Bitcoin is a peer to peer electronic cash, a digital money that can be transferred between people or computers without any trusted middleman(such as a bank or government), and whose issuance is not under the control of any single party on which everyone trusts. Bitcoin tries to get rid of the requirement of trust by using cryptographic math to verify the facts and transactions.
We have ushered into the digital age where the majority of the payments are done digitally over the internet by means of middleman services like PayTM, Google, Amazon ,etc. This shift to digital payments brings with it the reliance of the central agency that has to approve and verify all the transactions.
We can think of these middle-man like ledger keepers. This system looks perfect but it runs under the assumption that the central agency is perfect and honest every time. However, it is not like this every time, for example in Sri Lanka where the corrupt government has led the country to an economic crisis, citizens can’t even get access to their own hard earned money from the banks.
Also having a centralised ledger system gives rise to a single point of failure in the system. Bitcoin tries to solve all these problems by distributing the ledger among all the peers in the Bitcoin network which cannot be influenced by any malicious actor.
EMERGENCE OF BITCOIN (BTC)
Bitcoin was invented in 2008 by a person or group known by the false name of Satoshi Nakamoto. No one knows the identity of this individual. Many people believe that Bitcoin whitepaper was created as the fallout of the 2007-2008 Wall St Crash. Just two months after the Lehman Crisis, on 1 November 2008, Satoshi Nakamoto wrote an email to a cryptography mailing list introducing the idea in a paper.
In the paper, Satoshi expressed dissatisfaction that banks repeatedly breached the trust of people who deposit money with them by lending the money in credit bubbles while keeping very little as a reserve.
BITCOIN Whitepaper – ARCHITECTURE
Blockchain uses a Proof of Work(POW) consensus. It means that it uses a competitive validation process to confirm the transactions and then add new blocks to the blockchain.
- Network Layer
Bitcoin layer 1 is the fundamental BTC blockchain, complete with all of its essential parts and functionalities. Layer 1 on Bitcoin consists of the real ledger of Bitcoin transactions, network nodes, and the Proof of Work block verification process (PoW). Layer 1 Bitcoin is, in essence, the actual BTC network as it was first presented in 2009.
- Protocol Layer
Bitcoin layer 2 refers to protocols that are constructed on top of layer 1 with additional functionality. Faster processing times and less transaction costs are typically part of this added capabilities. The majority of layer 2 systems gain technical efficiency by processing the majority of transactions off-chain, and then sending the finished transactions in batch mode to the underlying layer 1 ledger.
- Application Layer
The application layer, or Layer 3, is a common designation. It is a layer where DApps and the protocols that make the apps possible are hosted. While other blockchains, like Ethereum or Solana (SOL), are well-suited to hosting layer 3 applications, Bitcoin is not.
Additional Read: Ethereum Whitepaper Summary
ADVANTAGES OF BITCOIN (BTC)
- Bitcoin transactions don’t incur banking fees
● No minimum maintenance fees
● No returned deposit fees, and many others.
- Bitcoin international payments include very low transaction cost
● No intrusion of government involvement and intermediary institutions.
● Only exchange costs and fees are involved with foreign purchases and typical wire transfers.
● Eradicates the annoyance of waiting times and customary authorisation needs.
- Transactions through bitcoin are secure and mobile
● Anyone with internet access can buy bitcoin from anywhere in the globe.
● No personal information is required to finish any transaction, thus it decreases risk of identity theft.
- P2P and anonymous transactions
● Only by using a blockchain address can a transaction be identified, therefore it is not entirely anonymous.
● Anyone on the network can send or receive payments from users anywhere in the world.
- Security Against Payment Fraud
● It makes use of cryptographic protocols and an algorithm. They are therefore impossible to be forged.
- Immediate settlement and direct transfer
● No involvement of a third party to facilitate the transactions.
- Greater Liquidity
● In contrast to other crypto, bitcoin retains the majority of its value when converted to other real-world currencies.
- Store of value
● Due to its eight-year existence without a single failure, Bitcoin has a significant advantage over all altcoins as a store of value. With usage exceeding that of altcoins by practically every indicator, Bitcoin’s security has been demonstrated significantly more than that of its much younger competitors.
APPLICATIONS OF BITCOIN (BTC)
- As more shops around the world accept bitcoin payments, people are using bitcoins to purchase goods and services.
- Anonymous transactions are made with bitcoins.
- With the expectation that their value would rise dramatically in the future, investors can purchase bitcoins.
- On websites like SatoshiDice, RoyalBitcoin, Bitzino, Peerbet, and others, you can gamble with bitcoins.
- Due to their use of very powerful cryptographic algorithms, bitcoins offer a mechanism to transact securely online. Because there are no credit card fees, users and companies prefer bitcoin payments.
BITCOIN Whitepaper – TOKENOMICS
- Every 10 minutes or so, a block is mined, earning the miner 6.25 BTC. The 21 million total supply is pre-programmed. The payout is reduced by half every 210K blocks, or every 4 years if there are 10 minutes in each block.
- The last Bitcoin will be mined around the year 2140 if the protocol is left alone.
- According to the amount currently in use, we have reached roughly 90% of the overall supply.
- The miners are compensated with transaction fees for including your transaction in the upcoming block.
- As a mining reward, miniers are rewarded with new bitcoins which are brought into circulation when selling it on the market. 2021 saw a tumultuous journey for the price of bitcoin, which reached a new record high in November when it surpassed $68,000. Following earlier record highs of over $60,000 in April and October, as well as a summer decline to less than $30,000 in July, comes this most recent record high.
BITCOIN’S (BTC PRICE) PERFORMANCE OVER THE YEARS
BTC/USDT | Source: Tradingview
Additional Read: Bitcoin Price Prediction
STIFF COMPETITION FOR BITCOIN IN THE CRYPTO SPACE
One of the biggest disadvantages of Bitcoin is the slow transaction speed(approx 10 minutes). To counter this many newer networks have sprung up which offer fast transaction speeds. Some of these networks are as follows:
- Ethereum – This is a decentralised, open source project which helps to make peer-to-peer payments. Developers can build databases for decentralised finance and execute smart contracts on the Ethereum blockchain.
- Solana – Solana uses an alternate algorithm to avoid slow transitions. This makes Solana one of the fastest blockchains in the industry.
Out of these, Bitcoin probably faces the most challenge from the Ethereum Network, however it must be kept in mind that both of them were created for fundamentally different purposes. While Bitcoin was created to enable decentralised finance, Ethereum was designed to also enable apps and smart contracts.
BITCOIN WHITEPAPER SUMMARY (ROADMAP & VISION)
Since Bitcoin is immutable, its supply is fixed and there can be no change made to it. Its monetary policy has not wavered from its course set by Satoshi Nakamoto.
This is one of the Key features of Bitcoin which set it apart from other altcoins like Ethereum, Bitcoin Cash, etc. There will only be 21 million bitcoin in circulation and that’s set in stone and no one can alter it. However, people are slowly migrating away from Proof-of-Work(POW) chains to Proof-of-stake(POS) chains as they are computationally less intensive and are better for the environment.
Even some of its competitors are turning to POS mechanisms( e.g. Ethereum 2.0). Inspite of all these, Bitcoin can never be replaced with another coin as its main objective was to decentralise finance and it does its job pretty well.
Since it is the most valuable crypto by market cap and the rest of the market tends to mimic its tendencies, Bitcoin is an excellent predictor of the crypto market as a whole. There are many issues about its security and future to which no one has the answers.
How much of Bitcoin can we trust? Are they a bubble that will eventually pop? Are they a craze that will eventually fade away and become a passing phenomenon? Or are they going to remain where they are and possibly control other currencies in the future? Currently, there is little regulation of bitcoins, but this could change.
The loss of tax revenue and currency control is a concern for governments. They might introduce legislation to control bitcoin, which would significantly reduce its advantages over other currencies. One major problem is the erratic nature of bitcoin prices. The index’s erratic oscillations are evidence of this volatility.
Bitcoin values have increased dramatically in recent years, and although they have experienced a few dips, they are still high. Many believe that the cost will continue to rise. The following factors encourage the use of bitcoin to grow:
- There are only limited bitcoins available.
- Bitcoin’s acceptance and adoption are expanding along with public awareness of them.
- Bitcoin transactions are becoming more prevalent every day.
- Many wealthy people would want to store their wealth in bitcoins instead of allowing the government to regulate it.
Read more: Crypto whitepaper summaries of top cryptos by market cap
HOW TO INVEST IN BITCOIN (BTC)
Use this three-step process to buy your first BTC token using the CoinDCX, crypto investment app.
- Sign Up for the CoinDCX account: Enter a valid email address and a user name on the sign-up page. Once the Email Id has been verified, set a strong password to secure your account.
- Verify the account: You need to complete your KYC, to buy BTC token on the CoinDCX platform. All you need to do is upload the documents and your account will be set up in 15 minutes.
- Buy BTC: After the account has been verified, you can deposit any amount of fiat currency you are comfortable with and start your crypto journey!
Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Abhishek Das, Harshit Jain