Mining digital currency has long been one of the most trending ways of earning money in the blockchain sphere. Every year, mining cryptocurrency becomes more and more complicated, because this process requires a huge amount of electricity, expensive hardware and decreasing every 5 years the reward paid to participants for protecting the network, if we are talking about bitcoin.
What bitcoin is and how it works
Every year on May 22, bitcoin enthusiasts celebrate Bitcoin Pizza Day - the day Laszlo Heinitz exchanged 10,000 coins for two pizzas.
As of this writing, Laszlo would have $973,903,500 worth of BTC. It's hard to imagine how much you can buy with that kind of money. For example, you could own one of the most expensive islands in Thailand, Rangyai, which is worth $160 million. And in addition, you could buy a Boeing 747-430.
What is bitcoin and why has it become so popular?
So what is bitcoin and why has it become so popular? The fact is that the very idea of a completely anonymous means of payment, which does not depend on the state, third parties, companies and businesses, immediately attracted everyone's attention.
However, none of the traditional financial institutions and classical traders supported the bitcoin idea at the very beginning for objective reasons.
'Nixon Shock'
The traditional banking system has long since begun to fail. The 2008 global crisis, inflation and excessive dollar issuance have had irreversible consequences. Since the 1970s, when President Nixon decided to print more dollars, their value has gone through the roof.
Since the dollar was no longer tied to the gold standard, the system began to devour itself. An event called the 'Nixon Shock' was the starting point of the changes we see now.
The number of bitcoin addresses on the balance sheet
Thus, there is a long overdue need in society for an alternative means of payment that does not depend on traditional financial institutions and decisions of financial regulators.
At the moment there are about 1,370,746,346 active bitcoin addresses in the world. Of these - 1 BTC is owned by 1,012,971 wallets. Bitcoin is owned by superstars and businessmen, academics and financial officers.
So why has bitcoin become the world's most popular cryptocurrency and what is its main idea? In this article, we will try to provide answers to all these questions.
What is the point of bitcoin?
Bitcoin is a peer-to-peer payment system built on the blockchain. The eponymous cryptocurrency based on it was created to act as money and a form of payment independent of any person, group or organization. This eliminates the need for a trusted third party (such as a bank) to be involved in financial transactions.
The first mention of bitcoin appeared in 2008, when a person or group known as Satoshi Nakamoto published a paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System, which described the basic principles of this decentralized network.
What caused the creation of bitcoin
The impetus for the creation of the first cryptocurrency is considered to be the economic crisis of 2008, which began with the mortgage crisis in the U.S., which in its turn led to the bankruptcy of banks and falling stock prices, becoming the starting point of the global economic crisis that followed.
The collapse of the US stock market was also the beginning of the activation of the so-called crypto-punks, who decided to use cryptography to solve current financial problems, including electronic settlements. They did a lot of work and created several draft projects, the most successful of which were Hashcash and Bit Gold.
It was the work of the cypherpunks and these two projects in particular that formed the basis of Satoshi Nakamoto's work and the entire bitcoin concept.
On January 3, 2009, the first block on the bitcoin blockchain was generated, and nine days later Nakamoto conducted the first blockchain transaction.
Who is Satoshi Nakamoto?
Satoshi Nakamoto's identity is shrouded in legend. Many believe that he does not exist at all. Others believe that under this pseudonym hides a whole group of people, just as it was with the cypherpunks. Anyway, it is known that Satoshi Nakamoto's account on the Bitcoin.org forum was active in 2009-2010.
It was there that the famous work Bitcoin: A Peer-to-Peer Electronic Cash System was published. However, after the publication and launch of the blockchain, Satoshi disappeared from the radar and interrupted any communication with the outside world, which speaks in favor of the theory that this persona never existed.
Another theory claims that Satoshi is a mathematician or programmer based on the fact that no one has been able to crack Satoshi's code yet.
Bitcoin blockchain and bitcoin cryptocurrency: how are they related and what is the difference?
One of the most common misconceptions among beginners is that the bitcoin cryptocurrency is identical to the Bitcoin blockchain. However, this is fundamentally incorrect. The network itself as an idea is the basis of many other projects built, including those based on other algorithms, such as Ethereum.
Simply put, the blockchain network is a continuous chain of blocks. It contains all records of transactions. A block in a blockchain network is a file that contains a block header, a transaction counter, and the transactions recorded in the block.
Bitcoin network is an advanced database mechanism where information is openly exchanged within a business network. The security of the bitcoin blockchain is ensured by exactly how the data is stored, namely in chronological sequence, as you cannot delete or change the chain without consensus from the network.
Imagine knitting a sweater and deciding to change one loop - you can't do it without unraveling all the previous loops. This is exactly how the data store on the bitcoin blockchain works as well.
The bitcoin cryptocurrency is built on the blockchain network and has all of its properties.
The Bitcoin network is designed based on the Proof-of-Work (PoW) consensus algorithm, which is still considered to be the most secure in the cryptocurrency sphere.
Proof-of-Work algorithm
Proof-of-Work is an algorithm based on which a new block is added to the network, as well as confirmation of all transactions and verification of a single version of the registry in all its copies (each copy stores separate nodes).
A distributed node stores its own copy of the entire registry. It is from a network of such distributed nodes that the entire Bitcoin network consists.
The PoW consensus algorithm is that each node is able to verify that the miner has actually performed the necessary calculations. PoW tasks are designed for a computer rather than a human being due to the large computational power required for this type of task.
The computational complexity to add a new block to the first cryptocurrency network is a dynamic parameter, as the block generation rate should remain roughly the same despite the quality of the mining hardware.
Blockchain mining: how it works and how it differs from staking
Mining is the process that keeps a blockchain network running on a Proof of Work (PoW) algorithm. This is the principle on which the Bitcoin network operates.
But why is staking considered a more profitable, and more importantly, environmentally friendly way to earn passive income from cryptocurrency?
Mining vs Staking
During the process of mining, crypto enthusiasts keep the network running with the help of computing power.
Plus, mining requires constant involvement in the process. You won't be able to get distracted by any other activities.
Staking, on the other hand, will only require you to have a certain amount of money in digital assets. The entire technical process is left to the platform itself, where you “stake” your capital.
At the moment, staking does not bring super profits, and in general is less profitable than mining. But it's only a matter of time before it becomes more profitable.
To start staking, you need to have enough free fiat money to buy coins, as well as accumulate a financial safety cushion. After all, freezing funds on a special deposit smart contract will have to be done for a long time.
To summarize, staking cryptocurrency is the mining of coins that work on the PoS algorithm. And if in the case of mining your main trump card is cool computing power, then staking works with the volume of your investment.
How much was 1 bitcoin worth in the beginning?
In 2009, bitcoin was a new cryptocurrency and a phenomenon which breakthrough nature was understood by a limited number of people. Thus the popularity and therefore the price of bitcoin was very low in the beginning.
In 2009, BTC was mostly mined by enthusiasts and held only by members of the network. At that time it was possible to mine bitcoin on a simple home computer of not the most sophisticated configuration.
Not surprisingly, with all the initial data, the price of bitcoin was initially almost zero.
On October 26, 2010, the price of digital gold jumped from the long-held level of $0.10 to $0.20. By the end of the year, it reached $0.30. In 2011, the price began to rise and surpassed $1, reaching a peak of $29.60 on June 8, 2011. However, then came a period of severe recession, when the price of the first cryptocurrency fell to five dollars.
2012 turned out to be a quiet year for bitcoin, but 2013 was marked by a strong rise in price. Bitcoin started the year at $13, crossed the $100 mark by April, and hit $200 by October.
For the rest of the year, bitcoin made historic gains. It crossed the $1,000 mark in November and ended 2012 at $732.
Bitcoin's first ATH occurred in December 2013, when its price reached $1,163. Such a jump in price was triggered by the development of platforms like Mt. Gox, which made it much easier to buy bitcoin.
Why is bitcoin rising now?
Bitcoin's rise and its reaching several ATHs at once in late 2024 and early 2025, the most recent of which happened on January 20, 2025, when bitcoin hit $108,786, happened for a reason.
The rise in the price of the first cryptocurrency was triggered by a chain of political and economic factors.
Reasons for bitcoin's rise:
The election of Donald Trump as President of the United States: Trump has repeatedly talked about his sympathy for the blockchain industry.
At the time of writing, the president has already signed an executive order designed to establish US dominance in the digital asset market and make the country a global center for cryptocurrency. One of Trump's promises to the crypto industry was to create a “strategic national bitcoin reserve.”
Scarcity of the cryptocurrency itself: at the moment, exchanges are running out of bitcoins, which could be a consequence of the last halving of 2024. BTC scarcity inevitably pushes the price up, as it would with any other cryptocurrency.
Likely legislation of the FIT21 bill: this bill was released by the Republicans of the US House of Representatives. It aims to regulate the digital asset industry based on new rules to be jointly developed by the SEC and CFTC.
Thus it is assumed that blockchain projects will be temporarily exempted from traditional registration for the distribution of securities.
How to buy bitcoin
If you don't want to mine bitcoin, you can buy it from any cryptocurrency exchange. Most people won't be able to buy the whole BTC because of its price, but that's not a problem. You can always buy a part of one BTC on these exchanges with fiat currency such as US dollars.
You can also purchase BTC on a specialized bitcoin exchange.
How does a bitcoin exchange work?
A bitcoin exchange is a digital marketplace for exchanging, buying and selling bitcoin for fiat or other cryptocurrency. All cryptocurrency exchanges can be divided into two main subcategories: centralized exchanges (CEX) and decentralized exchanges (DEX).
Types of bitcoin exchanges and how they differ from centralized bank
Centralized exchanges (CEX)
Centralized cryptocurrency exchanges are regulated companies that facilitate the buying, selling, and trading of cryptocurrency. They act as intermediaries in an attempt to provide a secure way for users to connect with each other and a way to exchange fiat and cryptocurrencies.
Main characteristics of CEX:
- Ownership by a person or group of persons
- Management by that group or organization
- Provision of security measures for users
- Management of user accounts and capital
- Resolution of disputes between parties
- Resolution of fiat currency and cryptocurrency exchanges
- Matching buy and sell orders between clients
- Collection of identifying information about users
- Placement of funds in escrow services to protect users
Decentralized exchanges (DEX)
Decentralized exchanges (DEX) are platforms based on the blockchain network that allow traders to communicate directly with each other for peer-to-peer trading. The only third parties are the organizations that develop, host and secure the website.
Main features of DEX:
- No centralized control
- Private keys are stored with users
- Management through smart contracts
- Allow exchange of fiat currency and cryptocurrency
- No need to undergo KYC
How to buy bitcoin on CEX?
Create an account: Choose a centralized exchange and register an account. Provide standard data: email and password.
Complete verification: Centralized exchanges are regulated companies. Such companies need to protect themselves from processes related to money laundering (AML) and customer knowledge requirements (KYC). Therefore, these exchanges often require you to provide additional information for verification - especially if large amounts of money are involved. You will then need to provide passport details, address and other personal information (requirements may vary from platform to platform).
Deposit funds: Once you have completed the verification process, you can deposit funds into your exchange account. Choose BTC as well as fiat money such as USD or EUR, depending on the exchange. Many CEXs allow you to exchange using a bank card or credit card, so it's worth linking them if that's the method of exchange you need.
Make transactions: Choose the cryptocurrency you want to buy or sell. You can place either a market order (buy/sell immediately at the current market price) or a limit order (buy/sell at a price you set in advance). Enter the amount and confirm the transaction.
How to buy bitcoin on DEX?
Set up a cryptocurrency wallet: You will need a compatible cryptocurrency wallet to work with DEX. These wallets will store your bitcoins and other cryptocurrencies, and will also allow for various kinds of transactions.
Fund your wallet: Send the desired amount of cryptocurrency to your wallet. If you already have cryptocurrencies in another wallet - transfer them to a DEX compatible wallet.
Connect to DEX: Go to the DEX you want to use. Usually the 'Connect Wallet' button is in the top right corner of the page. Click the button and select the type of wallet you are using. Then simply confirm the connection request in the wallet app.
Make transactions: Once your wallet is connected, you'll be able to use the platform's full interface, which allows you to choose which cryptocurrency to exchange.
How safe is cryptocurrency?
The high risks associated with cryptocurrency are often due to its decentralized nature. In case of key loss, only you are responsible, so storing passwords becomes a very responsible thing for any crypto user.
Blockchain has long been a favorite of hackers and attackers due to its novelty and lack of clear understanding of how everything works for most of its participants.
One of the biggest risks is the possibility of a 51% attack. This occurs when an individual or group of individuals hack into a system to take possession of 50% of its processing power. This allows hackers to manage transactions themselves, access users' assets, and transfer cryptocurrencies however they want.
Another danger could be the security of individual wallets. Modern hot and cold wallets are already equipped with two-factor authentication and other advanced security features.
However, there is always the risk of human error - and a forgotten password recovery phrase can play a key role.
Conclusion
Bitcoin blockchain has come a long way since 2009: its price has gone from zero to over a hundred thousand dollars. It is owned by hundreds of millions of people.
Although the process of creating bitcoin is complex, investing in it has long been simple and straightforward. Investors can buy and sell bitcoin on cryptocurrency exchanges.
Due to its privacy, accessibility, and the speculative nature of the blockchain, bitcoin has long been a favorite source of income for traders. The traditional market is also noting positive sentiment towards the first cryptocurrency: thus, Goldman Sachs, a global investment giant once skeptical of bitcoin, disclosed significant holdings of bitcoin exchange-traded funds (ETFs) in a recent filing with the U.S. Securities and Exchange Commission dated November 14, 2024.
And the limited supply of 21 million coins makes BTC the most predictable of all volatile currencies.
Despite this, investing requires knowledge of how bitcoin works and an understanding of many technical nuances. That's why it's always a good idea to conduct a DYOR before investing.
