Bitcoin burst onto the scene, for most people, around 2013-2014. The truth is, however, that the cryptocurrency dates back to 2009. At this time, cryptocurrencies were nothing more than an idea, and Bitcoin would serve as a pioneer to the industry.
One of the most mysterious elements of Bitcoin is found in its creation. Bitcoin was created by and accredited to one “Satoshi Nakamoto.” It is unclear whether this is an actual single person or a group of people. The anonymity behind Bitcoin’s release is unlikely to ever be revealed, given how many years have past without verifiable attribution. The creator was unlikely to have ever been able to predict just how expansive the currency would become. What was once a unique, abstract project has now turned into the most well-known cryptocurrency in the world.
Bitcoin had predecessors, but none that came to any real fruition. With that said, many of those who first came onto the cryptocurrency scene would end up becoming instrumental to the success of Bitcoin itself. BTC has experienced significant growing pains, with their first major vulnerability being found in 2010, but each time it has come out stronger. It may have taken almost 5 years to gain worldwide recognition, but it is important to remember that, for all intents and purposes, Bitcoin was truly the first of its kind.
How Bitcoin Works
Bitcoin uses what is known as a “blockchain” to conduct its transactions. Just as the blockchain is what enables Bitcoin to be traded, it is also its most susceptible dynamic. The blockchain has grown more secure over time, with innumerable fixes to prevent hacking, but it’s absolute security remains an impossibility, regardless of how much more stable it has grown since inception.
Unlike traditional financial transactions, all Bitcoin transactions are documented and available for all to see. This is one of the most apparent facets of transparency that Bitcoin provides (and what other currencies typically can’t). These transactions between buyers/sellers/traders can all be seen on the Bitcoin network, which is open source.
Bitcoin uses its own checks and balances system to ensure that transactions are properly vetted. Instead of a computer system measuring the validity of a transaction as you would find with a credit or debit card transaction, the network is able to verify itself using the blockchain. This system of checks and balances serves to protect those who own Bitcoins. As you complete transactions, you will notice that it may take up to an hour for a trade to be totally verified and complete. The blockchain also allows for multiple verifications on the part of the user, especially when they are using a Trezor or wallet that includes additional security.
Fees for trading bitcoins are entirely dependent on the medium that you are using to trade. For example, a website like Coinbase would be more apt to charging large fees, whereas the use of your own Trezor device would cut down on processing fees. Generally speaking, the more (apparent) security and assurances that are being provided to you, as in the case of a third party wallet, the more your fees will be. As a whole, the fees for sending and receiving Bitcoin are very minimal, especially when compared to traditional banking.
While the fees for sending and receiving Bitcoin are small, the costs associated with buying and selling can be quite high. As the number of exchanges and wallets grow, these fees have reduced, but users may still pay anywhere up to 10% to buy or sell Bitcoin. In most cases, buying Bitcoin will cost less than selling it, though this is not always true. If possible, it is always more cost efficient to acquire Bitcoins without the use of a third party, commercialized exchange.
Privacy of Bitcoin
Bitcoin is as private as you would like it to be. If you own a Trezor or use an exchange that does not require the disclosure of personal information, you will not be known on the blockchain beyond your wallet address. Privacy only becomes an issue with Bitcoin as you begin to use commercial, more regulated exchanges.
If you are buying or selling Bitcoin from a popular wallet, particularly in the United States, you will need to provide personal information. The larger your trading volume, the more information you will usually need to provide. This was not always the case, but as cryptocurrencies have grown, so too has the government’s attempts to monitor and track transactions.
As time goes on, more and more Bitcoin exchanges have popped up. Several have failed, but others have grown into trustworthy companies. You will be sacrificing varied levels of privacy in using a third party exchange, but they can make your life that much easier.
A few of the most popular Bitcoin exchanges include Coinbase and Bitstamp. Kraken is another well known exchange, but their reputation is not quite as strong as the others. Before you use any exchange, make sure that you are moving your money onto the right type of platform. Some websites only allow crypto to crypto exchanges, some are user to user, and some allow cryptocurrency to be purchased using FIAT money. Efficient usage of Bitcoin calls for a healthy dose of research before any buying, sending, receiving, or selling decisions are made.
Bitcoin is the most liquid of all cryptocurrencies. Owners of BTC can convert their currency into goods or into traditional paper money.
Post 2012, as Bitcoin began gaining recognition, a few prominent online websites began accepting BTC as payment. Most notable among these were Overstock and Expedia. In the coming years, hundreds, and then thousands, of new businesses, both online and offline began accepting BTC.
If you do not wish to pay for goods or services directly from your wallet, you are able to convert the BTC into actual FIAT currency. There are a number of ways that this can be done. Users can trade with friends in person, sell to an exchange, or use online communities to find apt trading partners. It is important to always be careful when sending Bitcoin, as once it is sent, you will have a tough time getting it back. While selling to a well known exchange is usually the safest option, it will also carry the highest fees.
Bitcoin credit and debit cards are also available in both the United States and elsewhere. Unfortunately, the US has stricter requirements, making these cards harder to obtain. If you live elsewhere, however, you will have access to cards that make in person transactions with BTC seamless.
Offline Usages and Accessibility
Beyond websites and even brick and mortar stores that will accept Bitcoins, there are also Bitcoin ATMs located in many parts of the world. The catch to these ATMs is that they are accompanied by small withdrawal limits, large fees, and frequent processing issues. While Bitcoin ATMs can be a convenient solution, they are not yet a well refined solution.
Bitcoin has seen an astronomical rise in value since inception. Once trading for pennies and eventually a few dollars for several years after its release, Bitcoin has approach the $2,000 mark. This hasn’t come without a large number of dramatic swings in pricing, however. In 2013, Bitcoin managed to reach ~$1,000 USD. The hysteria surrounding the new currency quickly diminished, however, and the price came tumbling down.
By 2015 and into 2016, Bitcoin could regularly be obtained in the $200-$400. Many blockchain and exchange issues contributed to this slide and subsequent flat period. As political and economic climates began to become more unstable worldwide, Bitcoin saw a significant price jump. The volatility of Bitcoin is unmatched by almost any other similar currency or commodity. Even gold and silver are considered stable when compared to Bitcoin. It is easy to see the big gains in Bitcoin, but the potential drops should always be taken into consideration as well. As is the case with equities, Bitcoin is prone to unpredictable current events that make for extreme volatility.
Legal and Noteworthy Bitcoin Events
Bitcoin has had no shortage of dramatic events in its short lifespan. From exchange collapses to blockchain and security issues, Bitcoin has had its vulnerabilities exposed time and time again.
Exchange and wallet failures tend to receive the most public recognition, since they impact the common user most directly.
Mt. Gox is the most notorious of all Bitcoin disasters. In 2014, the exchange was processing the majority of all BTC transactions. The thefts of hundreds of thousands of Bitcoins between 2010 and 2014 would eventually lead to the closing of Mt. Gox. Many users lost countless BTC as part of their bankruptcy.
A number of smaller exchanges have closed since 2009. Many of these were due to mismanagement, corruption, theft, or outside hacking. This uncertain dynamic is why it is important to do your research before sending any company or any individual your Bitcoins.