It is no secret that Bitcoin (BTC) has been on the rise for years now.
Bitcoin is a digital currency that relies on blockchain technology to work.
While it may seem a foreign concept, Bitcoin is similar to fiat currencies in the sense you can use it to purchase goods and services. In most of its other aspects though, from creation to control, BTC differs greatly from fiat currencies.
This guide will explore what Bitcoin is and where it came from. We’ll also explore how the cryptocurrency is mined and the future of Bitcoin.
What is bitcoin?
Bitcoin is a peer to peer decentralised digital currency – the first of its kind in the world. This means that all Bitcoin transactions happen between equal, network participants without the need for a central authority like a central bank.
While Bitcoin was the first cryptocurrency, it is certainly not the only one. Its widespread popularity and success has paved the way for thousands of other cryptocurrencies, or ‘altcoins.’
What can you use Bitcoin for?
Bitcoin has many of the same uses as fiat currencies. This means you can use your BTC as a medium of exchange meaning buy anything from coffee to cars, so long as the vendor is willing. Another common use for Bitcoin is as a store of value.
There are also some things that Bitcoin can do better than fiat currencies. One example is remittances – the sending and receiving of money internationally.
The cost of sending money internationally using Bitcoin is often much lower than other forms of remittance and can be done quickly without the need to go through a bank.
Bitcoin offers three key features that make it attractive:
1) It is difficult to censor, as Bitcoins are the product of miners who cannot easily be shut down.
2) Bitcoin creates a new transaction every time funds move from one user to another, which means they can never be “double-spent” by fraudsters.
3) Bitcoin transactions can be made at any time from anywhere in the world
As a case example, people in some countries are restricted to how they can buy and sell products overseas because of bank limits. For example, if you’re living in Sydney, but want to sell something to someone who resides elsewhere (like the US), with traditional methods you will be charged exorbitant fees for currency conversion and there may even be a time delay in getting your money.
Bitcoin solves this problem by being an “internet currency” and can be bought with AUD, Euros, Pounds or other fiat currency through Bitcoin exchanges and brokers.
Banking hours are irrelevant for Bitcoin, the money is sent instantly.
The history of Bitcoin
Bitcoin was originally created by an anonymous developer, or group of developers, under the name Satoshi Nakamoto. Nakamoto believed that the world was heading in a direction of an all-digital economy and saw Bitcoin as a solution to some of its problems.
Nakamoto originally published his paper, which would eventually become Bitcoin’s ‘white paper’, titled “Bitcoin: A Peer To Peer Electronic Cash System” on October 31st 2008.
Its abstract reads:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
How does bitcoin work?
Bitcoin does not actually have any physical form. It’s decentralised, meaning it is not controlled by any government or bank, but rather by a network of users who verify and control transactions.
The Bitcoin System
Bitcoin uses a Proof of Work (PoW) consensus mechanism which is used for validating transactions and mining new tokens. Bitcoin’s system is comprised of a collection of computers, commonly also referred to as “Bitcoin miners” or “nodes” who are responsible for verifying transactions and creating new Bitcoins.
Bitcoins operate on a blockchain which is a public ledger that records every Bitcoin transaction. As new blocks are mined, they are added to the blockchain and cannot be altered in any way.
Bitcoin uses peer-to-peer technology to operate in a decentralised manner. P2P refers to the direct exchange of files, information or assets without going through a central server or authority.
Peer-to-peer also means that no one person can take control of the system, but rather it relies on cooperation from all users in order to function properly.
All units of Bitcoin are stored in digital wallets. This is a software mechanism that is necessary for sending, receiving and storing Bitcoin and other crypto assets. Every Bitcoin wallet has a public and private key. A public key is essentially an address that identifies your account on the Bitcoin network. If someone is sending Bitcoin to your wallet, they will need this address.
The private key can be thought of as similar to a bank PIN number. It basically serves as a password required to access the funds within your wallet.
How is Bitcoin created?
Mining cryptocurrencies, BTC included, requires huge computational power. A more in-depth guide can be found in our article, How to Mine Bitcoin in Australia in 2021, but a brief breakdown is below.
Bitcoin is created by a process called Bitcoin mining, which involves computing to solve mathematical problems on the Bitcoin network.
These problems are known as ‘hashes’. The hash is a function that converts an arbitrary amount of data into a fixed-length string, with no way to reverse it. This means hashes can be used for proof and verification when required because you know they will always produce the same result given the same input.
Every time a new block is mined, it creates Bitcoins which miners receive a portion of as rewards.
How many Bitcoins are there?
Bitcoin has a maximum supply of 21 million. There are currently over nearly 19 million Bitcoins in circulation and 54 million users on the Bitcoin network.. These numbers are expected to continue to grow as more people and organisations become aware of Bitcoin’s benefits and join the network.
This number includes some high profile investors such as Mark Zuckerberg or Mike Novogratz who has recently announced that he is investing $250 million in Bitcoin.
Is Bitcoin legal?
In most countries, Bitcoin is legal. It is, however, often considered a capital gain asset and is therefore subject to tax. China, has heavily restricted the use of Bitcoin and other cryptocurrencies. These crackdowns came in 2021 and meant that Bitcoin mining had to relocate to other areas of the globe, given that the majority of mining had previously taken place in China.
Where can I buy Bitcoin?
The most common way to buy and sell Bitcoin is through cryptocurrency exchanges or brokers. Swyftx is a crypto exchange allowing people from Australia and New Zealand to purchase Bitcoin and other cryptocurrencies with low fees and market spreads. Swyftx users can deposit money into their account via a number of payment methods including bank transfer, POLi, PayID, or debit/credit card.