The six whys of Bitcoin

Many companies around the world are adopting Bitcoin because they see it as a store of value. We’re seeing this happen a lot now — especially in 2020. MicroStrategy, a US-based software company; Square, a payment solution company with Jack Dorsey at the helm; and Ruffer and Grayscale, two investment firms, are among the companies that have recently come to the fore with their Bitcoin purchases.

These Bitcoin purchases by reputable international investment companies are indicative of the coin’s most important value proposition — resistance to inflation. Bitcoin is not a way to make money fast, but is a good store of value through which the value of assets can be protected against inflation.

Bitcoin’s supply is limited. The production limit was set in its development phase before launch. Individuals, companies, asset managers and other types of investors have all turned to Bitcoin, as a means of protection against inflation instead of currencies that can be issued unlimitedly. The third Bitcoin halving occurred in in May 2020 and decreased the amount of Bitcoin production. This made it even more difficult to meet the increasing demand.

Although finite supply leads to the appreciation of Bitcoin due to the increasing demand, those who use Bitcoin and cryptocurrencies as an investment tool start selling when they seek profit realisation. Although the supply remains limited, the Bitcoin price does fluctuate and does often go down as buyers choose to pull out.

You can access our bear and bull market article, which explains the sustained rise and fall in Bitcoin, cryptocurrencies or other financial markets, here

The “Bitcoin: Peer-to-Peer Electronic Cash System” whitepaper was published by a person or a collective of people under the nickname Satoshi Nakamoto on 31 October 2008. It contained the technical details of the network, based on blockchain technology, and explained how the cryptocurrency would work with it.

On 3 January 2009, the Genesis Block, which brought the Bitcoin blockchain to life, was created. Satoshi Nakamoto, who created Bitcoin, has chosen to remain anonymous by keeping their identity secret. Blockchain is an anonymous, distributed, decentralised registry. Although all records are public, they do not contain personal data and are stored securely. Every participant participating in the Bitcoin network has equal rights. Thanks to Satoshi Nakamoto’s anonymity, people did not get the impression that profits were being extracted from Bitcoin — this led to more uptake.

Satoshi Nakamoto explained in the whitepaper that the Bitcoin blockchain can operate safely without requiring relying on a central authority. In the network, Bitcoin is offered as a reward to encourage miners who secure the network and approve transactions. Even though miners don’t alter the algorithm the network wouldn’t be possible without their input. Central banks cannot influence the Bitcoin network because they do not have enough processing power to control decentralised network. However, central banks can get involved in Bitcoin by regulating exchanges and can generate their own Bitcoin by mining within the.

The value of Bitcoin was first determined by users with the purchase of two pizzas with 10 thousand Bitcoin on 22 May 2011. Although supply and demand determine its price, one of the key reasons Bitcoin is valuble is that its supply is limited. The production of Bitcoin, which is capped at 21 million, is bound by rules that cannot be changed. Furthermore, thanks to blockchain technology, Bitcoin is a fully community-owned digital asset that does not depend on a central authority. It cannot be controlled or outlawed by states or central banks. This gives Bitcoin an advantage over other currencies and investment instruments.

You can reach our articles, where you can find why Bitcoin is valuable and a comparison between it and fiat currencies, here.

When making a transfer it is crucial you enter the correct Bitcoin address in the address field. You need to understand how Bitcoin works to find out why.

Bitcoin transfers are signed digitally with private keys and sent to the network. Transfers sent to the network are initially stored in a pool and transactions with high transaction fees are prioritised and saved to the Bitcoin block for approval. Added transactions in the pool are approved within an average of 10 to 30 minutes. Before you confirm a transaction, you need to check the network average transaction’s fee. Some exchanges will give you different network options that vary in speed and fees.

When making a transfer, the transfer fee is calculated by checking the transaction fees on the network. If you agree to pay this calculated fee or more and make the transfer, your transaction will be included in the approved block. Following the Segwit update in 2017, a single Bitcoin transfer confirmation is now enough for a transaction to be considered valid. Once a transaction has received approval from a miner, it cannot be cancelled or reversed. Moreover, even if the recipient’s address is wrong, if it is compatible with an algorithm, the transfer is transmitted to the transaction pool when the transaction is digitally signed.

There are two exceptions where erroneous transfers may be able to be rectified. Firstly, if you know the buyer, you can request a refund from them. Secondly, if your transfer has not yet been added to the block for your approval and your wallet supports RBF, you can forward your transfer to a different address with the double spending method by paying a higher transaction fee. However, by the time you’ve made the double spend transfer, your previous transfer may have been added to the pool or block to be confirmed. In this case, the transfer made later will be invalid and the erroneous transfer cannot be recovered.

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