What is Bitcoin? Why is Bitcoin’s price at all time high? How is the value decided?

Bitcoins are making headlines everywhere and most importantly everyday. News like Bitcoin made a new high, government banning bitcoins trading and what not. But what exactly is a bitcoin? So lets find out…

What is Bitcoin?

Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men — meaning, no banks!

Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2021.Bitcoin, the world’s largest cryptocurrency by market capitalisation, has a current circulating supply of 18,590,300 bitcoins and a maximum supply of 21,000,000.

Why Bitcoin?

Bitcoins can be used to buy merchandise anonymously. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.

This limit is hard-coded into the Bitcoin protocol and can’t be changed. It creates artificial scarcity, which ensures the digital money increases in value over time. Whereas government-issued currencies such as the American dollar can have their supply increased at will by central banks, Bitcoin has a fixed supply that can’t be inflated by political decisions.

Where can I buy Bitcoin?

Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex.

People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.

Does Bitcoin increase in number?

Bitcoin functions via a dispersed peer-to-peer network, rather than through a central authority such as a central bank.

And it does this through the participation of Bitcoin “Miners”. This is anyone who chooses to run software to validate Bitcoin transactions on the blockchain. Typically, these people are actively engaged with cryptocurrency. They are rewarded with bitcoins, more of which are created every ten minutes. But the reward paid to miners halves every four years.

This gradual reduction was encoded into the network by creator Satoshi Nakamoto, who designed it this way to mimic the process of extracting actual gold — easier at first, but harder with time.

Bitcoin miners today earn 6.25 bitcoins for every block mined, down from 50 bitcoins in the early years. This creates an incentive to get involved early, as scarcity increases with time.

Because of this, the price is expected to rise to meet demand. But because future scarcity is known in advance (predictable at four-year intervals), the halving events tend to already be priced in. Therefore, massive surges and falls in price typically reflect changing demand conditions, such as a growing number of new institutional investors. More and more public companies are now investing in bitcoin

But still why does Bitcoin matter?

There are a few possible explanations as to why Bitcoin is now deemed significant by so many people. It’s a “safe” asset (debatable)

In the face of global uncertainty, buying bitcoins is a way for people to diversify their assets. Its market value can be compared to that of another go-to asset that shines in times of trouble gold.

Amid the turmoil of a global pandemic, an unconventional US presidential handover and geopolitical power shifts the world over, it’s possible more people view gold and Bitcoin as better alternatives to dollars. It ties into privacy-oriented ideologies

Bitcoin (and cryptocurrency in general) is not politically and ideologically neutral. It was born of the internet era, one plagued with grave concerns for privacy.

Bitcoin’s intellectual and ideological origins are in the “cypherpunk” movement of the 1990s and early 2000s.

Records of online forums show it was advocated for as an anonymous digital currency that allowed people to interact online without being tracked by governments or corporations, offering an alternative for anyone who distrusts the Federal central banking system.

Perhaps the overt rise of digital surveillance in response to the COVID pandemic has further stoked fears about online privacy and security — again piquing the public’s interest in Bitcoin’s potential.

Okay, but why is Bitcoin booming?

Bitcoin touched $40,000

Bitcoin’s recent boom in value comes down to a combination of three factors: 1.Ideology

2.Social sentiment

3.Hope

But although these are variable factors, this doesn’t discredit the significance of the digital economy, interest in the technology as it matures and the influence of institutional investors in cryptocurrency, including Bitcoin. Bitcoin is in an upward market trend, also known as “bull market” territory.

It was designed to increase in value over time through the rules Nakamoto wrote into its software code.

Is there any other Cryptocurrency?

There are other cryptocurrencies, such as Ethereum, which are also open platforms for the public. Other DApps include decentralised financial (DeFi) tools for prediction markets, cryptocurrency borrowing and lending, investing and crowd-funding.

Nakamoto’s audacious experiment in digital currency is working as intended. And what really deserves attention now is what this means for our digital, physical and social futures.

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Pratik Bagadia

Pratik Bagadia

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