What is Bitcoin?

Bitcoin was created by Satoshi Nakamoto, a pseudonymous author who outlined the approach in a whitepaper back in 2009.

It’s important to note that in this and other lessons within The Uphold Academy, we reference the blockchain protocol for Bitcoin with a capitalized ‘B’ and the cryptocurrency with a lowercase ‘b’. Bitcoin is also referred to as BTC, which is its abbreviated name and similar to how stocks are symbolized on the stock market.

The Bitcoin protocol is a decentralized network that allows users to conduct secure, peer-to-peer transactions via the internet. This means that two individuals can exchange cryptocurrency without the need for oversight from any bank, company, or government.

The Bitcoin network is responsible for ensuring that all transactions are accurately recorded and that all balances are up-to-date. This system uses what is known as Distributed Ledger Technology (DLT) or blockchain, which functions much like a traditional ledger or balance sheet, recording and tracking all transactions. 

Unlike centralized systems, the blockchain is maintained by a decentralized network of computers, often referred to as Nodes. These nodes use open-source software to check and validate the accuracy of all transactions stored on the blockchain. The individuals or peers that provide computing power to validate and secure the transactions - known as miners - are rewarded with cryptocurrency. This incentive not only motivates participants to contribute to network security but also ensures the integrity and accuracy of the data recorded on the blockchain. 

For a more detailed breakdown of how blockchains work, find our lesson here.

If we look back at the first ever valuation of bitcoin, in 2010 it was merely a fraction of a U.S. penny. Since then, the price has evolved considerably since then. By the first quarter of 2011, it had risen above one US dollar. This trend continued, noting that the price fluctuated with a high degree of volatility, and in quarter four of 2017 the price reached just under $20,000. However, it's important to note that bitcoin has also experienced significant declines, such as in 2018 when the price dropped dramatically from its peak. At time of writing, in quarter two of 2024, the price of bitcoin sits at just over $70,000.

To track the price of bitcoin, or other cryptocurrencies, see here. Please note that past performance is not a reliable indicator of future results.

Similar to a traditional fiat currency, the value of digital currencies like bitcoin is tied to how well they serve as a viable, secure and convenient way in which to store value - essentially, how easily they can be traded in exchange for goods, services or other assets.

 

As we covered in our first article, what is a cryptocurrency, we understand that the attributed value of fiat comes solely from the government declaring it as legal tender. Unlike fiat currency, the value of cryptocurrencies like Bitcoin is instead based on their effectiveness as a medium of exchange.

 

It is also worth noting that there are additional factors, such as scarcity, utility, adoption, public perception and market dynamics that can also feed into valuation.

• Scarcity: Bitcoin’s total supply is capped at 21 million bitcoins, a feature coded into the Bitcoin Protocol, making it a deflationary asset. This scarcity, unlike fiat currencies that can be printed endlessly, enhances its perceived value, especially as demand increases over time.
• Utility: Bitcoin serves multiple functions, from peer-to-peer transactions and remittances to being a store of value. Its resistance to censorship, global reach, and borderless, permissionless nature enhance its overall value proposition.
• Adoption: Over time, the increased adoption of bitcoin by institutions, businesses and individuals has fed into its value. Increased awareness and usage strengthen the network, leading to higher liquidity, stability, and global acceptance.
• Perception: Confidence in Bitcoin's ability to retain value and serve as a store of wealth impacts its price. Market volatility and speculation can lead to price drops, but investor trust in Bitcoin as a viable asset class, backed by secure and decentralized technology, ultimately sustains its value.
• Market dynamics: Like any traditional economy, Bitcoin's price is affected by supply and demand, speculation, investor sentiment, macroeconomic conditions, and regulatory factors. Fluctuations in demand relative to supply can lead to short-term price volatility.