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An introduction to Bitcoin

What is the cryptocurrency, Bitcoin and co? do you need to learn about Bitcoin?
Perhaps you can make a decision after reading the following short paragraph.

In an exclusive interview with NewsBTC, Yoni Assia, the CEO of the trading platform eToro discussed the Bitcoin evolution. According to him in August, the New York Stock Exchange, Microsoft, and Starbucks formed an initiative called BAAK to improve the usability and adoption of cryptocurrencies. The Japanese and South Korea governments disclosed they intend to strictly regulate cryptocurrency exchanges as regulated financial institutions and the government of China has spent over 3 B$ to finance blockchain initiatives.

 

A cryptocurrency is a collection of concepts and technologies that form the basis of a digital money ecosystem. The first blockchain was conceptualized by Satoshi Nakamoto in 2008 for Bitcoin. The original paper is available online. The current market cap of all cryptocurrencies is about less than 200 B$ with Bitcoin covering over half of it followed by Ethereum and other coins. In total there are over a thousand different coins by 2018.

The block time is the average time it takes for the network to generate one extra block in the blockchain. The block time for Ethereum is set to between 14 and 15 seconds, while for Bitcoin it is 10 minutes. It means perhaps a transaction can be performed faster with Ethereum than Bitcoin. By storing data across its peer-to-peer network, the blockchain eliminates a number of risks that come with data being held centrally. Bitcoins are created as a reward for a process known as mining. According to Wikipedia, Bitcoin had 5 million unique users in 2017.

After early “proof-of-concept” transactions, the first major users of Bitcoin were black markets, such as Silk Road. During its 30 months of existence, starting in February 2011, Silk Road exclusively accepted Bitcoins as payment, transacting 9.9 million in Bitcoins, worth about $214 million (2011-2012). It is a general trend that criminals adopt new technologies early enough.

The price profile

In 2012 Bitcoin prices started at about one Euro growing to about ten for the year. In 2013 prices started at 10 Euro rising to 560 Euro by 1 January 2014. In 2015 prices started at 260 Euro and rose to about 400 Euro for the year. In 2016 prices rose to over 900 Euro on 1 January 2017 and rose to 16,500 Euro on Dec 17, 2017. Since then, the price collapsed in several steps. Early 2018, Google and Facebook announced that they ban advertisement of cryptocurrency. Throughout the rest of the first half of 2018, Bitcoin’s price fluctuated between 10,000 and 5,848 Euro. On Aug 18 2018 Bitcoin’s price was about 5750 Euro. Daily volume of the Bitcoin exchange is usually several billion Euro while the market cap is currently about 96 B Euro.

The price of Bitcoin and other cryptocurrencies are volatile compared to gold or standard currencies. About 20% of all Bitcoins are believed to be lost. The lost coins would have a market value of about $20 billion at July 2018 prices. Approximately 1 million Bitcoins have been stolen, which would have a value of about $7 billion at July 2018 prices. Bulk of the Bitcoin is traded in US $ or Japanese Yen.

 

The crypto wallet

Before getting started, you have to make sure that you are doing everything safely and properly. There have been a number of major hacking incidents in the past. This means your first step is to find the proper cryptocurrency wallet for storing your currency with proper security. Remember that there is no central bank to store your asset. You yourself have to take care of it in your wallet. Bitcoin is transferred in a peer-to-peer system: there is no central bank or server.

Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. At its most basic, a wallet is a collection of these keys. A wallet to cryptocurrency is like a browser to html. You need a wallet to perform standard operations: buy/sell, send/receive, and store. Some wallets also allow you to exchange one form of the cryptocurrency to another (see this and this).

Bitcoin Core is, perhaps, the best known implementation or client. It is an open source program available on GitHub. If you prefer to have a full node, Bitcoin Core requires a one-time download of about 210 GB of data plus a further 5-10 GB per month. By default, you will need to store all of that data, but if you enable pruning, you can store as little as 6 GB total without sacrificing any security.

There are tons of wallets for desktops, mobile apps, and web applications. Mobile wallets are user friendly but otherwise not the safest place to store your digital asset.

To buy Bitcoin or other coins, you need to verify your identity in one of the many places. The verification procedure usually takes a few days. You can buy Bitcoin with your bank account, credit card, PayPal, …. Nowadays even vouchers of Bitcoin are available in supermarket. Some of the exchange places like Coinbase, Bitstamp, eToro, Kraken, … allows you to have an online wallet on their webpage. However if you prefer to stay anonymous, you need a desktop wallet independent from your online or mobile app wallets.

Monitoring

There are certain places like Coin360 where you can have an eye on the developments in the market. Another example is the cryptocompare webpage. There are tons of other page providing near real-time data of the market. There are also dedicated mobile apps just to update users with the latest changes in the crypto market including the rising/falling prices, volume 24h (total transaction volume per day), market cap (total value of a certain type of coin), …

Dominance percentage from CoinMarketCap.

Bitcoin and other digital coins are interesting tools but perhaps not for everybody in the current state. It is worth, however, to study their structures as  more and more companies adopt their usage. If you would like to know more about regulatory issues, for instance if a Bitcoin is a property, a currency, or a commodity, there are webpgaes like Cointelegraph which you can visit.

If someone has no interest in learning about the Bitcoin and co, it is better to stay away. Learning about cryptocurrency is similar to sex education for teenagers: one has to know it in advance.

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