One of the main features of the new digital economy is the increasing dependence on technology. Among the new possibilities is the emergence of cryptocurrencies, special intangible money, among whose characteristics is the decentralization of power (Guegan, 2018). Cryptocurrencies do not have a single development center or central bank but operate entirely automatically, at the discretion of the user community. This means that cryptocurrencies are not governed by governments, and their use is not mediated because transactions are peer-to-peer. In theory, this should increase the cybersecurity of the use of such money, and this presentation will detail the characteristics of Bitcoin as one of the most important cryptocurrencies of our time.
Bitcoin: What It Is
Bitcoin should be understood as a virtually created payment system that allows users to exchange the digital currency of the same name for purchases and money transfers. Unlike electronic money, the use of bitcoin is associated with increased anonymity and decentralization of transactions, which means that it is much harder to track incoming and outgoing transactions without knowing the cryptocurrency identification number of a particular individual. There are no familiar bank accounts that hold bitcoins, as this violates the principle of decentralization of power. For this reason, each carrier has its own software wallet with a cryptographic key to decrypt transactions — from this perspective, it is clear that the loss of such a key irrevocably loses access to cryptocurrency. Users can host cryptocurrency wallets either online on specially created free platforms or offline, without access to the network as a “file” on a computer.
Bitcoin: How to Use
Using Bitcoin cryptocurrency is no more complicated than using any other form of electronic money. Users can pay with cryptocurrency for goods or services, coffee, pizza: any type of product whose supplier accepts bitcoins. In the global community, the value of bitcoins is increasingly recognized, so we should expect more sellers and buyers to switch to using this cryptocurrency (Haar, 2022). In addition, it is not necessary to use bitcoin for direct purchases; instead, other forms of cryptocurrency can be purchased with this digital currency, which are sold on special cryptocurrency exchanges. In this regard, it should be said that bitcoin can be used as an investment tool, as its dynamics can bring much money. For example, according to Yahoo! (2022), over the past eight years, the value of one bitcoin has increased by almost 10 thousand percent, indicating a huge increase in the popularity of this cryptocurrency. The number of coins in market circulation has also increased, but it is correct to emphasize that their number is not infinite. It is noteworthy that due to the limited number of bitcoins, the value of one unit naturally increases according to the laws of limited supply. For this reason, almost no one pays for goods or services with a whole bitcoin, but it is customary to divide it into fractions called a satoshi.
Number of Bitcoins
The mathematics of bitcoin’s existence is built on the use of geometric progression. Specifically, about every ten minutes, a number of new bitcoins are generated, and about every four years, the coins accumulated are enough to create a complex of 210,000 blocks (Hayes, 2022). Reaching this number, halves the number of bitcoins generated, so over time, the total number of bitcoins will reach a limit that cannot be crossed, namely 21 million units. Theoretically, it is assumed that this threshold will not be crossed since there are arithmetic bit shift operators; however, projections show that even if such a scenario occurs, the last bitcoin will not be released until 2140 (Hayes, 2022). Once the limit point is reached, new bitcoins will stop being generated, which means we can expect a sharp rise in the value of this cryptocurrency due to a decrease in supply while demand increases.
Blockchain Technology
Virtually any cryptocurrency, including bitcoin, is built on the principle of blockchain. Blockchain is a secure, distributed registry of transactions, closed to centralized processing methods by issuers. Based on its name, blockchain should be understood as a chain of interconnected blocks that store cryptographic transaction records every time bitcoins are exchanged between users. The link between the blocks is cryptographic, which means that each of the subsequent blocks contains information about the link to the previous block that is protected by encryption technology. This snowball connection explains the impossibility of changing information in intermediate blocks post factum, as this would lead to a loss of information in all subsequent elements of the overall chain. This is an excellent protection system that prevents bitcoins from being used for unauthorized modifications of transaction histories, which increases the reliability of the cryptocurrency. Electronic wallets are linked to blockchains, which allows them to reflect objective financial reality and increase the accuracy of the use of software cryptocurrencies.
Mining
The increase of blocks in a blockchain is called the process of mining – this process is done by ordinary users who use their own computers with powerful video cards to mine the cryptocurrency. In simple terms, mining is all about identifying the hash key that binds the blocks into a single chain. Once the hash is detected, it allows the creation of a new block, but it should be understood that this technology works on the principle of increasing computing power, which means it requires more and more energy to create new blocks. In addition, the user who manages to create a new block receives a reward in the form of bitcoin, which is the interest of miners.
History of Bitcoin
Bitcoin is thought to begin its history in 2008, when a little-known Japanese researcher Satoshi Nakamoto (reportedly a pseudonym under which a group of scientists worked) created the bitcoin protocol, fully describing the rules of the cryptocurrency. In the original article, Nakamoto described the decentralization principle of bitcoin and, by 2009, generated the first block in the blockchain (Nakamoto, 2008; Guegan, 2018). There is a great deal of mystery and uncertainty about Nakamoto’s personality, and the man himself has not appeared online for several years, so no in-depth knowledge of him can be gained. However, his product, the bitcoin system, has shown excellent viability as it has been linked to real currencies through an exchange rate, has built up a cryptocurrency wallet audience, and has grown in value significantly. Interestingly, by now, bitcoin is proving to be extremely volatile, and its exchange rate is changing exactly like fiduciary money rates. Bitcoin’s changing value is due, among other things, to the utterances of famous media personalities who can influence the herd behavior of investors and thus change the price of a single bitcoin.
Bitcoin Ideology
One should not assume that by now, bitcoin has a strictly formalized philosophy or code, but on the contrary, the foundations of the cryptocurrency’s ideology are just emerging. Some of the basic pillars that remain unchanged are transparency and anonymity of transactions, complete decentralization of power, and limitation of the number of coins issued. However, bitcoin’s role in today’s economy is rapidly changing, and with it, the ideology of cryptocurrency. As soon as it became possible to buy household goods, pizza or coffee with bitcoin, bitcoin began to be seen as a people’s currency available to everyone on the planet with electronic wallets. At the same time, the decentralization of power with the increasing attention of governments to cryptocurrency suggests that bitcoin is an instrument of slow revolution, the value of which is determined by the anarchic ideology of rejecting the centralized power of political elites.
Quantitative Metrics
In the discussion of bitcoin, special attention should be paid to quantitative metrics. According to Hayes (2022), some 18.89 million bitcoin units have already been mined to date, representing approximately 90 percent of the entire capacity of this cryptocurrency. About 106 million people worldwide (only 1.3 percent) have bitcoin, among them about thirty million U.S. residents (Howarth, 2022). Residents of all continents have cryptocurrency wallets and actively use bitcoin, with the largest concentration of users concentrated in Asia. The value per bitcoin is 38,951 at the time of the creation of the presentation, and bitcoin has been in a state of decline since late March 2022, updating its peak daily (Yahoo!, 2022).
The Future
To predict any future changes, the history of bitcoin should be kept in mind. Given trends, we can assume that more and more new users and exchanges will be created, with bitcoin’s value increasing in the face of limited supply. In addition, bitcoin will have to compete even harder with other popular cryptocurrencies in the future. Active acceptance of the currency by states may lead to their official use within a country, but this can be expected to increase cyber risks and corruption concerns.
Future
We should also expect the coin’s volatility to increase as more and more attention is paid to it by opinion leaders. Controlling herd behavior by investors causes bitcoin’s exchange rate to fall or rise, which benefits big buyers. There is a perception that cryptocurrencies will be subject to regulations that will eliminate the free use of the coin (Haar, 2022). It is clear that such action destroys the ideology of bitcoin as a decentralized currency.
Interesting Facts
Among the interesting facts found during the research are the following:
- A lost bitcoin cannot be recovered if the owner has lost the devices or cannot remember the password.
- 10,000 bitcoins (almost $400,000) were spent on pizza in 2010 (Bessemer, 2019).
- States are beginning to recognize cryptocurrency as official tender in their territories.
- Elon Musk may have been the one who created bitcoin, but this is not officially recognized.
References Slide
Bessemer, C. (2019). Cryptocurrency: Legality and role within US financial institutions. Syracuse Journal of Science and Technology Law, 36, 3-10.
Guegan, D. (2018). The digital world: I-Bitcoin: from history to real live [PDF document].
Haar, R. (2022). The future of cryptocurrency: 5 experts’ predictions after a ‘breakthrough’ 2021. Time. Web.
Hayes, A. (2022). What happens to bitcoin after all 21 million are mined?Investopedia.
Howarth, J. (2022). How many people own bitcoin? 95 blockchain statistics. Exploding Topics.
Nakamoto, S. (2008). A peer-to-peer electronic cash system. Bitcoin, 1-9. Yahoo!