Bitcoin

Bitcoin

Bitcoin

Bitcoin Pizza Day

On May 22 of 2011, a Florida programmer named Laszlo Hanyecz agreed to pay 10,000 Bitcoins for a pair of Papa John’s large pizzas. On that day, those 10,000 Bitcoins would be around $41. On Feb 9, 2020, Bitcoin reached parity with the US dollar, making the pizzas worth $10,000 USD. If you think the massive growth would stop there, guess again. In 2021, Bitcoin reached an all-time high of $63,000 per coin, making the pizzas worth $630 million. You heard it right: 2 pizzas worth $630 million USD. May 22nd is forever known as Bitcoin Pizza Day.

Satoshi Nakamoto

Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin’s original reference implementation. As part of the implementation, Nakamoto also devised the first blockchain database. Nakamoto was active in the development of bitcoin up until December 2010. Many people have claimed, or have been claimed, to be Nakamoto, but no one has yet to know who the real Nakamoto is.

History of Bitcoin

The domain name bitcoin.org was registered on August 18, 2008. On October 31st in the same year, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System was posted to a cryptography mailing list. Nakamoto implemented the bitcoin software as open-source code and released it in January 2009. Nakamoto’s identity remains unknown. On 3 January 2009, the bitcoin network was created when Nakamoto mined the starting block of the chain, known as the genesis block.

Proof of Work

Bitcoin uses the Proof of Work consensus. In previous blog posts, we learned that miners compete against each other to complete transactions on the network and get rewarded. The probability of being selected to build the next block is linked to computation powers of the miners. Due to proof of work, Bitcoin transactions can be processed peer-to-peer in a secure manner without the need for a trusted third party. Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network.

Bitcoin Halving

Bitcoin was designed to reduce its block reward given to Bitcoin miners in half after every 210,000 blocks mined, or roughly every four years. This system will continue until around the year of 2140. Once it does, all of Bitcoin will be in circulation and miners will be rewarded with fees for processing transactions.

Bitcoin was designed as a deflationary currency. Like gold, the premise is that over time, the issuance of bitcoins will decrease and thus become scarcer over time. As bitcoins become scarcer and if demand for them increases over time, Bitcoin can be used as a hedge against inflation as the price, guided by price equilibrium, is bound to increase. On the flip side, fiat currencies (like the US dollar), inflate over time as its monetary supply increases, leading to a decrease in purchasing power. This is known as monetary debasement by inflation. In the past, these Bitcoin halvings have correlated with massive surges in Bitcoin’s price.

Different Types of Bitcoin Addresses

There are 3 different types of Bitcoin addresses: P2PKH, P2SH, and bech32.

A P2PKH, or legacy address, will have an address that starts with the number 1. A P2PKH address is Bitcoin’s original address and stands for Pay-to-Pubkey Hash. As the name implies, the transaction pays to a hash of the recipient’s public key. The average fee when sending from a P2PKH address is likely to be higher than when sending from a segwit address, because legacy address transactions are larger in size.

P2SH addresses are structured similarly to P2PKH, but start with a 3 instead of a 1. P2SH, which stands for pay to script hash, enables more elaborate functionality than legacy addresses. The P2SH script function is most commonly used for multisig addresses which can specify, for example, that multiple digital signatures are required to authorize the transaction. P2SH addresses are widely supported and can be used to send funds to both P2PKH and bech32 addresses.

Last but not least, we have the bech32 format. Each one starts with “bc1” and is longer than a legacy or P2SH address on account of this prefix. Bech32 is the native segwit address format.

Bitcoin Cash

In 2017, Bitcoin users discussed the issue of Bitcoin capacity and block size limit and there were two factions: those that supported large blocks and those who preferred small blocks. The one faction that supported large blocks proposed a fork of a new type of coin called Bitcoin Cash.

Bitcoin Cash addresses can follow either the legacy format (which starts with a 1) or more commonly the Cash Address (Cash Addr) format. It’s based on bech32 and starts with ‘q’ or ‘bitcoincash:q’. BCH wallets can support both formats, with tools enabling users to switch between Cash Addr and legacy formats. The primary reason for using the Cash Addr format is to distinguish BCH from BTC and thereby prevent funds being sent to the wrong address.

Real Life Application

Currently, there are numerous real life applications for Bitcoin. The most common application is to pay for items, including food, travel, real estate, and cars, with Bitcoin. In March of 2021, Tesla announced that it would accept Bitcoin as a form of payment to buy its electric cars. Though the policy was cancelled due to climate concerns, Tesla’s CEO Elon Musk said that the policy will most likely be resumed.

In 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender and national currency. Though the result is still unknown, Bitcoin has proven to people around the world that it can be more than just a digital currency.

Effect on other Cryptocurrencies

Bitcoin is the first and most well-known cryptocurrency in the world. It also has a huge price impact on other cryptos. Many crypto coins were modeled after Bitcoin and there is no denying that Bitcoin is one of the biggest inventions of our generation.