If you are just beginning to learn about cryptocurrencies, the abundance of terms can make you dizzy. All these blockchains, decentralization, whales, miners, cold wallets or even dumps - it feels like you're at a party of either programmers or crazies. Due to technical complexity and unfamiliar terminology, the threshold for entering the world of crypto investing is unreasonably high. We don't agree with this state of affairs and in this article we will explain the main principles of bitcoin in simple language spoken by ordinary people.

What Bitcoin is

To begin with, let us tell you what bitcoin is in simple terms. It is the first and flagship cryptocurrency - that is, digital money that works without a regulator (such as a central bank) and in principle without government involvement. There is no person or organization at the head of bitcoin that is responsible for the currency.

To find the answer to why that is, let's try to get inside the head of the creator of bitcoin, known by the pseudonym Satoshi Nakamoto. It's quite possible that there was a group of people hiding under him as well, but that's not important right now. In 2008, when the economic crisis hit, an article under the name of Nakamoto was published, which was more like a manifesto. The document described a world of the future in which everyone could transfer money to someone else over the internet. No banks, no PayPal or other payment systems - digital money is simply debited from one person and received by another without intermediaries.

Nakamoto's article points out that bitcoin will benefit from low fees when making payments compared to the traditional system. Banks are not cheap, and their managers spend a lot of money on security and office maintenance. And often these costs are paid by the banks' clients. Satoshi, on the other hand, when he created bitcoin, saw a future without a third party offering intermediation in exchange for a portion of the money.

In essence, this is the answer to the question of what bitcoin is. In simple terms, it is an alternative to an imperfect financial system that was going through an economic crisis at the time of the digital asset's emergence.

The ideological part of bitcoin is solved, now let's talk about the technical part. The creators had to write about 30 thousand lines of code to create the first cryptocurrency. Bitcoin is based on another unique development - the blockchain. Roughly speaking, it is such an open database that contains information about all bitcoin transactions between different users.

Multiple records of money transfers are combined into a block and attached to others, hence the name blockchain, which can be translated as "blockchain. It traces its origins back to the very first transaction made on the network. New blocks are added to the blockchain after solving a complex cryptographic problem, which requires enormous computing power. The first machine to present the correct solution is rewarded with bitcoins. This process is called mining. How much bitcoin is worth and how to buy bitcoin read on.

How many bitcoins are in the world right now

The maximum number of bitcoins that can exist online is limited to 21 million. The cryptocurrency first went live in January 2009, and since then, 18.8 million bitcoins have already been mined. Thus, only about 3 million bitcoins can be mined. We should not forget that over time the complexity of creating blocks increases, and even with the increasing power of processors, experts suggest that the last bitcoin will be mined only by 2140.

Limited issuance is considered a progressive measure among bitcoin supporters. In their opinion, it will partly protect the system from inflation - it is impossible to print more money at any time, as central banks do when they switch to quantitative easing policy. At the same time, bitcoin could eventually reach a deficit, causing each coin to rise in value. One recent example of such an increase is the cost of hand sanitizer and protective masks skyrocketed during the coronavirus pandemic. This happened because demand went up and supply stayed the same.

Missing Bitcoins

The fact that bitcoins have disappeared is perplexing: how can coins just disappear, and in such huge quantities?

In fact, losing a cryptocurrency is quite simple - it can be accessed with a special key. Consequently, every lost or forgotten key adds to the stock of coins that have disappeared into oblivion. The situation is also complicated by the fact that the bitcoin system cannot recover a lost key, so the loss is often irrevocable.

Bitcoin Price Analysis: What Factors Affect the Rate

Many of those who are unfamiliar with bitcoin often ask how fictitious money can be worth anything. Much less how their price can reach tens of thousands of dollars.

It is really worth asking why gold, silver, oil, stocks and traditional money have value at all. The answer is very simple: anything that can be exchanged for something else has its value, which we express through money, the universal means of exchange. Bitcoin, on the other hand, has almost all the characteristics of money and one key difference from it: in the case of cryptocurrency, you don't trust bankers, but a mathematical system. Gradually, trust in bitcoin grows due to the fact that more and more people and companies are interested in it. This leads to growth of BTC rate.

Of course, this is not the only factor. For example, sometimes in the cryptocurrency world, halving, which can be translated as "splitting in half. Above, we already told you about miners, who get bitcoins for solving a crypto task. So, initially this reward was 50 BTC, in 2012 the amount decreased to 25 BTC, in 2016 - to 12.5 BTC, and in 2020 - to 6.25 BTC. Halving occurs about once every four years, when every 210,000th block is counted.

If demand for bitcoin remains high, halving can affect the price of the cryptocurrency. Usually, the growth in the value of BTC after it does not start immediately - it usually takes about a year. BTC rose in value by 8,566% 12 months after the halving in 2012, and by 286% after the halving in 2016.

In addition, other factors can affect the price of BTC. For example, trade wars, which often have a bad effect on stock markets. The effect on bitcoin is diametrically opposite - when the U.S. and China were imposing duties at full speed, bitcoin continued to rise in price.