Bitcoin Guide

Bitcoin: the World’s Leading Crypto

Bitcoin powers a global payment and monetary system that does not rely on central third parties, paired with an internet-native asset that cannot be confiscated or inflated away.

- Launch date: 2009
- 21 million: maximum supply
- US$ 69,045: All-time high (November 2021)

Bitcoin At a Glance

Fully decentralised

Bitcoin eliminates third parties by relying on a peer-to-peer network of over 10,000+ computers all over the world that resiliently keep the system running.

Security

Bitcoin is secured by cryptographic proofs. All transactions are recorded on a public and decentralised ledger (the blockchain), and they cannot be altered or forged.

Non-inflationnary

There will never be more than 21 million BTC in circulation. Bitcoin is finitely scarce and cannot be artificially inflated or manipulated by any group or individual.   

Open to everyone

There are no barriers to entry for Bitcoin. All that’s needed is an internet connection. The asset is borderless and transferable, paving the way for a financial revolution. 

Key Figures

How Bitcoin Works

Bitcoin relies on a Proof-of-Work (PoW) mechanism. Each transaction is validated by a network of nodes: computers independently running Bitcoin software to ensure the rules of the system are being met. In order to add new blocks, some nodes (referred to as miners) must solve intensive mathematical problems. They receive rewards for performing the work which is necessary to add new blocks. 

Mining is the process of adding new blocks to the Bitcoin Blockchain. Some users have specialised in this potentially lucrative endeavour, even though rising energy costs are limiting their profitability. 

History & Milestones

Bitcoin was created by a pseudonymous author (or group of authors) called Satoshi Nakamoto. In a whitepaper published in 2008, they introduced a system that enabled secure peer-to-peer transactions through a proof-of-work mechanism. Bitcoin was quickly adopted by the cryptographic community and tech enthusiasts. Almost 15 years after the first Bitcoin was mined (in 2009), Bitcoin is the world’s leading crypto in terms of market capitalization.

Key milestones:

• 2010: First real-world Bitcoin transaction 

• 2013: Bitcoin market’s capitalization reaches USD 1Bn.

• 2014: 850,000 Bitcoins are hacked from Mt Gox, Bitcoin’s leading exchange at the time. This left a lasting mark on the Bitcoin community, highlighting the need for strong security measures. 

• 2018: The Lightning Network, a high speed payments layer, is deployed on Bitcoin’s mainnet.

• 2021: Bitcoin's price reaches an all-time high of almost USD 70,000 following an intense price rally. Global market cap surpasses USD 1.28 trillion.

What's next?

Halving is coming: To gradually distribute supply over time, the amount of new coins being released is cut in two every 210,000 blocks mined. This happens roughly every four years, and the next halving is expected in early 2024. The final halving will take place in 2140, when Bitcoin will have reached its maximum supply.

CoinShares’ Analysis

Bitcoin has many use cases, but the only one that matters with regards to value accrual is its use as money. To support this use case, Bitcoin is designed with valuable monetary properties such as scarcity, durability, fungibility, and privacy.

We believe Bitcoin will be more valuable in the future than it is now, because it will become more desirable as money. For that to happen, it must be more widely adopted across the world as a medium, exchange and store of value. This will improve its network effect, reduce its volatility, and ultimately make it an even better money than it currently is.

Strengths 

• Decentralisation. The Bitcoin network cannot be controlled by a single player. 

• Security: All transactions are recorded in a permanent and decentralised ledger, preventing forgery. 

Non-inflationary: there will never be more than USD 21 million Bitcoins.   

Weaknesses

• Still high volatility. Bitcoin’s price can swing widely, limiting its use in storing value for a shorter period of time or making transactions.

• Limited Adoption. While Bitcoin is primarily a form of money, it is still not widely accepted as a form of payment.

Opportunities

• Improved technology. The Bitcoin Lightning Network (launched in 2018) is making bitcoin payments faster and cheaper. 

• Investment potential. Investors are increasingly turning to Bitcoin to diversify their portfolio. Global investment banks such as JP Morgan have listed it as their “preferred alternative asset”.

• Monetary adoption: In 2021, El Salvador became the first country to accept Bitcoin as legal tender. If others follow suit, Bitcoin could be increasingly used in daily transactions. 

Threats

• Regulatory pressure. National financial authorities are introducing new rules that could hamper Bitcoin’s advantages in terms of easy access or investment value.

• High-profile losses. While bitcoin can be securely stored without assistance, investors still need to learn how to safely secure their assets, otherwise they may lose access through a wallet failure (password loss, hardware malfunction) or trusting a third-party (like an exchange i.e FTX)

• Competition. The rise of other crypto networks and assets such as Ethereum could restrict Bitcoin’s growth.