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Bitcoin: The pioneering cryptocurrency

Key Facts

Name: Bitcoin

Ticker: BTC

Consensus algorithm: Proof of Work (PoW)

Native blockchain: Bitcoin blockchain

Release date: January 2009

Supply: 21 million (the max supply to be reached by c. 2140)

Official website: https://bitcoin.org

What is Bitcoin?

Bitcoin is the first decentralised digital currency. It is without a central bank or single administrator. Bitcoin can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people using the name, Satoshi Nakamoto, and released as open-source software in 2009.

Satoshi Nakamoto stated in his white paper that:

"The root problem with conventional currencies is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.

The Bitcoin Blockchain

The bitcoin blockchain is a public ledger that records bitcoin transactions. It is implemented as a chain of blocks, each block containing a hash of the previous block up to the genesis block of the chain. A network of communicating nodes running bitcoin software maintains the blockchain.

Transactions & Private Keys

Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to the Bitcoin network using readily available software applications. In the blockchain, bitcoins are registered to bitcoin addresses. Creating a bitcoin address requires nothing more than picking a random valid private key and computing the corresponding bitcoin address. This computation can be done in a split second. But the reverse, computing the private key of a given bitcoin address, is mathematically unfeasible.

If the private key is lost, the bitcoin network will not recognise any other evidence of ownership; the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key. As of today (May 2019) about 20% of all bitcoins are believed to be lost. Approximately one million bitcoins have been stolen.

Though transaction fees are optional, miners choose which transactions to process and prioritise those that pay higher fees. Miners may choose transactions based on the fee paid relative to their storage