What is Bitcoin?

Bitcoin is the first working cryptocurrency. It has two main parts: the coin itself, which serves as a means of payment, and the underlying technology of the Bitcoin network, the ‘blockchain‘. With Bitcoin, payments can be made without intermediaries such as banks or credit card companies. The control of how many Bitcoins exist and which transactions are valid is handled automatically by the blockchain.

So called ‘miners’ solve very complex calculations of multiple combined Bitcoin transactions. The first miner that solves the puzzle creates the next block in the blockchain. Each new block contains a reward of 3.125 bitcoins (after the April 2024 halving), supplemented with the paid fees of all confirmed transactions. This is the first confirmation of a transaction. With each new block, the previous block is confirmed again, because each new block is a derivative of the previous one. Often a cryptocurrency exchange requires at least six confirmations before a deposit is accepted.

The history of Bitcoin

Bitcoin was invented in 2008 by a software developer called Satoshi Nakamoto. Who Satoshi Nakamoto really is and whether this is the real name is still unknown to this day. There are people who have had e-mail contact with him or her, but it always remained anonymous. The last known contact with Satoshi Nakamoto was several years ago.

Bitcoin was invented due to the lack of trust in banks.

Banks have a great impact on the world and can influence the monetary system by means of printing money (central banks). ‘Ordinary’ banks also put extra money into circulation through the method of fractional-reserve banking. In addition, we must rely on a third party to hold, transfer, and pay for our money. This situation is solved with Bitcoin. Essentially, you have the opportunity to be your own bank.

Major milestones in Bitcoin’s history

Since its creation, Bitcoin has achieved several historic milestones. In 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender, allowing citizens to pay taxes and settle debts using the cryptocurrency. That same year, the Taproot upgrade was activated, improving Bitcoin’s privacy features and enabling more complex smart contract functionality.

In January 2024, the U.S. Securities and Exchange Commission approved the first spot Bitcoin ETFs, opening the door for mainstream investors to gain exposure to Bitcoin through traditional brokerage accounts. This marked a significant step toward institutional acceptance and brought billions of dollars in new investment into the market.

Bitcoin’s price history reflects its growing adoption. From being worth mere cents in its early days, Bitcoin first crossed $100,000 in late 2024 and has continued to push to new highs since, cementing its position as a major global asset class.

Applications of Bitcoin

Bitcoin is used as a means of payment and has become a kind of reserve currency for the wider crypto market, much like the U.S. dollar plays a reserve role in global finance. Bitcoin transactions on the main network can become expensive compared to other cryptocurrencies, especially at times when many transactions take place. The price that has to be paid to miners can rise considerably during periods of high demand (for example: check current fees).

The invention of the Bitcoin network was also the starting point for many other projects based on blockchain.

The Lightning Network

To address Bitcoin’s scalability challenges, the Lightning Network was developed as a “layer 2” solution built on top of the Bitcoin blockchain. The Lightning Network enables near-instant transactions with extremely low fees by creating payment channels between users. Only the opening and closing of these channels are recorded on the main blockchain, while thousands of transactions can occur off-chain in between.

This technology has made Bitcoin practical for everyday purchases like buying coffee or paying for small services. Countries like El Salvador have integrated Lightning payments into their national Bitcoin infrastructure, demonstrating its real-world utility.

Ordinals and Bitcoin NFTs

In 2023, a new use case emerged for Bitcoin through the Ordinals protocol. This innovation allows data such as images, text, and other media to be inscribed directly onto individual satoshis (the smallest unit of Bitcoin). These inscriptions have created a new market for Bitcoin-native NFTs and digital collectibles, sparking debate within the community about the intended use of Bitcoin’s block space.

Institutional adoption

Bitcoin has moved far beyond its early days as an experiment among cryptography enthusiasts. Major corporations now hold Bitcoin on their balance sheets as a treasury reserve asset. Companies like Strategy (formerly MicroStrategy) have accumulated tens of billions of dollars worth of Bitcoin, viewing it as a hedge against inflation and currency debasement.

Traditional financial institutions including BlackRock, Fidelity, and numerous banks now offer Bitcoin-related products and services to their clients. This institutional involvement has brought increased liquidity, regulatory clarity, and mainstream credibility to the Bitcoin market.

The Bitcoin protocol

The Bitcoin network utilizes the proof of work protocol.

The halving and the 21 million supply cap

Bitcoin’s monetary policy is fixed in code. Only 21 million Bitcoins will ever exist, and new coins are released into circulation at a rate that is cut in half roughly every four years. This event is known as ‘the halving’.

The block reward started at 50 BTC in 2009 and has been halved at every halving event since: to 25 BTC in 2012, 12.5 BTC in 2016, 6.25 BTC in 2020, and 3.125 BTC after the April 2024 halving. The next halving, around 2028, will reduce the reward to 1.5625 BTC.

This shrinking issuance, combined with the absolute supply cap, is one of the main reasons Bitcoin is often compared to gold. Over time, miner rewards from new coins will trend toward zero, and the network will rely increasingly on transaction fees to compensate miners.

Energy consumption and environmental impact

Bitcoin mining requires significant computational power, which translates to substantial energy consumption. This has made environmental impact one of the most debated topics surrounding Bitcoin. Critics argue that the energy usage is wasteful, while proponents point out that an increasing percentage of Bitcoin mining now uses renewable energy sources.

Some mining operations have set up near hydroelectric dams, solar farms, or in regions with excess energy capacity. Others capture flared natural gas that would otherwise be wasted. The Bitcoin mining industry continues to evolve, with ongoing efforts to improve energy efficiency and reduce environmental impact.

Regulatory landscape

Bitcoin regulation varies significantly around the world. Some countries have embraced it with clear regulatory frameworks, while others have imposed restrictions or outright bans. In the United States, Bitcoin is treated as property for tax purposes and is regulated by multiple agencies. The European Union has implemented comprehensive crypto regulations through its MiCA framework.

Understanding the regulatory environment in your jurisdiction is important before buying or using Bitcoin. Tax obligations, reporting requirements, and legal protections can differ substantially depending on where you live.

Bitcoin dominance

Bitcoin remains the largest cryptocurrency by market capitalization, typically accounting for roughly half of the total crypto market value. This metric, known as “Bitcoin dominance,” fluctuates based on market conditions and the performance of alternative cryptocurrencies.

Many investors view Bitcoin differently from other cryptocurrencies. Its first-mover advantage, proven security track record, fixed supply of 21 million coins, and decentralized nature have earned it a reputation as “digital gold”: a store of value rather than just a payment method.

Can you buy a part of a Bitcoin?

In the beginning, the value of a Bitcoin was only worth a few dollars. Now, however, one Bitcoin can cost tens of thousands or even over a hundred thousand dollars. For many people, it is therefore no longer financially feasible to buy an entire Bitcoin. Fortunately, this is not necessary.

A Bitcoin can be divided into pieces just like normal currency, and the divisions go much further than a dollar’s smallest unit of one cent ($0.01). Bitcoin allows for much smaller divisions.

The smallest quantity is 0.00000001 BTC, or eight decimal places. This unit is called a Satoshi, named after the creator of Bitcoin. At a price of $100,000 per Bitcoin, one Satoshi is worth $0.001. With the Lightning Network, it is even possible to transact in millisatoshis for micropayments.

This makes Bitcoin very suitable to use as a means of payment, now and in the future. The high transaction costs on the main chain remain a consideration for small purchases, but the Lightning Network has largely solved this problem for everyday transactions.

Where can you buy Bitcoin?

Before you can buy Bitcoin, you must first have a place (address) where you can store it. This can be done on a trading platform (exchange) or in a wallet under your own control, where you hold the private keys.

You can create a wallet in different ways:

• On a cryptocurrency exchange (Binance, Kraken, etc.)
• By installing a software wallet on your computer or phone
• By purchasing a hardware wallet from Trezor, Ledger, or others (Ledger Nano S Plus review)
• With an online wallet service

For maximum security and true ownership of your Bitcoin, using a hardware wallet or a self-custody software wallet where you control the private keys is recommended. Remember the saying in crypto: “Not your keys, not your coins.”

Now that you have a place to store Bitcoin, you can start buying. You can purchase Bitcoin in different places:

• On a cryptocurrency exchange
• At an online exchange service (Convert money to Bitcoin, or altcoin to Bitcoin)
• With a Bitcoin ATM
• Through a Bitcoin ETF in your brokerage account (for investment exposure without holding actual Bitcoin)