Where did Bitcoin come from?

What You'll Learn
 
What is cryptocurrency?
 
How Bitcoin Came to Be
 
What is the value of cryptocurrencies?
What You'll Learn
 
Look for ways to invest in bitcoins through the stock market
 
Determine the mood of the cryptocurrency market
Cryptocurrencies have become one of the hottest topics in recent years. We've all watched bitcoin grow from an unknown entity into a full-fledged financial asset in less than a decade that investors, traders, IT professionals, entrepreneurs, and even our grandmothers are interested in.

In this course, we will figure out what caused such interest in cryptocurrencies and what technologies underlie them.
What is cryptocurrency?
From the point of view of an ordinary person, cryptocurrency is not much different from money on a bank card. Today, it can be used to pay for any service or product, even pizza, as well as transfer it to another country. Although with reservations that depend on the legislation of a particular country, cryptocurrency has become an alternative to traditional finance.

An important difference between the cryptocurrency system and the banking system is that the former is based on special technologies.
The general meaning of these technologies can be understood from the name: cryptocurrency = crypto + currency. Cryptography is the science of encrypting data. Thanks to encryption, you can send a transfer to the other side of the world without worrying that someone will track or intercept it.

However, such independence jeopardizes the monopoly of banks and financial regulators, who are accustomed to full control of financial flows. Therefore, some countries ban cryptocurrencies, while others (such as Iran and North Korea) use them to circumvent sanctions.
How the First Cryptocurrency Appeared
In 2008, a person or group of people under the pseudonym Satoshi Nakamoto published a file with the principles of a new payment system, which was called Bitcoin. According to Satoshi, development began in 2007, and in 2009 he finished working on the code and published a program that allowed users to interact with the created peer-to-peer network (all participants are equal).

Why Bitcoin Matters
Bitcoin laid the foundation for the so-called decentralized financial system. The point is that there is no specific person (company or state) that would control the principles of this system. Anyone with a computer or smartphone and Internet access can become a member of the Bitcoin network.

Decentralized finance can be compared to "private money", when the issuer can be a company, a region, or even an individual.
In a centralized financial system, states act as issuers of money, and to transfer funds, it is necessary to open a bank account. The decentralized system is based on the principles of unconditional access and the absence of the need for intermediaries.

Also, centralized state currencies imply the ability to control the emission (issue) of new money. That is, the US Federal Reserve can print as many dollars as it wants. In Bitcoin, there is no such possibility.
And how many bitcoins are there
In order not to get confused, let's distinguish between the concepts of the Bitcoin network (blockchain) and Bitcoin (the BTC coin that circulates on the Bitcoin network).

12 years after the launch, as of early 2022, more than 90% of all bitcoins have already been mined. In total, there can be no more than 21 million of them. Of the approximately 19 million bitcoins that exist at the moment, some are considered lost forever.
How Bitcoin Can Get Lost
Bitcoins are lost in the following way: a coin (essentially just a code record) can be stored in a "wallet" — either on a website or on a device. If you forget your website password or lose your device, you won't be able to recover your bitcoins. According to the type of storage, wallets are divided into:

 
hot (with access to the Internet) — storage sites, exchanges, exchangers;
 
cold (without access to the Internet) – flash drives, hard drives, special devices.
In 2013, a British programmer threw away a hard drive with 7,500 bitcoins (about $150 million) in a landfill in Newport, Wales. He will have to search for the loss with the help of robots

At the same time, there is a way to maintain access to your savings even when the physical medium or access to a cold wallet is lost. We are talking about a seed phrase, also called a recovery phrase. A seed phrase is generated when you set up a wallet (e.g. a ledger hardware device) and consists of a random set of words (12 to 24).
Investors write down seed phrases on paper or even on steel plates

The fact is that coins are just records on the blockchain. To access these coins, you need a private key (the seed phrase is responsible for its reproduction). You can entrust the storage of this key to some centralized player (like the FTX exchange, which recently went bankrupt), or you can take care of the safety of your funds yourself. In this case, the seed phrase will help you get your savings back even when the hard drive with coins ends up in a landfill.
Where do Bitcoins come from?
To put it simply, bitcoin is a product of the work of computer technology that processes transfers and verifies their validity. This process is called mining, and we'll talk more about it in the next lesson.

Now it is important to remember that miners (owners of computer equipment) spend electricity on data processing, and as a reward they receive bitcoins.
Mining Equipment

What is the value
The basis of any value is the level of trust in it, that is, the number of people who consider something particular valuable. Nowadays, many even compare bitcoin to gold, noting properties such as limited resources and the need to bear the cost of electricity for mining as well as the purchase of equipment.

Some might say that bitcoin is just numbers in a computer, how can it be worth thousands of dollars. However, both regular money and gold have value only because people believe in it.
Also, the value is confirmed by the possibility of exchanging cryptocurrencies for other goods and services.

In 2010, László Heinitz bought a pizza for 10,000 bitcoins. Now this number of bitcoins is estimated at hundreds of millions of dollars. Also in 2010, the first crypto exchanges appeared, where you could buy or sell bitcoins for dollars.
Today, bitcoins can be spent (depending on the country) on air travel, a night in a hotel, and the purchase of lunch. And the more services can be bought with bitcoin, the more valuable the cryptocurrency will be in the eyes of society.

Therefore, at present, the price of cryptocurrency is tied both to market processes (the value of money in the economy, the mood of investors) and to the interest of the public.
The value of any asset depends on supply and demand. The chart shows that the surge in the price of bitcoin comes at a time of increased interest from investors

What is the value
The basis of any value is the level of trust in it, that is, the number of people who consider something particular valuable. Nowadays, many even compare bitcoin to gold, noting properties such as limited resources and the need to bear the cost of electricity for mining as well as the purchase of equipment.

Some might say that bitcoin is just numbers in a computer, how can it be worth thousands of dollars. However, both regular money and gold have value only because people believe in it.
Also, the value is confirmed by the possibility of exchanging cryptocurrencies for other goods and services.

In 2010, László Heinitz bought a pizza for 10,000 bitcoins. Now this number of bitcoins is estimated at hundreds of millions of dollars. Also in 2010, the first crypto exchanges appeared, where you could buy or sell bitcoins for dollars.
Today, bitcoins can be spent (depending on the country) on air travel, a night in a hotel, and the purchase of lunch. And the more services can be bought with bitcoin, the more valuable the cryptocurrency will be in the eyes of society.

Therefore, at present, the price of cryptocurrency is tied both to market processes (the value of money in the economy, the mood of investors) and to the interest of the public.
The value of any asset depends on supply and demand. The chart shows that the surge in the price of bitcoin comes at a time of increased interest from investors

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