Into Cryptocurrency (Part II): The Bitcoin Saga.

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Level Up Coding

5 min readJun 20, 2021

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“The current state of cryptocurrencies has a Wild West feel to it. It’s chaotic, it’s risky, it’s exciting, and it’s rapidly changing. In barely nine years since the original cryptocurrency, Bitcoin emerged, many hundreds of alternative digital currencies have surfaced.” — Jonathan Reichental.

KEY TAKEAWAYS

Bitcoin is a digital currency and a network that runs on a protocol known as the blockchain.
Blockchain is a type of database that stores data in blocks that are then chained together. As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.
Different types of information can be stored on a blockchain but the most common use so far has been as a ledger for transactions.
Bitcoin uses blockchain in a decentralized way so that no single person or group has control — rather, all users collectively retain control.
In Bitcoin, transactions are permanently recorded and viewable to anyone.

The Birth of Bitcoin

In 2009 and after the 2008 economic crisis, Satoshi Nakamoto (a presumed pseudonym for a person or group whose true identity remains a mystery) released Bitcoin which was developed based on a 2008 paper called Bitcoin: A Peer-to-Peer Electronic Cash System.

In the abstract section of the paper, Satoshi Nakamoto wrote a description of the project as follows:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

In the beginning, the main reason behind Bitcoin growth was the fact that it is a brand new method of transacting value outside of the traditional financial system. Later on, things like its high adoption rate and multiple uses helped in its growth and popularity.

Bitcoin: a Faith-Based Asset

According to Joseph Lubin in his interview in the daily show, he stated that the thing that gives value to cryptocurrency is that people believe that it does.

“When you get enough people believing in cryptocurrency, then you can snowball into something that society actually deems valuable, like the U.S Dollar.” — Joseph Lubin — One of Etheruem’s founders, CEO and Founder at ConsenSys.

Joe Weisenthal (an editor at Bloomberg) argued that the best way to think about Bitcoin is as a kind of religious movement. And that many of the characteristics and features of religion are found in it. Firstly, Bitcoin is created by a selfless mystical figure (Satoshi Nakamoto). Also, Nakamoto’s writings are treated as sacred texts. There are the Bitcoin white paper and Nakamoto’s early message board postings at Bitcointalk.com. The early correspondees are the Bitcoin saints. In addition, there are devils embodied in bankers and central bankers.

MINING (How are bitcoins created?)

Bitcoin Mining is a process where individuals are rewarded by the network for their services.
Bitcoin miners’ job is to process transactions and to secure the network using specialized hardware and they get to collect new bitcoins s a reward for completing “blocks” of verified transactions, which are added to the blockchain.
The creation of Bitcoin is done at a fixed rate. This makes Bitcoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit, and miners must seek efficiency to cut their operating costs.
Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first.
The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence. At this point, Bitcoin miners will probably be supported exclusively by numerous small transaction fees.

Why do bitcoins have value?

Bitcoins have value because they are useful as a form of money.

Bitcoin has all the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties like gold and silver, or trust in central authorities like fiat currencies.

In short, bitcoin’s value comes only and directly from people willing to accept them as payment.

What determines Bitcoin’s price?

It is determined by supply and demand.

There is only a limited number of bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable.
If demand for bitcoins increases, the price increases, and when demand falls, the price falls.
Since Bitcoin is still a relatively small market compared to what it could be, it doesn’t take significant amounts of money to move the market price up or down, and thus the price of a bitcoin is still very volatile.