Bitcoin

I. What is Bitcoin?
 A digital currency
 Created in January 2009
o By Satoshi Nakamoto (Anonymous)
o World's largest cryptocurrency by market capitalization
 Offers the promise of lower transaction fees
 Operated by a decentralized authority
 Type of Cryptocurrency
 Kept on a ledger
o Everyone has transparent access to it
 Bitcoin transaction
o Verified by a massive amount of computing/algorithms power
 Not issued or backed by:
o Banks
o Governments
o An individual bitcoin valuable as a commodity
 Other cryptocurrencies
o Altcoins
 Abbreviated as "BTC"

II. Understanding Bitcoin

 A collection of computers
o Runs bitcoin's code
o Store its blockchain
 Collection of blocks
 Each block is a collection of transactions
 Can't cheat the system
 Has 10,000 nodes, as of June 2021
 Private key
o Meant to be a guarded secret and only used to authorize bitcoin transmissions
 Bitcoin keys is different from bitcoin wallet
o The term "wallet" is a bit misleading, as bitcoin's decentralized nature means it is
never stored "in" a wallet, but rather decentralized on a blockchain

III. Peer-to-Peer Technology

 One of the first digital currencies to use peer-to-peer technology to facilitate instant
payments
 The independent individuals and companies who own the governing computing power
and participate in the bitcoin network—bitcoin "miners"—are in charge of processing the
transactions of the blockchain and are motivated by rewards and transaction fees paid in
bitcoin
 21 million bitcoins can be mined
  As of June 2021, 18 million bitcoins in existence and less than 3 million bitcoins left to
be mined
 Bitcoin and other cryptocurrencies operate differently from fiat currency
o Centralized banking systems
 Currency is released at a rate matching the growth in goods—to
maintain price stability
o Decentralized banking systems (Like bitcoins)
 Sets the release rate ahead of time and according to an algorithm

IV. Bitcoin Mining

 A process by which bitcoin is released into circulation
o Requires solving computationally difficult puzzles to discover a new block, which
is added to the blockchain
 Adds and verifies transaction records across the network
 Miners are rewarded with some bitcoin
o The reward is halved every 210,000 blocks
o The block reward was 50 new bitcoins in 2009
o On May 11th, 2020, the third halving occurred, bringing the reward for each
block discovery down to 6.25 bitcoins
 Can achieve more rewards
o Application-Specific Integrated Circuits (ASIC)
 Graphic Processing Units (GPU)
o "Mining rigs"

V. History of Bitcoin
 August 18, 2008
o Bitcoin.org was registered
o Today, "WhoisGuard Protected"
 The identity of the person who registered it is not public
information
 October 31, 2008
o Used the name of Satoshi Nakamoto to make an announcement to the
Cryptography Mailing list as metzdowd.com
o Famous whitepaper published on bitcoin.org
 Entitled: "Bitcoin: A Peer-to-Peer Electronic Cash System"
 Would become the Magna Carta for how bitcoin operated
today
 January 3, 2009
o The first bitcoin block is mined—Block 0
 Also known as the "Genesis block" and contains the text: "The
Times 03/Jan/2009 Chancellor on brink of second bailout for
banks,"
 Perhaps, proof that the block was mined on or after that
date
 Perhaps, also as relevant political commentary
  January 9, 2009
o Block 1 is mined
o Bitcoin mining commences in earnest

VI. Who is Satoshi Nakamoto?

 No one knows who invented bitcoin
 Satoshi Nakamoto is the name associated with the person or group of people who
released the original bitcoin whitepaper in 2008 and worked on the original bitcoin
software that was released in 2009
 Precursors to bitcoin: Reusable Proof of Work
o Adam Back's Hascash (1997)
o Wei Dai's b-money
o Nick Szabo's bit gold
o Hal Finney's
 Remains private for safety

VII. Special Considerations

 Bitcoin as a Form of Payment
o Payment options:
 Credit Cards
 PayPal
 Etc
 Bitcoin Employment Opportunities
o Those who are self-employed can get paid for a job related to bitcoin
o Several ways to achieve this:
 Internet service
 Adding your bitcoin wallet address
o Several websites and job boards that are dedicated to digital currencies:
 Cry.ptogrind
 Brings together work seekers and prospective employers
through its website
 Coinality.
 Features jobs—freelance,part-time and full-time—that
offer payment in bitcoin, as well as other cryptocurrencies
like Dogecoin and Litecoin
 Jobs4Bitcoins
 Part of reddit.com
 BitGigs
 Bitwage
 Offers a way to choose a percentage of your work paycheck
to be converted into bitcoin and sent to your bitcoin address
 Investing in Bitcoin
o Digital currency is the future
 Individuals who endorse bitcoin believe it facilitates a much faster,
low-fee payment system for transactions across the globe
  Although, it is not backed by any government or central back,
bitcoin can be exchanged for traditional currencies
o One of the primary reasons for the growth of digital currencies like bitcoin is that
they can act as an alternative to national fiat money and traditional commodities
like gold
o IRS stated that all virtual currencies, including bitcoin, would be taxed as property
rather than currency

VIII. Types of Risks Associated With Bitcoin Investing

 Regulatory Risk
o Bitcoin is a rival to government currency and may be used for black market
transactions, money laundering, illegal activities, or tax evasion
 As a result, governments may seek to regulate, restrict, or ban the
use and sale of bitcoin
o The lack of uniform regulations about bitcoin (and other virtual currencies) raises
questions over their longevity, liquidity, and universality
 Security Risk
o Bitcoin exchanges are entirely digital and, as with any virtual system, are at risk
from hackers, malware, and operational glitches
o Hackers might transfer or steal bitcoin to another account
 Insurance Risk
o Bitcoin exchanges and bitcoin accounts are not insured by any type of federal or
government program
 Fraud Risk
o While bitcoin uses private key encryption to verify owners and register
transactions, fraudsters and scammers may attempt to sell false bitcoin
 Market Risk
o Bitcoin values can fluctuate
o According to the CFPB, the price of bitcoin fell by 61% in a single day in 2013,
while the one-day price drop record in 2014 was as big as 80%
o If fewer people begin to accept bitcoin as a currency, these digital units may lose
value and could become worthless
o A technological breakthrough in the form of a better virtual coin is always a threat

IX. Splits in the Cryptocurrency Community

 Disagreements between factions of miners and developers prompted large-scale splits of
the cryptocurrency community
 Hard Fork
o A new coin shares transaction history with bitcoin up until a decisive split point,
at which point a new token is created
 Soft Fork
o A change to protocol that is still compatible with the previous system rules

X. Reference
 Frankenfield, J., & Mansa, J. (2021, June 1). Bitcoin. Investopedia.
https://www.investopedia.com/terms/b/bitcoin.asp#special-considerations