What Is Bitcoin and How Does It Work?

The History of Bitcoin

Before understanding Bitcoin, let’s delve into its origins. When was Bitcoin born? Who invented Bitcoin? How has it evolved?

From 2008 to 2015: Bitcoin’s Early Days

• October 31, 2008 – Satoshi Nakamoto publishes the Bitcoin whitepaper.
• January 3, 2009 – The genesis block is mined, marking the birth of the Bitcoin blockchain.
• January 12, 2009 – The first Bitcoin transaction occurs: Satoshi Nakamoto sends 10 BTC to Hal Finney.
• May 22, 2010 – Laszlo Hanyecz pays 10,000 BTC for two Papa John’s pizzas, commemorated as Bitcoin Pizza Day.
• April 2011 – Bitcoin’s price hits a record $29.60, up from $0.09 six months prior.
• August 2011 – The price crashes to $3.
• August 2012 – Bitcoin rebounds to over $13.
• November 2012 – The first Bitcoin halving occurs.
• December 2013 – A bull run peaks at $1,200 before China bans financial institutions from Bitcoin transactions, halving its value to $540.

During 2012–2015, major brands like Microsoft adopt Bitcoin, while experts debate its legitimacy as a "bubble."

From the Second Halving to 2017’s Records

• July 2016 – The second Bitcoin halving takes place.
• December 17, 2017 – Bitcoin reaches an all-time high (ATH) of $20,000.
• May 2018 – Prices drop to $7,000.
• June 26, 2019 – Bitcoin surges to $13,000.
• December 2019 – Prices fall back to $5,000.

2020–2021: From Panic to All-Time Highs

• March 12–13, 2020 – COVID-19 panic crashes Bitcoin to $3,900.
• May 11, 2020 – The third halving occurs.
• October 21, 2020 – PayPal announces Bitcoin trading and payments.
• December 17, 2020 – Bitcoin reclaims $20,000.
• February 8, 2021 – Tesla invests $2 billion in BTC and accepts it as payment.
• April 14, 2021 – Bitcoin peaks at $64,000.
• May 19, 2021 – China bans Bitcoin mining.
• November 9, 2021 – Bitcoin hits a new ATH at $69,000.
• May 2, 2022 – The Terra (LUNA) crash triggers a Bitcoin downturn.
• November 11, 2022 – FTX’s bankruptcy drops BTC below $16,000.

Bitcoin’s Future

2024 started strong, with Bitcoin surpassing $73,750 ahead of its fourth halving. Demand from U.S.-approved Bitcoin Spot ETFs has fueled growth, expanding Bitcoin’s investor base.

👉 Discover how Bitcoin ETFs are reshaping crypto investments

Who Invented Bitcoin?

Bitcoin’s creator, Satoshi Nakamoto, remains anonymous. The last known communication from Satoshi was on December 12, 2010. Theories about their identity include:

• Hal Finney: The first recipient of a Bitcoin transaction. He denied being Satoshi before passing away in 2014.
• Dorian Nakamoto: A Japanese engineer falsely claimed by Newsweek to be Bitcoin’s inventor.
• Nick Szabo: Creator of Bit Gold, another early cryptocurrency concept.
• Craig Wright: An Australian entrepreneur who claims to be Satoshi but lacks proof.

Satoshi’s estimated 1 million BTC (worth billions today) remain untouched in dormant wallets.

How Bitcoin Works

Bitcoin operates on decentralization—no central authority controls it. Key features:

• Fixed Supply: Capped at 21 million BTC.
• Blockchain: A public ledger secured by Proof of Work (PoW) mining.
• Taproot Upgrade (2021): Enhanced privacy, scalability, and security.
• Deflationary Design: Scarcity drives value, making BTC a store of value rather than just a payment method.

Using Bitcoin

• Wallet: Needed to send/receive BTC (e.g., Electrum, Ledger Nano X).
• Exchange: Platforms like Binance or eToro for trading.
• Transactions: Irreversible and require a small fee paid to miners.

Bitcoin Mining

Mining involves solving complex calculations to validate transactions and earn BTC. Over time, mining has evolved:

• Early Days: Home computers could mine BTC.
• Today: Requires industrial-scale mining farms due to high energy costs.

The Halving Mechanism

Every 210,000 blocks (~4 years), miner rewards halve:

• 2009–2012: 50 BTC/block
• 2012–2016: 25 BTC
• 2016–2020: 12.5 BTC
• 2020–2024: 6.25 BTC
• 2024–2028: 3.125 BTC

Halvings reduce supply, historically triggering bull runs (e.g., 2013, 2017, 2021).

Bitcoin’s Value Proposition

1. No Intermediaries: Peer-to-peer transactions without banks.
2. Inflation Hedge: Scarcity contrasts with fiat currency devaluation.
3. Censorship-Resistant: Governments can’t freeze or seize BTC easily.
4. Transparency: All transactions are public on the blockchain.

👉 Explore Bitcoin’s role in decentralized finance

Bitcoin’s Price Drivers

Factors influencing BTC’s volatility:

• Limited supply (21 million BTC).
• Rising production costs post-halving.
• Regulatory changes (e.g., U.S. ETF approvals).
• Macroeconomic events (e.g., COVID-19, FTX collapse).

Price Predictions

Analyst PlanB’s Stock-to-Flow model forecasts:

• 2024–2028 cycle: ~$500,000/BTC
• 2028–2032 cycle: ~$5 million/BTC

How to Buy Bitcoin

Top Platforms:

• Bitvavo / Bitpanda: User-friendly for beginners.
• Binance: Low fees, high liquidity.
• eToro: Trade BTC CFDs (not direct ownership).

Is Bitcoin Legal?

In most countries, including Italy, Bitcoin is legal but taxed. Regulations vary:

• El Salvador: BTC is legal tender alongside the USD.
• U.S.: Bitcoin Spot ETFs approved in 2024.

Storing Bitcoin: Wallets

• Hot Wallets (Online): Electrum (desktop/mobile).
• Cold Wallets (Offline): Ledger Nano X (hardware device).

Bitcoin Alternatives

Conclusion

Bitcoin has revolutionized finance by decentralizing money. Its future hinges on:

• Mass adoption (e.g., PayPal, ETFs).
• Technological upgrades (e.g., Lightning Network).
• Regulatory clarity.

While volatile, Bitcoin remains a pioneering asset class. Always research before investing.

FAQs

What is Bitcoin in simple terms?
A decentralized digital currency operating on blockchain technology.

How do Bitcoin transactions work?
Users send/receive BTC via wallets, with transactions validated by miners.

What determines Bitcoin’s price?
Supply-demand dynamics, halvings, regulations, and macroeconomic trends.

Who controls Bitcoin?
No single entity; it’s maintained by a global network of nodes and miners.

Is Bitcoin mining still profitable?
Yes, but requires significant energy and hardware investment post-halving.