Bitcoin and other digital assets are disruptive technologies with several potential use cases. The most established use case is to send monetary value from A to B without the need for a financial intermediary, such as a bank. This resource page provides further information and education on Bitcoin and other digital assets. None of these resources, whether published by Ecstatus or linked externally, are investment advice. They are just for information and illustration. See our full list of disclaimers here.

Bitcoin is the original decentralized blockchain. It was officially invented on 31 October 2008 when Satoshi Nakamoto, an unknown entity, emailed the Bitcoin whitepaper to an undisclosed group of email recipients. Some people believe Satoshi timed the release of the whitepaper to coincide with the 2008 financial crisis. In the whitepaper, Satoshi introduced Bitcoin as a “purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”. Fast forward to today, and Bitcoin has evolved into an emerging asset class with its own ecosystem of spot, futures and derivatives markets.

Bitcoin is essentially two things:

  1. A digital form of money (bitcoin with a lower-case ‘b’).
  2. A system that supports the use of that digital money (Bitcoin with an upper-case ‘B’).

Bitcoin operates on a distributed public ledger, or blockchain, which validates, records and time-stamps all bitcoin transactions without the need for a trusted middleman, such as a bank. This is made possible through the process of Bitcoin mining.

Bitcoin mining is a core part of Bitcoin’s architecture and it is essential to the decentralized functioning of the blockchain. In this process, miners from all over the world compete using their vast computing power to solve complex cryptographic puzzles to confirm each block of bitcoin transactions. The first miner to solve each puzzle is rewarded with new bitcoins. These bitcoin rewards create an incentive for miners to validate and confirm every block of bitcoin transactions on the blockchain. This process, called Proof of Work (PoW), is repeated by miners every 10 minutes on average to provide confirmations for each block of bitcoin transactions.

Proof of Work makes Bitcoin highly secure and solves what computer scientists refer to as the ‘double spend problem’ without the need for a trusted middle man. After the first block confirmation, a network attacker would require more than half the computing power of the entire Bitcoin network to reverse any transactions in the latest block. With each additional confirmation, prior transaction blocks become further embedded in the blockchain. After six consecutive confirmations, it is mathematically impossible for an attacker with half the network’s computing power to reverse a transaction.

The PoW process also implies that the bitcoin supply schedule is mathematically predetermined. Bitcoin’s maximum supply is limited to 21 million bitcoins. The number of bitcoins that miners are rewarded for solving each cryptographic puzzle halves every four years, which means that Bitcoin’s supply increases at a decreasing rate: Two-thirds of all bitcoins were already mined in 2015, 98% will be mined by 2030, and 99.8% will be mined by 2040. Bitcoin will reach its peak supply of 21 million bitcoins in the year 2140. Each bitcoin sub-divides into 100 million ‘Satoshis’.

In the past, bitcoin reward halving dates have been associated with significant long term price appreciation. The next bitcoin reward halving will occur in May 2020, but there are no guarantees that this too will result in a new bull market.

In addition to new bitcoins, miners are rewarded with bitcoin transaction fees, which are voluntarily paid by users sending bitcoin across the network. During times of high network throughput, bitcoin blocks can become overcrowded. Increased demand for block space can lead to higher transaction fees, as users compete to incentivise miners to process transactions. Bitcoin transaction fees are independent of transaction size and location.

While Proof of Work can at times slow the speed of the Bitcoin network, it is also what makes bitcoin transactions secure. For these reasons, many people see Bitcoin as a system to securely transact across the globe, rather than as a digital currency for small everyday transactions. Bitcoin developers are consistently working to increase Bitcoin’s speed and throughput with solutions such as the Lightning Network.

Ethereum can facilitate simple financial transactions over a decentralized blockchain in a similar way to Bitcoin. Yet through smart contracts, the Ethereum network also allows users to programme specific “if, then” conditions to different transactions. These were widely used in the ICO bubble of 2017, where Ethereum accounted for the majority of ICO capital raises and subsequent token allocations. In these cases, investors were awarded tokens in new projects once certain conditions were met.

Developers can build decentralized applications (dApps) on top of the Ethereum blockchain. DApps run on smart contracts and can in theory be used for several purposes. Smart contracts and dApps are still in the very early stages of development so we don’t yet know their true potential. However, the technology may have the potential to expand the use cases of blockchain to other areas, such as insurance claims, legal contracts, financial derivatives, share certificates, election voting, crowdfunding, and automated investing.

Bitcoin Whitepaper – Original paper by Satoshi Nakamoto

Off the Chain (Podcast) – Anthony Pompliano Crypto Podcast

Cointelegraph – Bitcoin & Ethereum Blockchain News

Toshi Times – Crypto News

Coindesk – Blockchain News

NewsBTC – Bitcoin news, price, information & analysis