Here’s What You Need To Know About Bitcoin And Crypto As A Beginner
What No Crypto-Influence Will Tell You
When the world takes notice of cryptocurrency once more, we should expect a hundred million new participants in the scene.
However, many of the newcomers since 2020 (and even earlier) have not yet realized what this is all about.
Lately, none of the social media influencers or YouTubers are interested in discussing details about Bitcoin and cryptocurrency. Some content creators would prefer an uneducated audience to sell trading courses or referrals on trading apps, sacrificing them on the altar of profit.
We reveal remarkable events and facts from Bitcoin’s history and the cryptocurrency field.
Establishing clarity before a predicted massive influx of new adopters is critical to prevent a new Terra Luna, a new Celsius, or a new FTX.
We begin with Bitcoin and explain important events that marked some of the most valuable cryptocurrency networks.
Bitcoin Was First
It all begins in 2008 when an anonymous cryptographer with the moniker Satoshi Nakamoto presented the Bitcoin Whitepaper on the cryptographers’ mailing list :
While some technicals are not valid (like the longer chain argument), the paper will explain the concept of Bitcoin.
Even if you lack technical skills, the whitepaper is a recommended read.
Satoshi’s posts on Bitcoin’s forum (bitcointalk) help us comprehend these first years of Bitcoin and what the early community had in mind:
Previous attempts (by cypherpunks and other programmers) to develop an internet currency were unsuccessful, yet Bitcoin overcame all the previous mistakes.
“If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.”
This famous quote by Satoshi is often distorted by content creators when using it.
Satoshi was responding to Dan Larimer (EOS, Bitshares, Steem), who had questioned the time Bitcoin needed to transact.
Here is the full comment:
The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don’t generate.
Quote from: bytemaster on July 28, 2010, 08:59:42 PM
Besides, 10 minutes is too long to verify that payment is good. It needs to be as fast as swiping a credit card is today.
See the snack machine thread, I outline how a payment processor could verify payments well enough, actually really well (much lower fraud rate than credit cards), in something like 10 seconds or less. If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.
http://bitcointalk.org/index.php?topic=423.msg3819#msg3819— Satoshi Nakamoto, bitcointalk (July 29, 2010)
Chancelor On The Brink Of Second Bailout For Banks
(source)
The title from the cover of the Times newspaper of January 03, 2009, was hardcoded on Bitcoin by Satoshi in the form of a hidden message.
The message Satoshi left on the first block (Genesis block) of the Bitcoin blockchain was a single source of truth. It presents a guarantee that no node mined Bitcoin earlier than January 03, 2009.
Vanished Into Thin Air
Satoshi completely disappeared in 2010 after two simultaneous events occurred:
Wikileaks accepted Bitcoin after the US government froze the bank accounts and Paypal of the organization.
Lead Bitcoin developer Gavin Andresen informed Satoshi that federal agents wanted to talk to him about Bitcoin.
Satoshi, an anonymous person who had just created the cryptocurrency that kicked the hornet’s nest, clearly would not stay and attract more attention. He knew he had to disappear, and he did.
Satoshi’s final communication was an email exchange with Mike Hearn (ex-Bitcoin developer and big block supporter).
The Blockchain
Each block contains Bitcoin transactions. Also, each block contains (among other things):
a cryptographic hash of the previous block, and
a timestamp, allowing the validation of transactions.
Before abandoning Bitcoin, Satoshi included a limit in his creation:
A 1MB limit to the size of each block to combat spam.
However, Satoshi also left instructions on how to properly adjust the code and allow Bitcoin to scale and meet rising adoption.
The Blocksize Debate And The Bitcoin Split
The blocksize debate begins with this Satoshi quote:
Bitcoin split into two camps earlier than many think.
One part of the developers (Gavin Andresen, Mike Hearn, and a large part of the Bitcoin community) wanted to scale Bitcoin by adjusting the blocksize to 8 megabytes.
The other side contained Blockstream-aligned Bitcoin (Core) developers and Blockstream’s CEO, Adam Back.
Bitcoin Core is the prevalent implementation software for Bitcoin, and almost all Core devs aligned and co-founded Blockstream. A private company that creates software running on top of Bitcoin (Liquid side-chain) and presents other developments like Blockstream’s satellite.
The argument was scaling versus decentralization, but in the end, scaling was proven to be an Achilles heel for Bitcoin as a P2P cash system, as fees reached more than $50 by the end of 2017 when mass adoption began (and ended at the same time).
The Bitcoin community had already stopped promoting it as a means of payment but started selling it as an asset, a store of value, or a safe harbor during financial distress. Throughout the years, we read how Bitcoin was protection from inflation, a hedge against wars and disasters, and similar narratives. Although, it appears Bitcoin is following its own trajectory since none of these narratives materialized.
As for payments, the Lightning Network, a second-layer network to Bitcoin, was promoted as the only viable scaling solution.
Yet, this strategy derailed the merchant adoption Bitcoin had attracted until 2015. Corporations like Microsoft and Steam withdrew their support for Bitcoin and removed it as a payment option from their platforms.
Satoshi, in his words, had described a P2P Electronic Cash system that was working with low fees and fast transactions:
The current system where every user is a network node is not the intended configuration for large scale.
That would be like every Usenet user runs their own NNTP server.
The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be.
Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don’t generate.
- Satoshi Nakamoto, bitcointalk (July 29, 2010)
For a detailed timeline of events of the Scaling debate read this Medium article:
But the debate was one-sided, with what was perhaps even the majority of voices treated as outcasts.
During the scaling debate, Core developers found an ally with enough importance to isolate voices in support of scaling:
Censorship During The Blocksize Debate
Source: Twitter (Adam Back)
A single person under the alias “Theymos” in 2015 had managed to control three different Bitcoin channels of communications (bitcointalk, bitcoin.org, and r/bitcoin), enforcing censorship against the side of Bitcoin XT (Gavin Andresen, Mike Hearn, and the big blocks camp).
The side of Blockstream via Adam Back suggested that r/bitcoin censored “vote stuffers”, but in reality, r/bitcoin initiated a censorship campaign without a reasonable justification. Almost half the Bitcoin community was ostracized and rightfully felt there was a lot more than just a debate taking place.
This Medium article summarizes the censorship enforced by Theymos on r/Bitcoin during the scaling debate:
Again for the uninitiated: the moderators of /r/bitcoin attempt to classify discussion of Bitcoin code changes (only the ones that attempt to increase the limit) as off-topic on the basis of being “altcoins.”
In January 2016, Mike Hearn abandoned his position as a Bitcoin developer and announced his reasons with this article on Medium:
Why has Bitcoin failed? It has failed because the community has failed. What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people.
The Rise Of Bitcoin Cash
On August 1st, 2017, Bitcoin split into two competing blockchains.
The most organized part was the one ruled by Core developers, who proceeded with an agreement with miners and exchanges. The other part was Bitcoin Cash which upgraded the blockchain to 8MB (32MB since May 2018).
It was supposed that the free market would decide which side wins, and the allocation of hash rate by miners was a decisive element since the chain with the most proof-of-work is the one that wins.
And whoever wins gets to keep the Bitcoin name, brand, and logo.
The Bitcoin brand and logo were well established since 2013, containing vast significance.
Still, the winner was already decided in February 2016 with the Hong Kong agreement, where members of Blockstream, executives of cryptocurrency exchanges, and founders of the top mining facilities met and agreed to support Segwit.
The Hong Kong agreement was announced on February 20th, 2016, in this Medium article:
- Bitcoin Roundtable Consensus
The agreement meant that Bitcoin would not scale on-chain.
Still, with the Segwit soft fork (backwards compatible upgrade), blocksize increased (up to four times) using a new concept called block weight:
“With block weight, each block has a limit of 4 M weight units, or 1 M vbytes, meaning that 1 vbyte equals 4 weight units. As a result, nodes with software updated with the SegWit protocol can potentially send and receive four times the amount of data they could before the SegWit.
However, because of various constraints, blocks are never that large — the average block size revolves around 1.3 MB.”
Since 2017, the “Store of Value” narrative outweighed the promise of scaling with sidechains (with LN). The target group was investors (retail and institutions). Bitcoin’s strategic aim was to penetrate institutional finance for the first time, and it partially succeeded (with Microstrategy, Tesla, banks, etc.).
The narrative is constantly changing, though.
The store of value description gets replaced with another motto, the “settlement layer” as LN (in El Salvador) revived hopes for a return of Bitcoin to payments.
Bitcoin with LN, Strike, and El Salvador returns to the payments arena in 2021, but in a different approach from what we expected, this time dominated by custodians and third-party processors.
Segwit was proven inefficient in 2021 (while implemented at a large scale) when fees reached (again) the 2017 astronomical cost of $50 per transaction on average.
Bitcoin failed to scale on-chain, and this fact also created issues with LN since fees to open and close channels make the sidechain inoperable with a non-custodial approach.
Custodians defeat the purpose of eliminating trust. What remains is no better than employing Paypal or the banking networks. Yet, time and the users will decide.
Consensus was not met during the blocksize debate, but the Hong Kong agreement exhibited who was in charge of Bitcoin (and still is), Blockstream.
A hard fork that occurred in August 2017 split the chain into Bitcoin (BTC) and Bitcoin Cash, and for a while, it appeared competitive as thousands of Bitcoiners wanted the revolutionary flame alive.
Bitcoin Cash was the upgrade (with the 2017 hard fork), initially with 8MB blocks and later upgraded to 32MB.
However, Bitcoin Cash also proves that the blockchain scales to meet global adoption. The Blockstream argument did not take into account the advance of technology or Moore’s Law but contained Bitcoin in an embryonic state for almost one decade, thwarting its maturation process.
Bitcoin Cash (with 0-conf, the removal of RBF, and more developments) achieves instant transactions with low fees (less than $0.01), presenting a secure and decentralized network for permissionless transactions.
The Bitcoin Economics
(Source: Buy Bitcoin Worldwide)
The total supply is fixed at 21 million.
Researchers expect the last Bitcoin to be mined sometime in the 22nd century (~2140) if no changes apply to the code in the next 120 years.
Miners compete in solving a mathematical puzzle that uses SHA-256 cryptography.
Solving this puzzle rewards the miner with new BTC and fees the block contains. Depending on their hash rate, each miner maintains better or lower odds.
The procedure works as such:
A miner creates a new block (using the latest consensus rules) and selects transactions to include.
The miners will enter a race to find the next block, and the first one that solves the SHA-256 algorithm is the one that mines the block and gets the Bitcoin reward (and fees) the block contains. This is the proof-of-work (or PoW) model of Bitcoin.
The network (nodes) verify the block was correctly structured, and participants not following consensus rules are ignored.
“As rule violating blocks are ignored, miners will produce blocks building on the last block they saw that followed their rule set.” — Mike Hearn on Medium.
The coinbase transaction includes the new Bitcoins the miner receives as a reward.
The more hash power a miner generates, the better the odds of finding a new block before others.
51% Attack
Miners not only validate the transactions but also secure the network from attacks. A 51% attack is the highest threat a decentralized blockchain could face.
In this scenario, the attacker can reverse transactions and profit by double-spending coins.
Blockchains like Ethereum Classic, Verge-XVG, Bitcoin SV, and Bitcoin Gold are some networks among plenty (lesser known) that suffered 51% attacks leading to a loss of confidence among stakeholders and users of these networks.
CPU mining and Patoshi
Initially, miners were using just their CPU but immediately realized the more power they had, the more Bitcoins they would mine.
Sergio Demina Lerner revealed the Patoshi pattern, which assumes that Satoshi mined more than 1.8 million Bitcoins, out of which 1.1 million have never moved.
Researchers believe that Satoshi utilized a mining farm (of 50 CPUs) to mine 1.1 million Bitcoins. However, a simulation performed by Sergio Demian Lerner in 2020 suggests that Satoshi probably used a single high-end PC.
The early Bitcoiners created mining farms and formed pools as the total hash rate increased, making solo mining obsolete.
With the help of Laszlo Hanyecz (an early Bitcoin developer), Bitcoin found a price (of 10,000BTC for two Papa John’s pizzas).
More on Laszlo Hanyecz here:
This was a start, and the first Bitcoin exchanges appeared in 2009 with “New Liberty Standard” offering Bitcoin to Paypal trading.
(Source: The Way Back Machine)
Bitcoin started trading at lower than a penny.
The Halvings And The Frenzy That Follows
A halving occurs every 210,000 blocks (approximately every four years minus three months).
For speculators, the halving is the holy grail.
Unaware of the economics of the halving, investors were caught by surprise by the extreme popularity Bitcoin met after the first one in 2012.
(Source: Cointelegraph)
The effect on the price lasts for a year and creates parabolic action, leading to unstable heights, and a price collapse that follows afterward (with a drop of about 80% from ATH).
During the first four years of Bitcoin, each miner received a 50 Bitcoin reward for every block they mined. In 2012, the first halving cut that rewards in half, rewarding miners with 25 Bitcoins instead.
The second halving in 2016 halved the reward to 12.5, and the third one in 2020 reduced rewards to 6.25 BTC.
In 2024, the halving will reduce miners’ rewards to 3,125BTC.
The 2013 Rally: Bitcoin Reaches The Mainstream — The MtGox Collapse
Bitcoin produced incredible results for early investors, and 2013 was their payday. However, at the beginning of 2014, the cryptocurrency exchange responsible for 80% of trading volumes, MtGox, declared bankruptcy, having lost 800,000 BTC from hacks and mismanagement.
Bitcoin’s price kept dropping, and most considered it was over. Yet, in 2016 the second halving event occurred at block 420,000 (the halving is hardcoded into Bitcoin and happens every 210,000 blocks).
The 2017 Bull Run: The Rise And Rise Of Cryptocurrency
The second halving of July 2016 once again demonstrated its effect, and the price increased remarkably (from $200 low to $20,000).
However, in 2017 the scaling issues of BTC emerged (high fees, clogged network), and merchant adoption reversed, with several businesses and corporations abandoning it as a payment method (Microsoft, Steam).
The 2021 Bull Run
The halving occurred in May 2021 at block 630,000, and Bitcoin (BTC) did it again. Yet, this time, the price only reached $67,000 and later retracted into levels not seen since 2018. An indicator that canceled all predictions, casting doubts about the effect the next halving will have.
The issue with the halvings is that each time the new supply is lowered by 50%. But at this stage, more than 19 million BTC are mined already, with less than 2 million remaining. The new supply has a limited effect on the price, and the charts are almost set in the long run presenting the inelastic supply and a vertical line in the charts.
Each new halving has less effect than the previous one, because… math.
The new supply is almost depleted (19m out of 21m).
With the next halving, the price of Bitcoin will be based more on demand than the supply shock and speculation we witnessed following the three previous halving events.
Bitcoin will need to be more than a speculative asset if it plans to survive.
It will have to deliver the promises (any promises) it makes.
While we expect a new bull run, this time will be considerably different.
The Era Of Altcoins
(Market Share (source: Coinmarketcap))
While altcoins (coins alternative to Bitcoin) exist since 2011 with the creation of Namecoin and Litecoin, these innovations never achieved meaningful adoption until 2017.
Initially, most coins were just another version of Bitcoin, a fork of the Genesis block (the initial block of Bitcoin) with tweaks and minor differences.
Litecoin, Dogecoin, and hundreds of other Bitcoin clones appeared, yet most disappeared within a few years.
Litecoin
Computer scientist Charlie Lee cloned Bitcoin and gave it a couple of different specs (four times more coins, four times less block time, and a different mining algorithm: Script).
In 2017, Charlie Lee dumped all of his Litecoin at prices between $100-$200, leading to fans abandoning it.
The Litecoin community has shrunk significantly since then.
Yet, Litecoin’s founder was well-connected in the industry and kept promoting the Litecoin blockchain as a testnet to Bitcoin. Litecoin was the first chain to test Segwit and Lightning.
Dogecoin
(Source: Seekpng)
Dogecoin is another BTC/LTC clone created by Jackson Palmer and Billy Markus in 2013. The meme coin aimed to make fun of the vast speculation in the field but turned out to be more speculative than any other cryptocurrency despite its infinite supply.
Besides Musk and the newbie fans of Dogecoin, investors should be aware that Dogecoin has an infinite supply and large stakeholders who often manipulate the price by coordinated trades.
Dogecoin presents pure speculation at this point, and before Musk announced his support of Dogecoin, nobody considered memecoins as relevant or innovative.
Ripple
Ripple was developed as RipplePay in 2005 by Canadian developer Ryan Fugger. In 2011 Fugger sold RipplePay to Jed McCaleb (creator of MtGox), Arthur Britto, and David Schwartz, who formed Opencoin, transforming RipplePay into a blockchain, the XRP ledger, launched in 2012. With the arrival of Chris Larsen, Opencoin was renamed to Ripple, and the Ripple board awarded the company 80 Billion XRP.
With the XRP ledger, Ripple presented a separate aspect of a blockchain from Bitcoin and a different target.
The company does not plan to disrupt the money system but to replace SWIFT (the international banking communications system) and improve banking payments.
Ripple has no PoW consensus but a system of validators (unique nodes). However, the company selects/approves the validators, so the system is not permissionless. In a sense, trust is not eliminated when a group is in control.
Moreover, Ripple owns a vast amount of XRP, which it gradually sells to partners and on the market. The SEC sees these sales as security offerings, and since 2020, has entered a legal battle against Ripple:
The Securities and Exchange Commission announced today that it has filed an action against Ripple Labs Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.
- SEC
Ethereum And The Cryptocurrency Industry
(Picture on Pixabay by amhnasim)
It was clear from these early days that an industry breathing innovation would flourish under the right circumstances.
There are thousands upon thousands of cryptocurrencies. Many of these projects are simple tokens on Ethereum, BSC, and other EVM-compatible blockchains, abandoned by their creators after failing and not delivering to the expectations.
Cryptocurrencies exploded in 2017 and challenged Bitcoin’s dominance. We witnessed a wave of new investors entering the field and massively buying anything traded in exchanges.
Bitcoin’s dominance drastically dropped from 95% to 50% (and lower). Innovation in the field was (for the first time) appreciated beyond Bitcoin.
Ethereum paved the way for blockchain networks to act as an economic center that supports innovation by serving developers, projects, businesses, and corporations with a secure and reliable network.
Ethereum transformed the cryptocurrency field into a financial industry with the development of decentralized finance applications (DeFi), which presented a solution to traditional finance with lending, trading rooms, liquidity, and collateral.
DeFi, NFTs, Web3, and Metaverse-ready applications establish Ethereum as a promising network for the future of the digital economy.
Decentralization is the vehicle that drives us to financial freedom (a term often misunderstood as it doesn’t refer to increasing our wealth but transacting freely instead).
Yet Ethereum also has its own controversial past and scalability issues (high fees).
Satoshi Nakamoto, The Anonymous Inventor
We have our eyes skinned for a sign and watch several people who could be Satoshi, but we cannot be certain. Most stories contain gaps, while several distractions emerge during our search.
With a series of stories published since 2021, I follow some leads and conclude it has to be a certain cryptographer.
Here is a list of six stories I posted regarding the identity of Satoshi Nakamoto:
In Conclusion
We can not describe the vastness of the Cryptoverse with a single essay, although not in market cap terms ($1 trillion market), either.
Marketing makes an enormous difference, but sometimes it can backfire, especially when a product does not meet the standards the consumer (or user) sets.
Upon entering cryptocurrency, one has to wonder what problem Bitcoin is solving today and what purpose its investment fulfills.
The actual reflection of the effect of blockchains, cryptocurrencies, and the innovation emerging from this field is not yet observable on a macro scale. It is too early, but not the devs, not the miners, or the charlatans on Twitter make the market decide, but the users will.
Besides the payment features, blockchains with permissionless features enable a macroeconomic event never seen before in the history of our race.
With cryptocurrency, we herald a new era of finance, entertainment, business, and governance.
Upon entering the Cryptoverse, one should wonder what their purpose is.
If this is just a speculative trade, or is there something more to it?
Are all the headlines correctly addressing cryptocurrency, and is there potential in the approach Satoshi suggested with no trusted third parties, no middleman, and a network empowering the individual user?
Platforms:
● read.cash ● noise.cash ● noise.app ● Medium ● Medium ● Hive ● Steemit ●Vocal ● Minds ● Publish0x ● Twitter ● CashRain ● Me.dm
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Everyday, I found many YouTubers making shits about predictions of crypto price. BTC is more overrated coin, I hope we shall be able to find more better coin with decentralization and privacy. I hate blockstream always.