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Answering what is Bitcoin has never been easier. Just a few years ago, only those with a penchant for investment knew of it. A few years before that, it was on the fringes. Most investors either hadn't heard of it, or simply didn't pay too much attention to it.
For most of its history, Bitcoin has been the definition of a fringe asset. These days, it might very well be the most-known one alongside gold and other precious metals.
Unsurprisingly, comparisons between gold and Bitcoin have been there all along, namely because of Bitcoin's fixed supply. The latter is one of its primary fundamentals.
Bitcoin occupies a unique spot as both a currency and an asset. It is unlike any other currency, and unlike any other asset. And it crosses the definition between the two more than any entry in the individual categories. It was intended to be a currency, but valuations alone have warranted a perception as something closer to a very expensive commodity.
Any Bitcoin for beginners guide should start with how the asset came to be. From there, we'll go over how the top cryptocurrency has essentially brought forth an entire market.
Despite being around for barely over a decade, the crypto market is already being compared to, and is competing with, stocks. They have been around for centuries. It's also a competitor with precious metals, which have held clout for much longer.
Before there was Bitcoin, there was a financial crisis
Though analysts argue that we may yet see something worse in the near-term, there is no denying that the financial crisis of 2008 and the 2011 tie-in shook the global markets. It caused gold, a crisis asset, to reach a new all-time high. Without going too in-depth as to what caused the havoc, suffice to say the culprits were central and private banks.
We don't doubt that these questions existed before 2008, and that they were asked loudly. But 2008 was a turning point for many, and certainly for Bitcoin's maker, or makers.
It was now clear that central banks and private banks were routinely engaging in activities and forming policies that harm everyday citizens and individual wealth. "Too big to fail" was a common phrase.
By 2008, both technology and the internet have proliferated in such a manner that some questions indeed had to be asked...
Why are people putting their financial well-being in the hands of third parties?
Why should anyone trust fiscal policies of entities that have destroyed countless economies, their own currencies and so forth?
Why is there a need for a financial intermediary to begin with?
The last point is perhaps most relevant to any true believer in the crypto market. The technology for a free-floating, decentralized, "people's currency" was there.
It has been in use for decades in some form or another. So why not launch it? And that roughly describes Bitcoin's whitepaper and its underlying purpose.
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Satoshi Nakamoto has had enough of financial centralization
Bitcoin came about in August 2008 through a website called Bitcoin.org. It was launched as a peer-to-peer currency, or more broadly, a system of digital transactions.
Bitcoin and its network were meant to accomplish everything digital banking does without the presence of a third-party. No sooner was it introduced than people realized it was a good idea.
The underlying technology, which we'll expand upon in a bit, is simple but exceedingly sturdy. Bitcoin wallets are designed to provide complete anonymity and privacy.
Some are quick to point out that this isn't possible since everything is recorded on the blockchain, or Bitcoin's network. And this is one of many polarizing contentions in the crypto market, which we'll also expand upon.
2008-2011: Only for the earliest Bitcoin adopters
Most tend to view the financial crisis of 2008 as something that persisted through 2011. Satoshi Nakamoto imprinted "The Times Jan/03/2009 Chancellor on brink of second bailout for banks." on the first Bitcoin block, proving that this perception was quite dominant.
Despite 2008 already ringing the bells of a financial collapse, Bitcoin had few proponents past the aforementioned true believers. The price tells you as much.
Up until 2011, you would have had an easy time if you wanted to buy Bitcoin for $1. Not as easy as in today's sense, perhaps. Crypto exchanges didn't exist.
You had to go out of your way to actually obtain this asset and store it on a cryptocurrency wallet. But not too out of the way. If you wanted 100 Bitcoin for $100, all it took was a little effort.
The price movement that followed from 2011 illustrates another massive point of contention in the crypto market: when to sell? People who bought 100 Bitcoin for $100 would have, for the most part, been fine if we weren't talking about it today.
But as the years rolled, the impetus to sell became stronger and stronger for early adopters. There are many who bought for $1 and sold for $30, and even more that sold for $300. When we get to $2,000 and above, many early adopters were likely ready to liquidate their digital wallets.
Volatile from the very beginning
Bitcoin saw its first financial "validation" in 2011, more specifically June when it jumped to a then-high of $32. Your weird investment had just appreciated by 30x. Stock investors can but dream of such gains.
Sell or hold?
The urge to sell was clearly there, as it had plunged to almost $1 again by November. In what many will undoubtedly find amusing now, this was perhaps the first instance of collective screams of "crypto back to zero".
Yet history would not paint itself in such a manner. By 2013, Bitcoin had jumped to a new high of $220. The subsequent sell-off only brought it to $70, more than double its previous all-time high. Clearly, it was taking off. By the end of the year, Bitcoin rose to $1,200.
More falls followed, of course, but by 2015 the struggle to pass $500 by year-end was overshadowed by news that a major exchange raised $75 million in a round of funding.
Similarly, the inability of Bitcoin to recapture its previous all-time high became less important when Japan made it legal tender way before El Salvador did. It was now officially comparable to fiat currency.
This point should have eliminated most doubters, and it did many. Yet the following years would prove all the more challenging.
2017-2018: The deciding years
2017 and 2018 would prove to be the most important years in Bitcoin's history, aside from perhaps 2008 itself. In 2017, Bitcoin jumped from $775 to $19,000 by the end of the year.
There wasn't anything particularly turbulent happening, causing many to wonder what exactly is going on. If we had to guess, we'd say there was an influx of large-cap investors into the market.
This is very much corroborated by massive venture capital inflows in 2018. The sellers were probably looking to make the most of an early investment. "Crypto millionaires" and all that.
Whichever the case, Bitcoin was brought to $3,700 in early 2018. Fortunes were lost, and far greater fortunes would be gained. The precipitous fall and the entry of Bitcoin into the mainstream had everyone screaming bust.
Bitcoin was being compared to a tulip frenzy that occurred centuries ago. Name economists were saying "crypto back to zero". Should have known better than to put your money in something so ridiculous, kids.
But anyone who panicked there, and we imagine plenty did who bought Bitcoin around $19,000, must have been oblivious to Bitcoin's history. This was simply part of its cycle, as anyone with experience in the market knew.
Related: How to Buy Bitcoin with Your IRA
2019 and onwards: Bitcoin is redefined, but stays true
Many will tell you that Bitcoin's bull run was mostly a thing of last year. After all, that's when it reached an all-time high of $68,000. But the true bull run and reimagining of the market came about in 2019.
Bitcoin displayed a reluctance to go below $3,000 in both 2018 and 2019. A popular opinion is that the dips in 2019 were only there due to halving events, which we'll get to soon. But that Bitcoin was staying above $3,000 during nasty bear markets was telling.
One U.S. dollar costs 127 japanese yen right now. Both are considered safe-haven currencies. The price of an Amazon stock, which most view as ballooned, is $2,300.
A one-ounce gold coin was just above $1,200. Yet Bitcoin, even back in 2018 and 2019, in a bear market with countless doubters, wouldn't go below $3,000.
To say that the crypto market can be difficult to pin down is an understatement. But those who watched the macro picture in 2018 and 2019 might have had an inkling as to the trajectory.
Crypto intraday trading, similar to stocks and forex, was already popular in 2017 due to the rise of many well-established exchanges. The volume wasn't there yet, but it would soon follow.
Today, as Bitcoin falls from $68,000, we once again find ourselves in a familiar situation as far as the market goes. People are selling and screaming bust. Should we hold? Is it going back to $3,000?
It definitely takes a bit of tunnel vision to not see how Bitcoin is in a permanent long-term upwards trend.
One's propensity towards panicking generally decides how well they do in the crypto market. But everything, starting with Bitcoin's basest underpinnings, gives cause for optimism however much prices are tanking.
What is Bitcoin, really? And how does blockchain technology work?
Bitcoin isn't awfully hard to define, though the deeper one gets into the technological side of how does Bitcoin work, the greater the urge might be to say: "Okay, I got it."
In the basest sense, think of Bitcoin as any digital currency you might trade with banks. That's another interesting and undeniably amusing point about the crypto market. Everyone's acting like digital currencies are a new thing. But the dollars you transact through your card are precisely that: digital currency.
There are some notable differences, though not notable enough not to warrant the comparison. Whereas every sovereign currency is issued centrally and controlled by a few, Bitcoin isn't.
Bitcoin can't be issued, but is rather mined. It has a fixed supply of 21 million tokens, which is one of the ways through which Satoshi Nakamoto aimed to solve financial woes.
In the absence of a gold standard, every sovereign currency is printed freely as central bankers desire. This causes inflation, which benefits central banks, private banks and large corporations. If you aren't in that category, tough. Your dollars, or whichever currency, become less valuable year after year. You need more dollars to buy things with.
This has been a problem for over 50 years, ever since Nixon abolished the gold standard in 1971. The gold standard was certainly an attempt to have some manner of reasonable money in global commerce.
But the keener analysts and economists know that the pre-1971 gold standard was a "soft" gold standard. And even the concept itself leaves something to be desired.
Tethering an asset to a currency to assure its value presents obvious issues. Primarily, the issuer of the currency can choose to untether it whenever. And that's exactly what happened in 1971, causing the price of gold to explode and making a mockery of the U.S. dollar.
This can't happen to Bitcoin, as it is its own gold standard. It self-regulates its supply. Partly because it's decentralized but also partly because of its principles, no single person or group can say "let's just make more Bitcoin". And it's exactly this that has anyone involved with crypto very excited.
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How is Bitcoin made and how does the market function?
This is the technical side we mentioned that can quickly become overwhelming. But we'll keep it brief, yet informative enough. Bitcoin is made by a computer that solves complex equations and in doing so gets rewarded Bitcoin tokens. This is called Bitcoin mining.
The evolution of Bitcoin mining is perhaps as interesting of a tale as its market movement, though we feel it would be cumbersome to expand upon it in the same detail. There was a time when Bitcoin mining was profitable on a personal computer. The more people got interested, the greater the competition was.
The blockchain itself is designed to offer gradually lower incentives to Bitcoin miners. This is known as halving. Halving occurs with every 210,000 blocks mined, roughly every four years. To some, this is the primary price driver, but we'll leave that to more devoted analysts.
The way Bitcoin is supposed to have and hold value is a kind of exciting equation on its own. 19 million tokens have already been mined. We're pretty close to the cap, right? Nope, because most projections say that we're more than a century away from reaching the supply.
The closer we get to the cap, the more difficult it is to make a profit by mining Bitcoin due to the aforementioned halving. Bitcoin mining these days is done by large companies that specialize in just that.
They have entire warehouses of the highest-end specialized computers to facilitate this mining. And despite the constantly-decreasing amount of Bitcoin that is awarded to miners, they can still turn a profit as Bitcoin becomes more scarce and its market value increases. As we said, quite the equation.
Related: What are the Largest Cryptocurrencies By Market Cap?
Is Bitcoin really the killer of the banking system?
This has been a prominent theme since its very beginnings, and it's still a question now that banks are offering native Bitcoin support. Bitcoin indeed has many things going for it over anything a bank issues.
The increasing complexity and decentralization of mining makes breaches of the Bitcoin network less and less likely. It hasn't been breached so far, and it's only going to get less doable over time. Bitcoin is cryptographic by nature, as you'd expect from something called cryptocurrency.
It conceals everything besides the amount transferred from onlookers. Your name, your address and all that stuff you'd rather keep to yourself is not related to the Bitcoin transaction.
This is made possible with a private key. And while "spooks" can, in theory, trace back Bitcoin transactions to their source, doing so takes considerable effort.
On the other hand, the money you've sent to someone through a bank is visible to everyone and their aunt, along with the details of everyone involved.
The Bitcoin network doesn't go down. We've seen central banks collapse, we've seen private banks collapse. We've seen both unable to extend their services.
But because the Bitcoin network is always operational, this is not the case with the top cryptocurrency. Even if all the exchanges were to sink, your tokens would still be safe if your Bitcoin wallet was on a hardware ledger, and you could send them to anyone.
So, there are obvious benefits that it has over the traditional banking system. But we did mention that there is more than a bit of polarization in the crypto sphere. It's certainly a subject worth touching upon, if just briefly.
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Bitcoin: the true people's currency or a tool of control?
As with anything, Bitcoin has two extremes when it comes to opposing sides of view.
One extreme is that Satoshi Nakamoto is just some guy who wanted to make the world a better place. He came up with the idea on his own, released it to the public out of good will to fix the financial system, and we are now reaping the rewards.
There is nothing sinister about cryptocurrencies, and they should be used universally.
The other extreme is that Bitcoin is a well laid-out method of establishing a technocratic control grid. Having every transaction digitized makes it awfully easy to track and monitor people.
Bitcoin gave rise to stablecoins, which are now looking to give rise to central bank digital currencies, or CBDCs. Was this an orchestrated effort to introduce CBDCs and make privacy and personal freedom a thing of the past?
After all, it's not without reason that China rushed to introduce a digital yuan. We know their government's view on freedom.
Satoshi Nakamoto is another thing to wonder about. There have been around a hundred people claiming to be Satoshi Nakamoto. Many find the notion of Satoshi Nakamoto being a single person ridiculous and claim that Bitcoin is indeed a government project designed for nefarious purposes.
The truth, as it stands now, somewhere in the middle. We don't know who made Bitcoin, or with what actual purpose.
We don't know whether centralized entities are afraid that Bitcoin will overtake their system, or are celebrating because a new system of control was implemented.
All we can deal with is what we have. And what we have is pretty neat.
Related: How to Buy Bitcoin (Tax-Free) with Your 401(k)
Bitcoin: the start of a financial revolution
We've done a bit of speculation above, but why not? Market participants do it all the time. Surely we are afforded a little room for it. When speculation is placed aside, we have the undeniable facets of Bitcoin and the crypto market.
Bitcoin has already granted financial freedom to practically everyone on Earth. You can use it in exactly the manner it was intended. You can privately send an amount of money anywhere.
You don't need the approval of central entities. You don't have to worry about being excluded from the financial system, so long as you're using Bitcoin. You no longer need to be "eligible" for a bank account. And the more adoption spreads, the more this will prove true.
Bitcoin has moved far past its original purpose and is now the basis of an entire market. Fortunes can be made by trading assets on the crypto market, which is ruled by Bitcoin.
There are many big bettors betting big on the crypto industry. Billions are being poured into the crypto sphere to fund projects. Some will flourish, others will not, just as in the case of the stock market or any other market.
Since the start, Bitcoin has faced threats from the entities it's supposed to go against. Regulators, banks, you name it. And yet, little has changed about it.
China once banned it, with little effect. Many others did the same. Some believe cryptocurrencies can't be regulated, lending credence to them being a true tool of the people.
We get focused too much on Bitcoin price volatility and tend to forget its purpose. That's where the disappointment comes from, not the token itself. Bitcoin hasn't yet failed to deliver on what it was supposed to.
What is Bitcoin really, then? An asset, a currency or something else? It's a way of transferring and holding money that is revolutionary enough to have brought on the term "legacy banking systems".
That's quite the accolade already, but by the looks of it, cryptocurrencies are just getting started.
