a very small amount of money (maximum 1-2 % of their income).

4. They started investing very early, with respect to the year of the introduction of bitcoins, which is 2009.

Now, a much more relevant question to you folks will be:

Ans.  In the following ways, you can invest in bitcoins for good and safe returns:

  1. Hire any broker or any broking agency, which is expert in cryptocurrency exchanges. In this case, you will have to pay brokerage to such people or agencies, but it’s one of the safest options.

       2.  If you’re not interested in giving brokerage, start investing with a very small 

            amount of money (maximum 1-2 % of your income).       

       3. If your returns are 30 % positive, with respect to your buying price, it’s better to

           reap in the benefits straightaway.        

6#. Difference between bitcoin BTC and stock market.

There are many differences between bitcoin and stock market. The criteria, by which these two things can be differentiated are:

  1. Fundamental.
  2. Technical.
  3. Safety.
  4. Government Support.
  1. Fundamental
S.No.BitcoinStock Market
   1It’s a very new conceptIt’s an old concept.
   2It has a limited track record and data hence, unpredictable.It has a detailed track record and data hence, predictable.
   3This investment is quite unplannable.This investment is quite plannable.
  • Technical
S.No.BitcoinStock Market
   1Nature of price fluctuations is fast, volatile and unpredictable.Nature of price fluctuations is slow, non-volatile and predictable.
   2The percentage of fluctuations in a day is 30% averagely.The percentage of fluctuations in a day is 10% averagely.
   3If price falls very significantly, then it’s very difficult to cash out because price becomes very low, as compared to your buying price.If price falls very significantly, even then it’s still possible to cash out because price will be still, very near to your buying price.
  • Safety
S.No.BitcoinStock Market
   1There are no third-parties to resolve hacking issues.There are third-parties like banks, cyber cells etc., to resolve hacking issues.
   2Once Bitcoins are hacked, they can’t be retrieved back.If trading accounts are hacked, money can be retrieved back.
   3No insurance of bitcoins can be done. Insurance of money can be done.
  • Government Support
S.No.BitcoinStock Market
   1Discouraged by governments because bitcoin have been used for money laundering, hacking, terrorists, tax evasions and other illegal activities.This is encouraged by governments because it comes under government regulations is monitored by governments.
   2No sovereign support is given because all the benefits are taken by investor only.There sovereign support is because the benefits are received by both, the investor and the government.
   3Taxed imposed by governments are compulsory to pay, because the transactions are decentralized hence, there is no basis of argument with the government.There are very few taxes imposed in stock marketing because this gives government, money to enhance the economy.

Please refer to the below frequently asked questions, which will clear your further doubts.

Frequently Asked Questions

  1. Name some of the good bitcoin websites.

Ans. The some of the good bitcoin websites are as following:

Coinbase                               Bitfinex.com
KrakenCoinmama.com
Bitminter.comBinance
eToroBitstamp.net
RobinHitbtc.com
  • What are some of the good bitcoin wallet applications.

      Ans. The some of the good bitcoin wallet applications are as following:

Trust Wallet                               Edge
ExodusCoinbase
TrezorAtomic
Ledger Nano XIncognito
SoFiAtomex
  • What is ASIC?

Ans.  ASIC stands for Application Specific Integrated Circuit. ASIC is a customized

        Integrated circuit chip, which is designed for specific purposes like bitcoin mining,

         Digital voice recording etc.

  • What is the hash rate?

 Ans. Hash rate is the calculations done by an IC chip processor per second. Its standard

          unit is terabytes per second (Tb/s).

  • What sort of people are suitable for investing in bitcoins?

 Ans. The people with the following traits are suitable to take risks:

  1. High Disposable income.
  2. Aggressive trading i.e. daily buying and selling of stocks.
  3. Willingness to take risks.
  4. Should have a good performance computer system, because if by any means, the transaction is disrupted in between, the bitcoins will be lost.
  • Which companies are good in cryptocurrency broking?

       Ans.  The some of the good cryptocurrency broking companies are as following:

eToro                               CMC Markets
SwissquoteDukascopy
IGTD Ameritrade
XTBE*Trade
Forex.comInteractive Brokers
  • What will happen once 21 million coins will be mined?

Ans. Actually, while miners do transactions, they have to have a minimal transaction fee (1-10 satoshis) hence, the winner will only get the award, but also the cumulative sum the transaction fee, paid by other miners, who compete and verify the blockchain updation.

When 21 million coins will be mined, the winner will get only the cumulative sum the transaction fee, paid by other miners.

Spread the love

Write A Comment