What Is Bitcoin (BTC)? How Does It Work?

Written by BTSE

November 17, 2022

Before You Invest: Bitcoin (BTC)

Bitcoin is the most recognized name among all cryptocurrencies. It was invented to demonstrate how blockchain technology can be applied to build a functional decentralized system for digital assets, giving any user located anywhere in the world a means to transact with other entities.

Mined by solving complex mathematical problems that verify transactions, Bitcoin (BTC) tokens are issued as rewards to parties that help maintain the network’s integrity. The difficulty in doing so has increased rapidly over the years, and Bitcoin mining is now the domain of professional operations with hardware that pack warehouses the size of football fields.

This article will explain what BTC is, as well as how and why its price fluctuates — creating opportunities that may benefit sharp investors.


What is Bitcoin (BTC)?

The concept behind Bitcoin was delivered in a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” published on October 31, 2008. 

Bitcoin was the first demonstration of how digital currencies could be designed to prevent the “double-spending” problem. The solution depended on the creation of a blockchain system where users contribute to the verification of transactions, ensuring that a fungible token would not be duplicated, much like how a physical coin or bill exists as a single item no matter how many times it changes hands.

By utilizing cryptography and automated group consensus mechanisms with built-in incentives, Bitcoin demonstrated how the human element can be removed from transaction verification, eliminating the need for third-party or middleman involvement. This system relies on the distribution of transaction records across many nodes in the network, making it difficult, perhaps impossible, to gain majority control of the system and rewrite transaction data. 


What can Bitcoin do?

Bitcoin demonstrates the way public distributed ledger technology can be put into practice. It utilizes a proof-of-work algorithm that increases computational difficulty over time, slowing the rate at which new BTC tokens are created, in turn increasing their value.

While Bitcoin is accepted as a mode of payment at a limited number of retail locations around the world, it is still far from mainstream adoption. El Salvador is the first country in the world to recognize Bitcoin as a legal tender. 


Who created Bitcoin?

Satoshi Nakamoto is the pseudonym of the person or group of people who developed Bitcoin and the general concept of cryptocurrency. They actively minted BTC tokens until at least 2010, then became out of reach. At the moment, nobody knows the true identity of Nakamoto, although there are individuals who have claimed to be the inventor of Bitcoin or are thought to be Nakamoto.

One is Hal Finney, a developer who was in the Bitcoin community before and after its launch, and the first person to receive BTC in a transaction. 

Another is Nick Szabo, who was also involved with the community. Previously, in 2005, Szabo published a blog post to explore the possible implementation of a digital currency called “Bitgold” that, like Bitcoin, would eliminate third parties when transactions are verified.

Australian academic and businessman Craig Wright has claimed to be Nakamoto, going to the extent of waging legal action to claim the identity. In fact, the estate of a former colleague of Wright, David Kleinman, sued Wright to gain control of half of the 1.1 million BTC tokens that belong to Nakamoto, claiming that the two co-created Bitcoin. The lawsuit was rejected by a jury in 2021, but Kleinman’s estate was awarded US$100 million, meaning the jury concluded that the two did work on Bitcoin together, possibly with other parties involved.

That same year, a court in the United Kingdom ordered Bitcoin.com to remove the Bitcoin whitepaper from its site, as the court believed Wright holds the copyright to the whitepaper.

When Nakamoto was creating the software that would become the basis of Bitcoin’s protocol, interested parties communicated with them via email. There is no information to suggest that Nakamoto ever shared any personal information, making it nearly impossible to identify them.

Nakamoto ended their involvement with Bitcoin in 2010, when they wrote in an email to a fellow developer that they had “moved on to other things.”


What affects the price of Bitcoin?

Aside from the supply and demand for BTC tokens, there are other factors that impact their price, including the cost of minting new BTC tokens, regulations that limit ownership and usage, investor sentiment, and competition from other major cryptocurrencies.

The cost to mint BTC tokens is a function of electricity and hardware costs, as well as overhead for hiring and maintaining mining farms. Additionally, miners are mindful of the schedule for Bitcoin halving — when the rewards for mining transactions are cut by 50%, lowering the quantity of BTC tokens’ new supply.

Nakamoto is thought to be in control of 1.1 million BTC, which altogether carried a value of US$75.67 billion when BTC reached an all-time high in November 2021. If this trove of BTC, which accounts for roughly 5% of the total 21 million tokens that can be minted, is ever sold on the open market in large batches, then the price of BTC may dive. Since Nakamoto’s plans for the 1.1 million BTC tokens is unknown — it is possible that these tokens will remain dormant — the impact of this factor is also not clear.

One of the most significant changes that may influence the price of BTC tokens is the regulatory landscape. Governmental attitudes toward cryptocurrency in general, and Bitcoin specifically, vary widely. When the United States Securities and Exchange Commission approved the first US-based ETF that is associated with Bitcoin, the price of BTC tokens surged. 

Counterintuitively, crackdowns on crypto may also push BTC’s price higher as long as there isn’t a blanket ban on Bitcoin. When regulatory conditions are well-defined, with the prerequisites for enforcement described clearly, investors may pile in to invest in cryptocurrencies. 


Where and how to buy Bitcoin?

The BTC token is listed on the world’s top cryptocurrency exchanges.

Swapping for BTC on BTSE exchange is an easy 5-step process:

  1. Log in to your personal account on BTSE. If you do not have a BTSE account, you can register here.
  2. In the “Spot” section, choose “BTC” as one element of your trading pair.
  3. Choose the other element in the trading pair — you can define the stablecoin, fiat currency, or cryptocurrency that best fits your trading strategy.
  4. Select the type of order you want to place — limit or market — then enter the amount of BTC you want to buy.
  5. Click “Buy Order.”

And then you’re done! Your new BTC token balance will be displayed in your wallet.


Closing Thoughts

Bitcoin is the foundation on which all cryptocurrencies were built, even if they do not use the same proof-of-work mechanism. BTC remains a store of value (for some) or an instrument of speculative investment due to its scarcity and durability, and is often a component of digital asset portfolios. After all, Bitcoin emerged as a forerunner — it heralded a new form of “digital money” that existed beyond governmental, corporate, and traditional financial systems, giving it a special status among early crypto supporters.


Any data, text, or other content on this page is provided as general market information and not as investment or financial advice. Past performance is not necessarily an indicator of future results.


Our aim is to create a platform that offers users the most enjoyable trading experience. If you have any feedback, please reach out to us at feedback@btse.com or on Twitter @BTSE_Official.

Note: BTSE Blog contents are intended solely to provide varying insights and perspectives. Unless otherwise noted, they do not represent the views of BTSE and should in no way be treated as investment advice. Markets are volatile, and trading brings rewards and risks. Trade with caution.

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