Tired of not understanding how Bitcoin works? Keep hearing about the Bitcoin Spot ETFs and "halving events", but don't understand what it all means? In this article we will be discussing the all things Bitcoin from the origin all the way to where we are now. We also have a trade idea for $BTC at the end!
Bitcoin was invented in 2008 by Satoshi Nakamoto, a pseudonymous individual or group. It was introduced in a white paper titled: "Bitcoin: A Peer-to-Peer Electronic Cash System", motivated by the desire for a decentralized, secure, and anonymous digital currency. In 2009 Bitcoin launched with the first mined block, dubbed "the genesis block".
The Enigma Of Satoshi Nakamoto
Satoshi Nakamoto, the pseudonym behind the Bitcoin white paper and initial code, remains a shrouded figure. Individuals like Nick Szabo, Craig Wright, and Dorian Nakamoto have been proposed as potential identities, but none have been definitively proven. The mystery adds to the mystique of Bitcoin and the allure of a decentralized system.
The Bitcoin White Paper "Bitcoin: A Peer-to-Peer Electronic Cash System."
In 2008 Satoshi Nakamoto published the Bitcoin white paper. It was met with curiosity and skepticism from the general public and financial institutions. The white paper proposed a new way to send and receive money using digital payments directly between individuals, without banks or intermediaries. It introduced Bitcoin, a digital currency controlled by no one, limited in supply, and secured by a network of computers. Here are some notable quotes from the Bitcoin white paper:
The 2008 financial crisis exposed inefficiencies and injustices in centralized banking, prompting Nakamoto's search for a better alternative. Bitcoin aims to remove control from government and financial institutions, empowering individuals with greater ownership and control over their own money.
The Story Of The Genesis Block
Mined on January 3rd, 2009, the genesis block contains the text "The Times 03 Jan 2009 Chancellor on brink of second bailout for banks," linking Bitcoin's birth to the 2008 financial crisis and its perceived need for a new, independent monetary system. This block marks the start of the blockchain and remains embedded forever in its foundation.
While the identity of the person who mined the genesis block remains unknown, it's believed to be Satoshi Nakamoto, the pseudonymous creator of Bitcoin. The reward for mining the genesis block, 50 Bitcoins, was sent to an address controlled by Satoshi Nakamoto. While it's technically possible someone else mined the block and sent the reward to Satoshi later, this scenario seems less likely. No other individual or group has credibly claimed responsibility for mining the genesis block. While some theories speculate about Satoshi's true identity, none directly challenge his association with the genesis block.
Bitcoin is built on a decentralized ledger called a blockchain. Transactions are recorded in blocks, chained together using cryptography. This is secured by proof-of-work mining, where computers solve complex puzzles to add blocks. The blockchain uses pseudonymous addresses, not tied to real identities.
Bitcoin mining is the heart of the network, powering it with security and distributing new bitcoins into circulation. Let's break down the process:
Solving The Puzzle
Miners use specialized computers to solve complex mathematical problems. These problems involve cryptographic algorithms specifically designed to be difficult and computationally expensive. Miners use specialized hardware, like ASICs (Application-Specific Integrated Circuits), to hash data related to the next block, aiming to generate a specific hash that meets the required difficulty.
Think of the ASICs as super-powered calculators designed for one task: Bitcoin mining. They outperform regular computers, giving them a significant edge in the mining race. The hashing algorithm used in Bitcoin mining is called SHA-256. Miners gather the data for the next block, including pending transactions, a timestamp, and the previous block's hash. They feed this data into the SHA-256 algorithm, which produces a unique 64-character string of letters and numbers called a hash. Miners repeat this hashing process millions of times per second, with small variations in the input data (called a "nonce"), hoping to create a hash that meets the current difficulty target.
The Bitcoin network sets a target for how difficult a hash must be to be considered valid. This target is adjusted regularly to ensure a steady block creation rate. The miner who first generates a hash that is less than or equal to the difficulty target wins the right to create the next block and receives the reward. While ASICs increase the odds of finding a valid hash, there's still an element of chance involved. It's a continuous race among miners, with luck and computational power deciding the winner. Once a miner finds a valid hash, they broadcast it to the network for verification. If verified, other miners accept the hash, and the winner creates the new block, adding it to the blockchain.
Building A Block
The winning miner assembles a new block, including verified transactions, a timestamp, the previous block's hash, and their own hash. It's like completing a puzzle piece that fits perfectly into the blockchain sequence. Once the block is validated by the network, it's added to the chain, becoming a permanent record of the included transactions.
The winning miner receives a block reward in newly minted bitcoins. This incentivizes participation and secures the network by rewarding computational power dedicated to solving puzzles. The Bitcoin reward is halved every 210,000 blocks (roughly every 4 years), creating a predictable and limited supply of bitcoins. The mining difficulty automatically adjusts based on the network's computational power. When more miners join, the puzzles become harder to solve, ensuring a steady block creation rate. This self-regulating mechanism guarantees a constant flow of new bitcoins without flooding the market.
Cost Of Mining
Specialized mining equipment like ASICs is expensive and consumes significant electricity. The cost of ASICs for Bitcoin mining varies significantly depending on several factors, but generally starts in the hundreds and can go up to thousands of dollars. While the initial cost of the ASIC is important, remember that mining is energy-intensive. You need to factor in the ongoing cost of electricity to run the machine, which can vary greatly depending on your location and energy rates. Also ASICs require proper cooling and ventilation to prevent overheating and damage. Maintenance costs can add up over time.
For ASICs expect to pay anywhere from $300 to $5K+. you'll likely need cooling equipment, additional power supplies, and possibly a specialized mining rig to properly house and operate your ASIC. Add another $100-$500 for such equipment. Maintenance can add another $50-$100 per year, with mining software adding another $50-$100 to the initial investment. Electricity can be one of the biggest variable influencing profitability for miners. For example, if your ASIC consumes 2,000 watts (2 kW) and your electricity rate is $0.10 per kWh, running it for 24 hours would cost $4.80. Multiply that by 30 days, and you're looking at around $144 just for electricity per month.
Based on these factors, the overall cost of mining Bitcoin can fall within a broad range of $1,000 to $10,000 or even more. This includes the initial hardware cost, estimated electricity expenditure for a few months, and other ancillary expenses. It's important to keep in mind that as more miners join the network, difficulty increases, making it harder to mine and earn rewards. If Bitcoin's price drops, your potential earnings decrease as well. We will discuss the Bitcoin halving's effect on mining as well later on in this article.
Early Days (2008-2010):
Gradual Adoption and Early Hype (2011-2013):
Maturation and Mainstream Recognition (2014-present):
Initially, Bitcoin was met with curiosity and skepticism from the public and financial institutions. Many questioned its technical viability and real-world use cases. The 2013 price boom brought widespread media attention and attracted more interest, but also concerns about volatility and potential for illegal activity. Today, Bitcoin's perception is complex and diverse. Many see it as a revolutionary technology and alternative investment, praising its decentralization, limited supply, and potential for financial inclusion. Others remain skeptical, worrying about volatility, environmental impact, and potential for criminal activity. Governments and regulatory bodies are still grappling with how to approach Bitcoin, with varying degrees of acceptance and regulation. The story of Bitcoin and its public reception is far from over. As the technology evolves and its influence grows, the debate over its future is sure to continue.
In October 2021 the first ever Bitcoin futures ETFs were approved in the US, marking a milestone for Bitcoin's journey towards mainstream adoption. These ETFs track the price of Bitcoin futures contracts, not directly holding Bitcoins themselves. Bitcoin Futures contracts are agreements to buy or sell Bitcoin at a set price on a future date. They allow investors to speculate on Bitcoin's price without actually holding any Bitcoins.
Spot Bitcoin ETFs, approved this week, directly hold Bitcoins, aiming to track the actual spot price of Bitcoin traded on cryptocurrency exchanges. Compared to Bitcoin Futures ETFs, spot Bitcoin ETFs have a closer correlation with Bitcoin's price, potentially higher liquidity, and increased institutional investment. The hope is this will attract a wider range of investors, including those hesitant about futures contracts or lacking access to cryptocurrency exchanges. Increased institutional investment could bring more stability to Bitcoin's price, but also introduce new risks and potential manipulation.
Imagine a scenario where miners earn 50 newly minted bitcoins for each block they create on the blockchain. Now, picture this happening for every block indefinitely. The increasing supply of bitcoins could potentially lead to inflation, causing their value to decrease over time. This is where the halving comes in. Every 210,000 blocks (roughly every four years), the reward for mining a block gets cut in half. So, in our example, after the first halving, miners would only receive 25 bitcoins per block, and then 12.5 after the second, and so on. This progressively slows down the rate at which new bitcoins enter circulation.
Bitcoin's creator, Satoshi Nakamoto, believed in a controlled and predictable supply of the cryptocurrency to ensure its long-term value. By limiting the new supply, the halving helps prevent hyperinflation and protects the value of existing bitcoins. While the reward decreases, the value of each bitcoin potentially increases over time, making mining still profitable and maintaining network security. As the total supply of bitcoins approaches its pre-determined limit of 21 million, their perceived value may rise due to increased demand and limited availability.
The next Bitcoin halving is expected to occur sometime in April 2024. It will mark the sixth halving since Bitcoin's inception, reducing the block reward from 6.25 bitcoins to 3.125 bitcoins. Historically, Bitcoin's price has risen significantly after each halving due to increased demand and limited supply. The anticipated price movement could lead to periods of high volatility in the Bitcoin market, creating both opportunities and risks for investors. With reduced rewards, less efficient mining operations might struggle to remain profitable, potentially shifting the power balance within the mining pool landscape.
Pre-Halving: The reward per block mined was 50 BTC
1st Halving: November 28, 2012 at 210,000 blocks the reward was cut to 25 BTC.
2nd Halving: July 09, 2016 at 420,000 blocks the reward was cut in half from 25 BTC to 12.5 BTC.
3rd Halving: May 11, 2020 at 630,000 blocks the reward was cut in half from 12.5 BTC to 6.25 BTC.
4th Halving: Estimated to be around April 22, 2024 at 840,000 blocks. The reward will be cut in half to 3.125 BTC.
The SEC considers bitcoin a commodity, not a security. Even after passing the Bitcoin spot ETFs, they have expressed concerns about market manipulation, fraud, and investor protection. Regulatory frameworks are still evolving, with potential for stricter regulations. Governments worldwide have varying stances, from supportive to restrictive.
Bitcoin As A Commodity
Concerns About Market Manipulation And Fraud
Evolving Regulatory Framework
Varying Government Stance
In 2011, Ross Ulbricht founded the Silk Road, an online marketplace operating on the dark web exclusively using Bitcoin as its currency. Users could anonymously buy and sell various goods, including illegal drugs. Using Bitcoin allowed the Silk Road to operate outside the traditional financial system and evade detection from authorities for several years. It provided anonymity for both buyers and sellers, making it challenging to track transactions and trace activity. While Bitcoin offered anonymity, it also left a digital trail of transactions on the blockchain. In 2013 Authorities used sophisticated data analysis techniques to track these transactions and identify Ulbricht as the operator of the Silk Road. He was convicted of several charges, including money laundering and running a criminal enterprise, and sentenced to life in prison.
The Free Ross Ulbricht NFT is a collection of digital artwork and writings created by Ross Ulbricht, with the aim of raising funds for his legal defense and potentially advocating for his release from prison.
There have been two key NFT collections associated with Ross Ulbricht's case:
Ross Ulbricht Genesis Collection:
Ross Ulbricht Growth Collection:
These NFT collections represent a controversial topic, with supporters viewing them as a way to support Ulbricht's legal efforts and raise awareness about his case, while critics raise concerns about glorifying his past actions and potentially profiting from a criminal act. The legality and ethical implications of using NFTs for such purposes are still debated.
"$53.3K is an important high timeframe level for me. I'm looking for a squeeze above that level and then a 4H candlestick close back below to take a short position, taking profit on the way down to $32,690. Stop loss on the high that gets made above $53.3K. That's the only clear setup I see to go short from, anything else is too risky. Longing here after all this ETF volatility is also risky. Long term I am SUPER BULLISH. After the halving I wouldn't be surprised if we see a selloff first and then higher highs. The effect of news is minimal in my honest opinion, it just creates a lot of volatility, but the chart is going where it is programmed to go regardless." BTC_Jay
Entry: Watching for price to break above $53.3K, then watching for a 4H candlestick close back below $53.3K for entry.
Target: Taking profits on the way down to $32,690
Stop Loss: Based off of personal risk:reward
Keep in mind we are bullish on Bitcoin overall, and trade it (as well as other crypto) regularly in our Crypto Trading Discord: Titan Trading. This is just one longer term setup we have, so make sure to check out Titan Trading for trades in the meantime!
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