By the start of 2010, Satoshi and other volunteers had started running the network by becoming miners (back then, mining was done on normal computers) and writing the software for the wallets to conduct transactions. It must be said that even though Satoshi started the project, nobody had any special control over this open source protocol.
What is Bitcoin?
Bitcoin is a decentralised digital protocol to transfer value directly between participants without the need for third parties or central intermediaries to come between or govern transactions. Bitcoins are also the name of the token on the network, and each Bitcoin (BTC) is divisible by up to eight decimal places – so you can conceivably buy or send 0.00000001 BTC.
How many Bitcoins are there?
In total, there will only ever be 21 million Bitcoins ever created. So far, just under 18 million have already entered circulation, with the remaining three million to be mined between now and the year 2140 with an ever-decreasing rate of supply. Currently, the supply increases by 12.5 Bitcoins every 10 minutes.
How does mining work?
Anyone in the world can become a miner. All you need to do is buy some specialist hardware and connect it up to the Bitcoin network. Your hardware will consume electricity to solve a difficult maths problem by using a trial and error approach. As a miner, you will partially share in the new Bitcoins created every 10 minutes proportional to your contribution to solving the problem. Currently, there is about $1.3 billion of mining hardware deployed on the network that is competing for the reward of new coins.
How can you buy them?
Just like buying other currencies like euros or dollars, you can buy Bitcoins through an exchange. There are various types of exchanges that you can use like online exchanges on websites or apps like Bitcoin.com.au, physical exchanges like shops or ATMs, or maybe even P2P exchanges where you meet someone to trade Bitcoins at the local coffee shop in person.
How is the price determined?
The price, like all other markets, is determined through supply and demand of buyers and sellers. Every day, around $4 billion worth of Bitcoin is traded, and these traders help find an equilibrium price for the day. One thing to note is that depending on where you buy your Bitcoins, there may be a premium or a discount. For example, if you only want to buy from an ATM, the price may be higher than online exchanges due to the cost of initially buying and maintaining a physical terminal versus a website.
How do you store Bitcoins and make transactions?
Bitcoins are stored in wallets. Different types of wallets exist, like mobile wallets, online wallets, paper wallets, and hardware wallets. All these wallets can store and send Bitcoins to each other, but they each offer different levels of security, functionality, and ease of use.
Where can I spend Bitcoins?
Bitcoins can be sent via your wallet to anyone else who has a wallet. Today, there are over 100,000 merchants accepting Bitcoin as a form of payment, and there are many websites that track and compare merchants – such as spendbitcoins.com and coinmap.org.
What are private keys?
Private keys are secret passwords that are required to make Bitcoin transactions from a wallet holding funds. These are stored inside your wallet, but some wallets allow you to export them. Private keys can take the form of a long string of random characters or can also be shown pictorially as a QR code. If someone gains access to your private keys, then they can steal your Bitcoins without any way to reverse the transaction. If you lose your private keys, then you will also lose the ability to ever send the Bitcoins you have in your wallet.
What does it mean when people say Bitcoin is decentralised?
First, you must understand that decentralisation for any project sits on a scale between high and low. Today, Bitcoin is far more decentralised than any other open blockchain out there, meaning it is more resistant to different types of attacks.
This highly decentralised property has emerged from a complex game theory incentive structure that is in place between five key network participants (developers, miners, node operators, exchanges, and users). Without going into too much detail, each participant is heavily incentivised to play by the rules of the network and stay in consensus with each other. If they try and cheat, it’s going to cost them financially.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.