Bitcoin, the world’s first successfully used cryptocurrency, is a decentralized peer-to-peer digital payment network invented by Satoshi Nakamoto. Bitcoin allows users to trade directly without a financial institution or a third party.
What is Bitcoin?
Bitcoin is a decentralized digital currency that uses a peer-to-peer network to allow users to make transactions directly without any intermediaries such as banks or governments. The birth of Bitcoin can be traced back to the paper “Bitcoin: A Peer-to-Peer Electronic Cash System” published in October 2008 by someone who goes by the name Satoshi Nakamoto.
A peer-to-peer, decentralized, secure, and self-operating electronic currency system, which we call Bitcoin, can be made simply by creating nodes, verified by cryptography, and recorded in a public distributed ledger called blockchain.
Bitcoin is not the first one to propose the concept of decentralized electronic currency, but the first cryptocurrency to be used in a practical way in history, attracting tens of thousands of people to build a global community that lays the foundation for the whole crypto industry, which in retrospect has become an indelible event. Countless platforms that support Bitcoin have brought more real-life applications, including wallets, exchanges, travel services, online payments, and online games.
Bitcoin’s security, censorship resistance, anonymity, and borderlessness make it advantageous as an alternative payment method in areas where financial services aren’t accessible. With a total supply of 21 million and the inability to issue additional ones in any way, Bitcoin has also been seen in recent years as a means of storing value and referred to as digital gold due to its scarcity. Bitcoin buyers and holders, to some extent, also identify with the value that this decentralized, digital store of value medium can bring.
Despite the ups and downs, Bitcoin is now widely known by the public and has been surrounded by a group of believers with a strong consensus that Bitcoin is the anti-inflation, decentralized digital gold.
Bitcoin is defined as the transaction process of a token stamped with a digital signature, with the principle similar to a chain of transactions in sequence, and the token itself is derived from the on-chain transactions. For example, if A gives B a bitcoin, A’s bill should be -1 and B’s bill should be +1, which is a pure book transaction that defines the ownership of the currency by recording the transactions.
The Rai Stones, the first coin in history, was created by crossing out the name of the previous owner and writing down the name of the new owner to declare the ownership. Therefore, this type of book-entry transaction record existed long even before civilization.
In the Bitcoin network, each transaction transfers tokens to the next person by updating the ledger with a digital signature and signing the previous transaction and the next Hash public key at the end of the transaction while packing them into a block that is broadcast to all nodes in the network. The correctness of the transaction is verified through the nodes, which ensures that the recipient receives its token trouble-free.
However, a serious problem called “double-spending” exists in such a decentralized system, which means that a transaction is repeated twice, resulting in tricking the recipient into completing the transaction successfully. The practical solution is to introduce a reliable consensus mechanism to check for related vulnerabilities.
This solution is called Timestamp Server. A timestamp server can combine a set of data or multiple transactions, into the hash result of a block and stamp it with the time, and each timestamp contains the previous timestamp, which proves the existence of this data, to ensure the sequence of transactions while avoiding double spending. Moreover, the newly added timestamp invariably reinforces all previous timestamps one after another, making them difficult to tamper with.
A chain formed by these blocks grows as a result of hash power, which is produced by Bitcoin miners.
With the growing size of the Bitcoin network, the problem is unlikely to happen as costs to control more than 51% of the hash for double-spending are impossible to achieve, and we just need to know the concept without undue worry.
PoW (Proof of Work) is one of the most fundamental consensus mechanisms in the blockchain world and adopted by most early projects such as Bitcoin, Ethereum and Litecoin to guarantee the consistency and immutability of the blockchain ledgers.
The PoW model can be simply understood as: all network nodes answer the same math question, and whoever figures it out first has the right to bookkeeping and get the corresponding reward (the new cryptocurrency issued by the blockchain network).
In order to operate the above-decentralized timestamp server on a peer-to-peer transaction basis, the concept of PoW comes from Hashcash invented by Adam Back, which was originally used to prevent junk mail through computation. And based on Hashcash, it is extended to spend the computing power to verify the correctness of Bitcoin’s distributed ledger.
The principle lies in that the hash value recorded in Bitcoin is a 256-bit binary number, and the workload is proved twice by SHA-256. A predetermined standard number called the difficulty target is generated first followed by the hash value in the form of a random number which may be 0 or 1 with a total of 2^256 combinations. The more leading bits of 0 the calculated hash value has, or the more 0 digits in front, the smaller the value. The rule is that the calculated hash value must be less than the difficulty target.
Whoever calculates the smallest hash value first has the right to broadcast the block corresponding to that hash value. After all the validators receive and confirm the correctness of the block, it will be propagated continuously, and nodes will collect and verify the block according to the minimum one after the other while competing for the right to account for the next block. A blockchain grows in this way, and the verification, broadcast, and accounting are performed automatically by each node based on the rules of Bitcoin, so that all nodes have the same and timely-updated ledger.
In terms of the difficulty target, it is automatically adjusted and updated by the Bitcoin program every 2016 blocks, and currently takes about ten minutes to set a suitable one based on the average hash power of the entire network. The highest number of calculations per unit of time has the highest probability of figuring out the correct hash value to obtain the right to account and Bitcoin reward, and this consensus mechanism is called Proof of Work.
PoW solves the dilemma of the tyranny of the majority as the joint decision is determined by the hash power essentially, such as the right to account is completed in a first-come-first-serve manner, that is, the longest has the right for decision-making. Therefore, if most of the hash power is generated from honest nodes, the chain will be longer than others.
As mentioned above, Bitcoin uses Proof-of-Work to verify the blockchain’s ledgers, and Bitcoin mining refers to processing transactions using computationally capable hardware devices to keep computing and verifying, making the ledger easy to verify but difficult to tamper with while ensuring network security and synchronization. As a result, the operators, or miners obtain Bitcoin fees as the reward. Miners spread all over the world, but no one has control over the Bitcoin network. Although Bitcoin mining is likened to gold mining, the difference is that Bitcoin mining is a temporary mechanism for distributing Bitcoins, and rewards miners with Bitcoins for maintaining security.
Miners will try to get more computing power in order to get more accounting rights (figure out more answers) and Bitcoins (block rewards); the first one who calculates the smallest hash value broadcasts the corresponding block and starts a new competition for the next block.
Miners need to confirm the latest transactions to win rewards, which requires the hardware to calculate billions of proof of work per second. Miners can speed up the whole process and earn transaction fees from users along with new Bitcoins based on a fixed formula. However, as more and more miners are motivated by profits, the difficulty target mentioned above is raised to an effective level and adjusted approximately every ten minutes based on the hash power.
PoW makes it possible to add blocks in chronological order while impossible to cancel or tamper with the information as recalculating all blocks is required to do so. If a miner receives two blocks at the same time, the first block encountered will be processed as the first one, unless the other block belongs to the longest chain, thus ensuring synchronization with the whole network.
Technology is changing rapidly, and mining has evolved from the Central Processing Unit (CPU), Graphics Processing Unit (GPU) to Application Specific Integrated Circuit (ASIC). The total hash power of Bitcoin mining was low in the early days when CPU was used. Then, more and more miners joined in as the BTC price rose, making mining more difficult. In 2010, CPUs were replaced by GPUs with puddinpop’s CUDA Miner. GPUs have a more core-based architecture but are relatively slow, however, they are able to generate about 100 times the hash of CPUs with specialized mining instructions. A company invented a hardware device specifically for mining that was about 200 times faster than GPU mining at the time in 2013, which resulted in a knock-on effect on the whole industry of ASIC chip manufacturing and mining.
As the distribution of Bitcoin rewards is random and unpredictable, miners began crowdfunding shortly after Bitcoin emerged as a way to expand revenue and reduce average costs. At the same time, individuals are able to rent mining machines from cloud mining platforms, which mine on their behalf to avoid complicated technical issues.
The Bitcoin network runs as follows:
To maintain the global uniformity of the Bitcoin ledger, it sets up the rule of the longest chain and the guideline of the longest blockchain ledger. It is hardly possible to recreate a new chain and replace it since Bitcoin has the world’s largest hash power, thus reinforcing its immutability.
The nature of Bitcoin is slightly like gambling, with nodes competing to extend the longest chain, recording the ledger from the first block until the year 2140. The longest chain is formed as long as more than 50% of the hash power is honest, from this point of view, it is almost impossible for a 51% attack.
However, when the network suffers significant delays or disruptions, or conflicts that cannot be reconciled with consensus, the blockchain will fork. The ledger is consistent before forking but changes after that due to different accounting methods.
Bitcoin’s first fork: BTC and BCH
The Core dev team has different opinions with larger block size proponents as they advocated adopting Segregated Witness, which refers to moving signature information out of the block, indirect scaling and lightning network to disperse the flow and relieve pressure so as to maintain the upper limit of block size at 1m. By contrast, the latter tended to directly broaden the block.
The Core dev team pointed out that a larger block size could affect the decentralization while being argued by the other side for going against Satoshi Nakamoto’s previous scaling plan of directly expanding blocks. Besides, the larger block size proponents believed that Segregated Witness and lightning networks are ineffective and not safe enough.
Therefore, the two sides went against each other which resulted in Bitcoin’s first fork. Bitcoin Cash (BCH) was launched in August, 2017 with a larger block size. Its first block was 478559, which is about 1.9M in size, exceeding Bitcoin’s original block capacity limit of 1 M. And all pre-fork Bitcoin holders were automatically assigned the same amount to the BCH blockchain, raising the block capacity limit to 8 M.
BCH has since moved towards the concept of electronic cash designed by Satoshi Nakamoto in the white paper and developed more functions while BTC has become digital gold, along with more forks.
Craig Steven Wright (CSW), who claimed himself to be the real Satoshi Nakamoto, proposed to keep expanding the block limit of BCH to no limit and lock down the underlying protocol so as to meet the demands displayed in the white paper. That is why BSV forked from BCH.
As of now, BTC, BCH, and BSV are the three major forks of Bitcoin from fogy to radical in order, continuing to evolve towards different visions.
Bitcoin’s well-known four-year halving cycle is based on the supply and demand mechanism as unlimited issuance would result in an excessive supply of currency and a decline in the price. The introduction of halving is helpful to maintain Bitcoin’s price. Following the setup of its output mechanism, there are two important rules:
Bitcoin blocks are generated approximately every 10 minutes, and for each new block, new Bitcoins are minted as the reward.
The number of rewards is adjusted once for every 210,000 blocks.
(210,000 10) / (2460*365) ≒ 4
This means that if a block is generated every 10 minutes, we can see how long it takes to generate 210,000 blocks.
According to the above formula, the number of rewards needs to be adjusted about every four years, and the first block reward is defined in the white paper as 50 Bitcoin, therefore, the rewards are halved as follows. It is expected that Bitcoin will go through a total of 32 halvings, which will result in a total of 21 million Bitcoins being mined in about 2140.
Bitcoin has experienced dramatic price volatility in the decade or so since its introduction in 2009. At the time of writing, Bitcoin has seen five price peaks while drops of more than 50% have also emboldened holders. Compared to the Nasdaq 100 Index and gold, the two high-performing assets in the traditional market, Bitcoin’s long-term price growth has far outpaced both of them and its compound annual growth rate of nearly 200% has been hailed by many as the “eternal bull market”.
Blue line: Bitcoin, Green line: Gold, Red line: Nasdaq 100 Index
While some traditional investment institutions and governments consider Bitcoin to be worthless as a bubble or a scam, investors regard it as a treasure and digital gold in the information age. Although the market is always divided on the price trend of Bitcoin, there are still different angles and methods of analysis that can be used to determine if the price is reasonable before decision-making.
Fundamental analysis explores the intrinsic value of an object to judge whether its market price is reasonable. This kind of analysis contains various factors including the daily trading volume and the hash rate of the Bitcoin network, the number of unique addresses holding Bitcoin, the Bitcoin reward per block, the number of merchants accepting Bitcoin, the overall economic environment, and so on. Since it focuses on observing the overall trend and is less sensitive to short-period fluctuations, it makes it suitable for long-term investment.
Technical analysis predicts future trends and changes by reviewing past price movements and the history of trading data and looking for the laws of price changes. Technical analysis believes that all market information will be reflected in the price, and its versatility and ease of use have made it a popular choice in the cryptocurrency market.
Sentiment analysis uses different indicators to understand how interested people are in an asset. When the price of Bitcoin rises and volume increases, it means that the market is optimistic about its future and is actively buying. Similar signals can also be interpreted if searches for “buy Bitcoin” increases or the Fear and Greed Index increases.
Bitcoin price can be affected by many factors, which change over time, and the main reason for its volatility in the early days was the emotional reaction of the masses to the news and speculation. When the Bitcoin mainnet went live in early 2009, it was priced at 0 and could not be exchanged for any legal tender or physical items. As a result, Bitcoin mining was unprofitable as not many people were willing to buy Bitcoin.
Laszlo Hanyecz, an American software engineer, posted on the Bitcoin forum Bitcointalk on May 22, 2010 that he planned to use Bitcoin to buy a couple of pizzas and he was willing to pay 10,000 Bitcoins to anyone who could place an order for him. This was the first time that a commodity was purchased directly with cryptocurrency, with 1 BTC = 0.0002 pizzas, and May 22nd was later celebrated as “Bitcoin Pizza Day”. Interests were sparked after that and the number of exchanges and Bitcoin increased as well.
The Electronic Frontier Foundation in California announced its acceptance of Bitcoin donation at the beginning of 2011, which dramatically pushed the price of Bitcoin over the next six months. Bitcoin hit $1 for the first time in February, and after several weeks of sharp rallies, it recorded $30 on Mt. Gox, the world’s largest bitcoin exchange at the time. However, the Electronic Frontier Foundation turned its attitude in June and issued a statement stopping accepting Bitcoins and refused to endorse the value of Bitcoin, urging people to learn the new currency rationally. Bitcoin then experienced its first bear round with price dropping over 90% in six months as market confidence was severely damaged.
November 28, 2012 was the date of the first Bitcoin halving, and due to the reduced supply and the re-acceptance of Bitcoin donations by the Electronic Frontier Foundation, 2013 became the year with the highest return on investment in Bitcoin’s history. It started the year with $13 and ended the year with a record high of $1100 after a dramatic 70% drop. $1100 was a price on par with gold at the time, pushing Bitcoin’s market cap to $1 billion for the first time.
The FBI shut down Silk Road, the most popular darknet for online Bitcoin payments in late 2013. Then another anonymous marketplace, Sheep Marketplace, was hacked for 96,000 Bitcoins. In late February the following year, Mt.Gox went bankrupt after being hacked for 850,000 Bitcoins, bearing Bitcoin for the second round after a series of negative news and skepticisms from investors.
The second halving took place on July 19, 2016 which topped the all-time high price of $1,100 once again and kept rising since then. The price of Bitcoin surpassed that of gold in mid-April 2017, dispelling the market rumor that it was impossible for 1 BTC to exceed the price of 1 ounce of gold.
Bitcoin started to surge sharply in 2017 and reached a price of nearly $ 20,000 at the end of this year.
The staggering rise in Bitcoin attracted more investors, while some started to buy Bitcoins, others chose to buy equipment as miners. Since the end of 2017, the mining difficulty of Bitcoin had skyrocketed, however, the associated costs also increased rapidly, resulting in miners selling their mined Bitcoins to pay for the huge depreciation and electricity costs. Therefore, Bitcoin was down to just $3,000 in November 2018.
Bitcoin’s hash power from 2017 to 2018, Source: BitInfoCharts
The Coronavirus disease (COVID-19) brought a considerable impact on economies around the world starting from March 2020, the stock market and crypto market went up all the way since governments implemented loose monetary policies one after another. At the same time, thanks to the booming of the DeFi concept, the market had a new narrative and a lot of energy had been injected into the market.
While the third halving happened on May 18th, institutions such as Microstrategy, Tesla, Galaxy Digital Holdings and Square also placed bets, pushing Bitcoin to $68,000 in November 2021. More and more people started to realize Bitcoin’s amazing long-term return and regard it as a store of value.
Capital began to withdraw from the highly volatile crypto market in early 2022 due to doubts about inflation and expectations of interest rate hikes by the Federal Reserve, along with international conflicts such as the Russo-Ukrainian War which broke out in February. The collapse of LUNA and UST in May and the subsequent institutional liquidations caused further declines in Bitcoin, reaching the lowest at $17,000. With the increase in market value and the maturity of the trading market, the price of Bitcoin was gradually closely related to the traditional financial market and fundamental factors such as the overall economic environment.
Blue line: Bitcoin, Orange line: Nasdaq 100 Index
The short-term price trend of Bitcoin is hard to predict and subject to a lot of industry news and economic news. But the long-term trend is easier to trace with the help of several methods.
Logarithmic Regression is one of the first Bitcoin price predictions, introduced by a Bitcointalk blogger named Trolololo in October 2014. Despite the fact that the price of Bitcoin was only $300 at the time, Trolololo boldly predicted that it would surge to $10,000 in 2017 and $70,000 by the end of 2020, based on the two previous price rallies and major levels. This prediction has become a classic, laying the groundwork for subsequent Bitcoin price models.
Logarithmic regression, Source: Bitcointalk
Stock-to-Flow (S2F) Model:
The stock-to-flow model treats Bitcoin as a precious metal like gold and silver, where the long-term price is tied to the total circulation (stock) and production (flow). Since the total supply of Bitcoin is fixed, if the number of new Bitcoins mined each year is gradually reduced by a percentage, the price will go up.
Twitter KOL PlanB applied this model in 2019 when Bitcoin was below $4,000, estimating that the third halving would push the price to $55,000, and the accuracy of the prediction made it famous in the community. However, this model will fail when Bitcoin is close to being fully mined, as the production will be zero and the total circulation of Bitcoin divided by zero will yield an infinite price.
S2F Model, Source: Buy Bitcoin Worldwide
Metcalfe’s law emphasizes the value and development of the Bitcoin network. If there exist N nodes which are able to communicate with each other, then the value of this network would be N², that is, the value of the Bitcoin network is directly proportional to the number of Bitcoin users.
By looking at the number of on-chain active wallet addresses,transactions and volume, the Metcalfe value of Bitcoin and its long-term trend can be estimated. After comparing the value with Bitcoin price, it can be found that the price is closely related to the activity of on-chain users. As a result, if the number of Bitcoin users keeps increasing in the future, the Bitcoin prices will continue growing as well in the long term.
Bitcoin’s network value is directly proportional to the number of users, Source: Fidelity
As a representative of cryptocurrencies, Bitcoin has been criticized and suppressed by a lot of governments, institutions and traditional investors, however, its growing price and increasing popularity have proven Bitcoin’s long-term value and ability to create financial innovations. Despite Bitcoin’s success in many areas, there are still many myths and rumors that prevent more potential users from learning, and the following are some examples and explanations.
In outsiders’ opinions, Bitcoin users are anonymous, but the fact is that the Bitcoin network equals to a public ledger where each Bitcoin belongs to an address that anyone can check through a tool called blockchain explorer, and the ownership history of each Bitcoin can be simply traced by looking at the transaction history of the address.
A Bitcoin wallet address is a sequence of letters and numbers that are not directly associated with the user’s private information. Therefore, it is more accurate to say that the holder of a Bitcoin wallet uses a pseudonym instead of anonymous, but private information is still possible to be exposed by other means, such as IP addresses, transaction objects or other communication records.
The Bitcoin network is maintained by millions of miners, and its open-source code has been reviewed by countless communication security experts and IT researchers. In order to attack the blockchain, one would have to control at least 51% of the hash power, something that the network scale has made economically unfeasible.
Bitcoin has never been attacked by a hack while it is the first cryptocurrency to solve the double-spending issue, realizing “trustless” peer-to-peer transactions. Besides, all transactions are irreversible, and Bitcoins cannot be retrieved in accidents of transfer errors or loss of wallets.
It is true that certain countries and governments are still banning and not allowing people to hold or use cryptocurrencies, by contrast, there is no shortage of authorities that recognize Bitcoin and are in favor to regulate it, while requiring companies and individual investors involved to complete strict due diligence.
In El Salvador, South America, and the Central African Republic, Africa, Bitcoin has become one of the fiat currencies, and the U.S. government has seized millions of dollars worth of Bitcoins from criminal investigations and sold them to the public, so it is conceivable that national regulations and supporting measures will improve as Bitcoin keep growing in popularity.
Bitcoin skeptics are used to ridiculing its slow speed in terms of the exchange function of a currency. However, Bitcoin is arguably the most secure, transparent, and immutable database ever created in human history, and it has successfully shown the possibilities of blockchain as a pioneer in cryptocurrency.
Bitcoin adoption has also gradually increased due to improved regulations over the past few years. In addition to being used for trading and long-term investments, more and more merchants are accepting Bitcoin as a form of payment. Bitcoin is also applicable to traditional finance where it can be used as debt collateral, and several institutions have purchased small amounts of Bitcoins as a hedge for their portfolios.
It is one-sided to say Bitcoin itself is a bubble because someone buys Bitcoin in search of speculative hype for high returns. A bubble refers to the price of an asset rising rapidly in an unsustainable manner to a level much higher than the intrinsic value, the bubble bursts and results in the price dump or even collapse when investors realize it.
As a new type of asset, it is difficult to precisely define the real value of Bitcoin. However, the parabolic vertical rises that appeared in the early stage are no longer visible in the steady increase of the market capitalization. As mentioned above, Bitcoin is becoming more correlated with the traditional market, which helps the public to understand its value more comprehensively.
According to a study conducted by the Massachusetts Institute of Technology, only about 3% of Bitcoin transactions are associated with criminal activity after evaluating all historical records. A report published by Chainalysis also points out that the rate of illegal Bitcoin transactions has dropped to 0.34% since 2020, and the reason for the decline is speculated to be fully open and transparent, making it easier to track the flow of funds.
An estimated $1.6 trillion of fiat money flows are linked to money laundering and other illegal activities each year according to the United Nations, accounting for nearly 2.7% of global GDP and more than 50 times the total amount of illegal Bitcoin transactions. In other words, the scale of criminal activity using Bitcoin is much smaller than using fiat currency, not to mention that the former rate is declining year after year.
Bitcoin is not backed by another asset does not mean it has no back. Bitcoins are minted through the “proof-of-work” of CPU, which consumes energy and equipment costs while a limited supply is set to prevent inflation.
It is impossible to get back the energy and equipment used by burning Bitcoin, which is largely different from government-issued fiat currencies. After the U.S. abolished the Bretton Woods system in 1971, fiat currencies are no longer backed by gold reserves, but are issued at the discretion of governments and central banks with no cap on supply, which has led to hyperinflation in some countries with unstable economic conditions.
Bitcoin is currently supported by the trust and demand of its users, in a similar way to traditional fiat currencies. Its value is guaranteed by market participants and their utility, and it has achieved considerable success in peer-to-peer payments, store of value, hedging, providing financial services for the unbanked (inclusive financing), and so on.
As the old saying goes, there are a thousand Hamlets in a thousand people’s eyes, this is also the case for Bitcoin and the most epoch-making innovations and inventions in history. Opponents believe that Bitcoin is the scam of the century with endless speculation and hype, which has not only brought environmental destruction, but has also ruined a lot of investors financially; supporters believe that Bitcoin is the key to inequality and corruption in the existing financial system and will bring true economic autonomy to human society. Here are the pros and cons of Bitcoin.
Cannot be created without foundation. The supply of Bitcoin is capped at 21 million, which must be obtained by providing hash power, and there is no way for anyone to issue more without foundation to dilute the value of the holders’ share.
Decentralization. The Bitcoin network is supported by miners as nodes around the world and is completely automated by program code. Anyone can run a Bitcoin node and participate in managing the network which is not owned by any person or entity, this is totally different from banks or governments that have a monopoly on currency issuance.
Security. Bitcoin adopts the Proof-of-Work mechanism while the hash power provided by miners ensures security. An attacker would have to control over 51% of the hash power for double spending, which is economically infeasible. Bitcoin is still the most secure cryptocurrency so far.
Peer-to-peer. Bitcoin transactions take place from person to person directly without the approval of any third party (such as a bank). This means that the transactions and accounts cannot be frozen or censored, empowering people with “the right to own property alone as well as in association with others” outlined in Article 17 of the Universal Declaration of Human Rights. Bitcoin is a property that can be freely disposed of by the holders and cannot be taken away from them.
Borderless. It is possible to use Bitcoin for international transactions with anyone, anywhere, anytime. Although people in different countries have different acceptances of Bitcoin, it is the same that everyone is certainly able to convert it to local currency. Therefore, Bitcoin is a currency that belongs to the whole world.
Portability. Bitcoins are digital assets stored on a blockchain network and can be taken away using a USB-sized hardware cold wallet, a hot wallet app downloaded and installed on a phone or a computer, or even a piece of paper with the key on it.
Transparency and immutability. Bitcoin transaction records are public and cannot be canceled after being verified, making it virtually impossible to change the transaction history. However, anyone can audit their Bitcoin accounts using a blockchain explorer.
Scarcity and anti-inflation. Bitcoins are limited to 21 million, and this number is hard-coded into the source code and cannot be modified. Bitcoin halving happens every four years, and it is estimated that no new ones will be mined after 2140, making it deflationary compared to fiat currency, and acting as a store of value and being regarded as digital gold.
Long-term rise. As the originator and leader of cryptocurrencies, the change in Bitcoin price is also affecting the whole market. Data shows that the number of crypto holders in the world at the beginning of 2022 was 300 million, while the market capitalization of crypto was over 1 trillion, which was only about one-tenth of that of gold and one-hundredth of the global stock market. Therefore, Bitcoin still has considerable development space and huge potential.
High mining costs. Bitcoin miners used a total of 138.53 terawatt-hours (TWh) of electricity in 2021 to maintain the hash power and security of the network, which is equivalent to 13.853 billion kilowatts, even higher than the electricity used by some countries (such as Argentina and Ukraine) in an entire year.
Environmental pollution. Operating the Bitcoin network in 2021 generated an estimated 77.27 million tons of carbon emissions, while depreciation and replacement of mining machines made approximately 34,570 tons of e-waste, equivalent to the total amount of small e-waste created in the Netherlands for an entire year.
High volatility. Although Bitcoin is the largest cryptocurrency by market value, its price fluctuations are stronger than the traditional financial markets, and investors who buy Bitcoin may face a significant value reduction.
Slow but expensive. The Bitcoin network can only process an average of 7 transactions per second, which is too slow to be used as a global cash flow servicer compared to the 2000 transactions per second that credit card payments such as Visa typically handle. On-chain transaction fees often change dramatically with the market, and have even been known to exceed $60 in fees for a single transaction.
Non-refundable and lack of protection mechanisms. Bitcoin transactions are not intermediated and are unable to be cancelled, which means that users are fully responsible for the payments, and it is impossible to refund even in transaction accidents, disputes or remittance errors. What’s worse, there is no legal way to enforce account freezes or any form of economic sanctions and restraints on entities that use Bitcoin for illegal purposes.
Risk of asset loss. To have ownership of the Bitcoins in your wallet, it is required to have the private key for this wallet. Once you lose the private key, you will lose all the assets in your wallet as a result. Some early miners are unable to remove the Bitcoins in their wallets now as the hard drive where the private key was stored was destroyed.
Limited usage. While Bitcoin is regarded as a store of value and a medium of exchange, its high volatility makes it difficult to use in daily consumption. At the time of writing, the number of physical and online merchants that accept Bitcoin payments is still extremely limited while most countries and large institutions are still refusing Bitcoin. Therefore, users still have to swap Bitcoin for local currency on exchanges in most cases.
Bitcoin was born out of a distrust of the traditional financial system and government. As the first cryptocurrency in human history, Bitcoin pioneered the blockchain industry and has greatly impacted human society and cognition just like other important innovations in the history of technology. Here are a few of the subcultures, slangs, myths and value shifts that originated with Bitcoin.
1 BTC = 1 BTC：
The constant law of Bitcoin comes from Pierre Rochard, who published a chart on Twitter which showed that one Bitcoin (BTC) equates to exactly one Bitcoin. The seemingly absurd and meaningless mathematical equation expresses the non-inflationary nature of Bitcoin, while 1 USD now is not actually equal to 1 USD before as the endless issuance by the U.S. Federal Reserve keeps devaluing the true value of the dollar.
Source: Elements by Visual Capitalist
HODL refers to the strategy of holding a cryptocurrency for a long time and never selling it regardless of the ups and downs of the price. It is taken from an article on Bitcointalk, where a user named GameKyuubi was desperate and nervous about the plummeting price of Bitcoin but still insisted that he would hold Bitcoin and not sell, but accidentally misspelled HOLD as HODL. The term quickly resonated with people as cryptocurrencies were so easy to change quite dramatically, and it was also derived as an acronym for Hold On For Dear Life eventually, which indirectly contributed to the HODL trend in the community. No matter what happens, just Hodl it!
When In Doubt, Zoom Out：
The quote “When in doubt, zoom out” comes from comedian Reggie Watts, who said this to express his life values in an interview. Therefore, the quote is not originally related to Bitcoin, however, this wisdom-filled response has since been spread by Bitcoin holders to encourage investors who feel late for entering the market and advise them to remain normal to momentary ups and downs.
The laser eyes are a common avatar symbol in the crypto community and are always seen on the social media pages of prominent Bitcoin advocates. It is a humorous expression that having laser eyes represents having insights, as the knowledge of Bitcoin will help people see through all the chaos and uncertainty in the financial markets. In addition, the laser eyes are also used in many animations and movies as a demonstration of power and appear when the protagonists awaken with special powers. So in terms of Bitcoin, laser eyes are presented as a metaphor for the potential that Bitcoin has the ability to awaken people.
Source: Coin Bureau
Bitcoin surprised a lot during the 2020 to 2021 bull market while the public awareness has also increased following its price surge. A survey showed that 65% of the U.S. population would like to receive investment goods for Christmas in 2021, with cryptos being the most popular option, making Bitcoin gift cards an interesting and popular item of the moment.
Almost all investment firms and hedge funds used terms like “hype, scam, and bubble” to describe Bitcoin prior to 2020, but in recent years a list of them have gradually turned to be neutral, or even supportive.
Goldman Sachs, the world’s 10th largest asset manager (2022) with over $2 trillion in assets under management, is the typical Wall Street firm that voices skepticism about Bitcoin. In 2017 Goldman Sachs CEO Lloyd Blankfein stated that Bitcoin is “a vehicle to perpetrate fraud. A lot of things that have not been for me in the past 20 years have worked out, but I am not guessing that this will work out.”
In May 2020 Goldman Sachs concluded in a presentation that Bitcoin is ‘not an asset class’, nor ‘a suitable investment’. By February of 2021, Goldman Sachs seemed to soften their stance a bit, changing its attitude to “Bitcoin is not yet an investable asset”. However, in May 2021 Goldman Sachs released a report named “Crypto: A New Asset Class?”, in which they clarified in detail about their research on Bitcoin, including the underlying technology and demands while mentioning that “Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase.” So why did Goldman Sachs change its tune? Mathew Mcdermott, head of the Digital Assets Group, answered simply with “client demand”.
JPMorgan Chase, which ranks seventh among global asset managers (2022) and has more than $2.5 trillion in assets under management, its chief executive Jamie Dimon slammed Bitcoin as a ‘fraud’ in 2017. He suggested investors not buy it as “It won’t end well… someone is going to get killed and then the government is going to come down on it” while warning his employees with “If we had a trader who traded bitcoin I’d fire him in a second for two reasons. One, it’s against our rules. Two, it’s stupid.”
Ironically, JPMorgan Chase later issued a blockchain-based JPM Coin that was criticized for not having the decentralized nature of a cryptocurrency, and Jamie Dimon soon admitted he regretted calling Bitcoin a fraud in an interview and admitted that “the blockchain is real” and his opinion on Bitcoin was always more about how governments would respond to it, specifically whether they would take steps to outlaw or discourage it if it became too big and threatened fiat currencies.
Ray Dalio, who runs the world’s largest hedge fund (2022), Bridgewater Associates, was once an opponent of Bitcoin, previously outlined some problems with Bitcoin during an interview including “difficult transfers, volatility, regulatory uncertainty” and he considered that cryptocurrencies would not have the kind of growth enthusiasts were looking for. Two months later at the beginning of 2021, Dailo believed that “Bitcoin is one hell of an invention. To have invented a new type of money via a system that is programmed into a computer that has worked for around 10 years and is rapidly gaining popularity as both a type of money and a store hold of wealth is an amazing accomplishment.” In May of the same year, he revealed that “I have some Bitcoin. Personally, I’d rather have bitcoin than a bond.”
Profits brought by price increase are not the only reason for Wall Street institutions to change their tune, as exemplified by AllianceBernstein. The firm had previously ruled out Bitcoin as an investment asset back in January of 2018, soon after Bitcoin had hit its all-time high close to $20,000. However, when the price of Bitcoin was down to 17,000 in 2020, they recommended Bitcoin as part of an investment portfolio with a ratio from 1.5% to 10% as the “significant reduction” in the volatility of Bitcoin’s price made it more attractive both as a store of value and as a medium of exchange.
While Bitcoin’s long-term price growth is one of the most important reasons for market concern, the public has begun to gradually beware of Bitcoin’s special existence over the past decade.
Bitcoin is undoubtedly another important milestone in the evolution of human civilization. It has built a peer-to-peer, decentralized and secure payment network with a simple architecture that not only solves the problem of double spending for electronic transactions, but also helps the unbanked get access to local financial services with no intermediary and free participation. Eventually, Bitcoin has led the way to a cryptocurrency industry with a market value of over a trillion dollars.
Bitcoin is known as the digital gold due to its rarity, and can be purchased by signing up on an exchange and using credit cards, debit cards, or P2P trading. While the number of Bitcoins is limited to 21 million, the amount of buying is not limited. Purchased bitcoins can be stored on an exchange or withdrawn to a personal cold wallet.
Bitcoin has experienced endless ups and downs as well as challenges while having been sentenced to countless deaths by the media and the public. However, Bitcoin has survived hard forks, government bans, speculative price hype and several bear rounds and remains the largest cryptocurrency by market cap with the strongest consensus.
The number of Bitcoin owners has continued to grow following the wide spreading of blockchain knowledge, and governments and institutions are gradually changing their stance to see it as a new asset and financial tool. No one knows what the price of Bitcoin will be in the future, it is still conceivable that it will still occupy an important position and drive the wave of blockchain revolution as the cryptocurrency market grows rapidly and becomes more mature.