Bitcoin: Overview Of The Unique Asset
- Bitcoin is a unique asset that will be held by investors for its store of value.
- Bitcoin's uniqueness cannot be duplicated, or at least it hasn’t yet. This is what makes it unique and comparable to a collectible.
- Bitcoin was designed to both increase in value and survive. So far, both have been true. This unique design is misunderstood by its detractors.
This will be my last article on Bitcoin. Once Bitcoin reaches $10,000 it will no longer need any voices. It will speak for itself. But since we are close to the point in time where Bitcoin becomes a mainstream asset that is widely held, I wanted to write one final article to spread the word.
If you read this article and still doubt Bitcoin’s staying power, then you will have at least done your DD (due diligence). You will not regret not buying it for not doing any research.
A Short History of Bitcoin
On October 31st, 2008, the Bitcoin whitepaper was posted on the Internet. It was titled, Bitcoin: A Peer-to-Peer Electronic Cash System. The author’s name was Satoshi Nakamoto.
On January 3rd, 2009, Satoshi Nakamoto created the first block, called the genesis block. In that block, he put the comment, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Which was an article from the London Times newspaper on that date.
On January 9th, 2009, the Bitcoin open-source software was posted on the Internet. Then, on January 12th, Satoshi sent the first Bitcoin transaction to Hal Finney in California. Finney was one of the first adopters of Bitcoin and contributed to enhancing the code.
From 2009 until late 2010, Satoshi emailed people who were working on enhancing the Bitcoin software. His emails have the same grammar and writing style as the Bitcoin whitepaper. He was very precise and eloquent in his writing style. He also used the British English spelling of words. These emails offer proof that he did indeed write the whitepaper.
In late 2010, Satoshi handed over the code depository to Gavin Andresen and vanished. He disappeared and has never corresponded with anyone since that time. His real identity has never been determined, but it is recognized that Satoshi Nakamoto was an alias.
The very first Bitcoin exchange (BitcoinMarket.com) listed Bitcoin at 1 cent in March 2010. A year later it was up to $1 in February 2011. Two years after that it was over $1,000 in 2013. It did crash in 2014, but Bitcoin has been on a steady rise in popularity ever since it was released in 2009. Today that popularity is reflected by more than 1 million computers mining Bitcoin and more than 30 million accounts on Coinbase.com. It is estimated that at least 25 million people own Bitcoin worldwide.
The Bitcoin price has always been volatile, often with sharp rises followed by crashes. Here is a history of that volatility, which seems to be the norm for Bitcoin.
May 2010: 1 Cent
October 2010: 12.5 Cents
February 2011: $1
June 2011: $31
December 2011: $2
December 2012: $13
April 2013: $266
June 2013: $100
November 2013: $1,242
March 2015: $200
January 2017: $1,150
December 2017: $19,783
February 2019: $3,178
June 2019: $13,829
July 2019: $9,220 (current month)
What is Bitcoin?
- It is an Internet-based virtual currency that is stored on a blockchain.
Note: A block is basically a file comprised of data. These files are passed over the Internet to each of the Bitcoin nodes. Then the blocks are assembled by the nodes into a long chain called the blockchain.
- Bitcoin has eight decimal places, with the smallest amount (.00000001) called a satoshi. A single Bitcoin is comprised of 100,000,000 satoshis.
- Currently, there are about 18 million Bitcoins on the blockchain, and the maximum will reach 21 million in the year 2140.
- The Bitcoin blockchain can be thought of as an electronic ledger of Bitcoin transactions.
Note: The blockchain itself is a type of database comprised of blocks. I prefer to think of it as a large immutable file that is constantly growing in size (approximately every ten minutes).
- Each transaction transfers ownership of Bitcoin from one or more Bitcoin public addresses to one or more Bitcoin public addresses.
- Bitcoin can only be sent to a Bitcoin public address. This is why Bitcoin never leaves the blockchain.
- Bitcoin balances are displayed on electronic wallets, which can read the blockchain.
- Ownership of Bitcoin is proven by owning the private keys to a public address.
- Every Bitcoin that has ever been created currently belongs to a specific public address as recorded by a Bitcoin transaction.
- The blockchain is a history of all Bitcoin transactions that have ever occurred.
- This blockchain can be viewed and searched by anyone with an Internet connection using a Blockchain Explorer.
- The blockchain is open to the public (via an Internet connection) and is not owned or controlled by anyone.
Satoshi called Bitcoin a peer-to-peer electronic cash system in his whitepaper. That’s true to a certain extent, but there is a middleman, which is the Bitcoin network (connected via the Internet). Also, cash isn’t involved, but virtual digital currency.
Bitcoin does not transfer directly from person to person. Instead, Bitcoin remains on the blockchain, and ownership of Bitcoin transfers from person to person.
Bitcoin does use a peer-to-peer network. It has a flat network topology with no hierarchy. This means there is no centralized server. Without a centralized server, all that is required to keep the Bitcoin network up and running is a small number of peers (also called Bitcoin network nodes). As long as the Internet is up, then the Bitcoin network should be running. And without any peer having more influence than another, it creates a trustless, decentralized, permissionless system.
In addition to the Bitcoin network, you also need to have Bitcoin miners to create new Bitcoin and to create new blocks, which add transactions to the blockchain (explained later).
It is trustless because each peer (network node) operates independently using a decentralized (no central server) blockchain. Also, the blockchain is secured using cryptography (private keys and digital signatures are used to prove ownership), creating a high degree of trust. It is permissionless because anyone can join the network. All you need is an Internet connection and a computer with the required hardware specifications.
Note: Bitcoin does not use encryption, whereby content is scrambled and unreadable. Instead, it uses cryptography. These are mathematical techniques that prove data is related. Thus, Bitcoin owners hold private keys that are able to prove their ownership of Bitcoin. These keys are very large numbers (78 digits) and are impossible to guess.
Bitcoin exists as a decentralized network that is anti-fragile (i.e., hard to break). It was designed to be self-correcting with very few points of failure. In fact, it is very difficult to bring down the Bitcoin network. Since 2009, it has been up and running 99.98% of the time. It has been referred to as the Honey Badger because of its toughness.
A better title for the whitepaper would have been, Bitcoin: A decentralized Internet-based virtual currency system. That’s what it really is. What makes Bitcoin so powerful is that it is completely decentralized (without a central server). There is no Bitcoin organization, other than perhaps those who deploy changes to the software.
The Bitcoin software is called Bitcoin Core, and the group of people who update this software are unaffiliated. Updating the software was the role that Satoshi Nakamoto originally performed and has now been passed to the Bitcoin Core open-source developer group. Only a few individuals have the ability to update the software. These updates are done using consensus (explained later).
1) Decentralized and Permissionless.
It is decentralized because there is no Bitcoin organization. It is permissionless because anyone can install and run the current version of Bitcoin.
There is a group of developers who decide which upgrade will be added, but they do this through consensus.
Because of decentralization, it is practically impossible to kill Bitcoin. All you would need is one country to keep it legal, plus the Internet.
2) Store of Value.
Because nearly all of the Bitcoins that will ever be created already exist (about 18 million out of 21 million), it places upward pressure on the price. Very few Bitcoins are created on a daily basis (currently only 1800). And every four years, the number that is mined drops by half. In 2020, only 900 Bitcoins will be created daily. In 2024, only 450 Bitcoin will be mined daily, and so on until 2140.
If Bitcoin survives, then they become rarer and rarer over time. It will be almost impossible for an average citizen to own a single Bitcoin. This should make Bitcoin one of the best stores of value of any asset on the planet. Why? Because the rarity of Bitcoin will make it difficult for them to drop in value.
That said, this store of value is not guaranteed and is only in theory. The key will be Bitcoin demand and usage. But if Bitcoin is widely used, then the odds favor higher prices and a strong store of value.
3) A Bank in Your Pocket.
When you have a Bitcoin hard wallet in your pocket, you hold your money without any counterparty risk. This means you have a bank account in your pocket. The power of this feature of Bitcoin is revolutionary. This has the potential to change banking and finance as we know it.
Note: This is not completely true. You do have the counterparty risk of the wallet maker. Although if you have a master seed, then the wallet can be re-created on a compatible wallet (discussed later).
4) Peer-to-Peer Money Transactions without Borders.
With your Bitcoin wallet, you can send or receive Bitcoin from any other Bitcoin wallet in the world. This occurs without any counter-parties other than the Bitcoin network. There is no permission required for these transactions, and they can occur 24/7. All that is needed is for the transaction to be confirmed by the Bitcoin Network, thereby updating the blockchain.
5) First Mover.
Bitcoin was the first cryptocurrency. The Bitcoin network has been up and running since 2009 and has an uptime of 99.98%. It has proven itself to be reliable. By being first, Bitcoin has become entrenched. It will be very difficult for another cryptocurrency to unseat Bitcoin as the leader.
6) Large Developer Network.
The Bitcoin developer network is the largest cryptocurrency group of developers. There are thousands of people working on improving the Bitcoin software, especially second-layer solutions. This brainpower ensures Bitcoins future.
7) Secure, Reliable, Immutable.
Bitcoin has never been hacked and likely won’t. The only hacks that have occurred is when someone acquired access to Bitcoin private keys. These types of hacks will continue, but as long as your private keys are secured, then your Bitcoin should also be secured.
What makes Bitcoin secure and reliable is cryptography. The heart of Bitcoin’s security is cryptography that was designed by the NSA (National Security Agency).
The blockchain cannot be modified. Once a block is created, that block is immutable. This is one of the reasons for Bitcoins reliability.
8) Anti-Fragile and Trustless.
Bitcoin is considered anti-fragile software. What this means is that it is self-correcting and very difficult to bring down. For instance, forks automatically resolve through consensus, and the mining difficulty automatically adjusts every two weeks. This is the reason it has such a high up-time of 99.98% over ten years.
Many antagonists have tried to disrupt the Bitcoin network, and some have succeeded at filling up the transaction pool, thereby increasing transaction fees. However, Bitcoin was designed to adapt to attacks.
All you need to do is read how Bitcoin has overcome attacks in the past to see how resilient it is and why it has earned the distinction of being called anti-fragile.
Because Bitcoin is decentralized and anti-fragile, it can be considered trustless. You don’t have to rely on anyone to use it. As long as the Internet is up and consensus works, then there is no one to trust.
9) Consensus Driven.
Both the creation of new blocks and software upgrades are handled through consensus (explained later). Software upgrades can get messy at times and require longer timeframes to implement changes, but the end result is usually positive for Bitcoin.
One strength of consensus is that it prevents a powerful interest group from modifying Bitcoin. Without the consensus of nodes and miners, it is nearly impossible to implement changes. Instead, you end up with a hard fork and an altcoin (explained later).
10) No Counterparty Risk
The lack of counterparty risk is perhaps what makes Bitcoin so valuable. Consider your bank account, online brokerage account, or any data that you have on the Internet. How valuable is that information? Yet, it is dependent on a third-party. Your bank could close overnight, your online broker could go offline.
With Bitcoin there is no counterparty. Your private keys are all you need to secure your money. That's why Bitcoin will be so valuable. This feature is lost on all anti-Bitcoin antagonists.
Another benefit of Bitcoin is that it does not need to be encrypted when being transmitted over the Internet. Because Bitcoin is a public ledger, there is nothing that needs to remain private. This means that the blockchain and transactions can travel around the Internet without being encrypted. This may seem like a minor benefit, but we are talking about transferring money.
Most money transactions on the Internet, such as wire transfers and credit card transactions, are encrypted and protected. Because Bitcoin relies on private keys for authentication, it can travel around the Internet as text. Any hacker can grab it, but there isn’t anything they can do with it unless they own the private keys.
What makes Bitcoin unique is its origins. No other crypto has been able to duplicate how Bitcoin came into being, and its unique ability to live organically without an organization wrapped around it. This uniqueness is what gives it value. Anyone can create a digital transactional currency, but try to create one that lives organically! Go ahead and try. The fact that Bitcoin survived is a miracle.
This uniqueness is misunderstood by its detractors. They don’t realize that Bitcoin is basically a collectible. It’s like a unique masterpiece painting, and once you own it, all it does it go up I value. It’s the ultimate asset. Eventually, central banks will put it on their balance sheet as an asset. Not so much because it is a currency, but because it is an asset, much like gold.
Many Bitcoin detractors are gold bugs, who say that gold is tangible, but Bitcoin is created out of thin air. What they don’t get is that Bitcoin is also tangible. When you have Bitcoin in a Trezor that Bitcoin is tangible. It has been collected, just like gold has been collected. Both were mined. Both required energy to be created into a collectible form. It’s interesting that gold and Bitcoin investors use the same terminology: they both call themselves stackers.
1) Spam Attacks.
DDOS (Denial of Service) attacks. These are when Bitcoin nodes (computers on the Bitcoin network) act in a nefarious manner to undermine the Bitcoin network. They are basically enemies of Bitcoin who are trying to create havoc.
One type of DDOS attack is simply to make non-stop requests to a Bitcoin node and force it to respond. For instance, one way to do this is to create fake transactions that will fail to be validated. However, Bitcoin has gotten better at fighting off these types of attacks.
Another type of DDOS attack is called Dust attacks. They are called dust because they are very small transactions. When you send thousands of individual transactions with very low fees, they can flood the Bitcoin network and the transaction pool.
Note: To get a transaction into the transaction pool, it requires the sender to pay a fee. Thus, these types of DDOS attacks are usually short-lived because they cost money. Also, because these types of DDOS attacks have failed in the past, we have begun to see fewer of them.
2) Sybil Attacks.
This is when Bitcoin nodes pretend to be a legitimate node on the Bitcoin network, but in fact is a nefarious enemy. These fake (a.k.a. Sybil) nodes try to cause havoc by not confirming transactions or not relaying transactions.
Like spam, Sybil attacks cost money (someone has to buy the hardware and pay for the electricity). For this reason, Sybil attacks tend to come in spurts and usually do not last for an extended period of time. Also, Bitcoin has created many counter-measures. There are currently around 25 counter-measures in place to prevent spam and Sybil attacks.
This can occur if a single miner (or group of miners) obtains 51% of the network hash power. This is unlikely to occur with Bitcoin’s large number of miners.
Without 51% of the network hash power, double-spending is prevented by using irreversible transactions and by the Bitcoin transaction and block verification process. Each new block confirms that the same Bitcoin is not double-spent.
Let’s use an example. Let’s say you have $10 in a Bitcoin wallet and try to spend $6 in one transaction and $5 in another transaction. In this example, both transactions will try to use the same inputs. During the network node verification process, a transaction is only verified if there are enough inputs to transfer to outputs (refer to Appendix). This prevents double-spending. So, in this example, only the first transaction would get verified and added to the transaction pool.
4) 51% Attack.
If an attacker (one miner or a group of miners) controls 51% of the Bitcoin network hash power, they can effectively undermine the security of the blockchain. They can double-spend, reverse transactions, and even shut down the network by preventing confirmations.
The chances of a single miner controlling 51% of the Bitcoin hash power is unlikely. First, someone would have to invest billions to acquire that much hash power. Second, why would someone invest that much money only to undermine Bitcoin and destroy its value? A government perhaps, or maybe a competitor, but it is not likely to occur.
Note: Actually, a 51% attack can be successful with as little as 30% of the Bitcoin hash power. A 51% attack will always be successful, but a 30% (or more) attack has the potential to cause harm and is a threat to Bitcoin’s security.
This is perhaps the biggest risk for holders of Bitcoin. What happens if you hold Bitcoin and your country makes Bitcoin illegal? Or worse yet, not only makes it illegal, but demands that you give it to them! This is a very real possibility. In the 1930s, the U.S. government demanded that everyone turn in their gold bullion for a set price, and then made it illegal to possess. Any government could do the same thing for Bitcoin. It would be a mess, and they would turn many of their law-abiding citizens into criminals, but it’s possible.
6) Software Virus.
This has never occurred to Bitcoin, but no software is immune from virus attacks. At some point, Bitcoin will have to fend off a virus attack of some kind.
Many people have made the argument that Bitcoin is not the best cryptocurrency. I personally think the Bitcoin code is elegant and built to last, but that might not be true. It is always possible that a better cryptocurrency emerges to overtake Bitcoin.
8) Bad Decisions.
I’ve always said that the biggest threat to Bitcoin is Bitcoin. What I mean is that if consensus for software improvements leads to bad decisions, then Bitcoin will undermine itself. Conversely, as long as consensus leads to good decisions, then Bitcoin should thrive.
9) Reliance on the Internet.
Unless the Internet is running, Bitcoin cannot function. Currently, there is a backup Bitcoin satellite network that can be used to insure that the Bitcoin network does not go down. However, how many people will have access to this network if their local Internet is down?
If Bitcoin becomes more entrenched, I would expect the Bitcoin satellite network to expand and become a better backup system. However, how Bitcoin could function without the current land-based Internet seems problematic.
10) Quantum Computers.
Perhaps the biggest threat to Bitcoin are quantum computers. Google recently invented a 53-cubit quantum computer that make computations at amazing speeds. In theory, if these quantum computers continue to increase in speed they could hack Bitcoin. The good news is that Bitcoin can make modifications to prevent quantum computers from being a threat.
Capital gains taxes are a pain to track for Bitcoin transactions. This is a barrier to get people to use Bitcoin for purchases. In the U.S., every Bitcoin transaction is considered a taxable event for capital gains.
Did you notice that I did not include the ability to clone Bitcoin as a weakness? Many detractors think that anyone can copy Bitcoin using a fork or using its source code. This is a red herring. No one has been able to duplicate Bitcoin in its current form, instead what we have is a plethora of posers. None can claim the same uniqueness of Bitcoin.
Bitcoin Open-Source Software
The Bitcoin software can be downloaded by anyone with access to the Internet. It is written in the C++ programming language. Amazingly, the original Bitcoin release had only 70,000 lines of code. As a comparison, most software applications, such as MS Word, have millions of lines of code.
The Bitcoin software upgrades are called a BIP (Bitcoin Improvement Proposal). These are public documents that propose changes to the Bitcoin software. Since Bitcoin went live, there have been about 100 BIPs added to Bitcoin. That is an average of about ten enhancements per year.
Once someone proposes a BIP using a draft document, it then goes through a peer review by the developers. During the peer review, they use something called rough consensus. This means they don’t use a voting threshold. Instead, they try to identify any issues that prevent consensus. If nearly everyone agrees that it is a good enhancement, then it is accepted.
After the peer review, the draft is either accepted or rejected. If it is accepted, then it is now time for the miners to vote. At this time, the status of the BIP is changed from draft to proposed, and the miners can begin to vote. If the miners approve it, the status will be changed to final and merged into the Bitcoin software.
Note: Currently, one person has the role of BIP editor. They are responsible for changing the status of a BIP. I would imagine that they get their friend’s opinions if a rough consensus has been reached.
A BIP gets added to the Bitcoin software when it has 95% support from the miners who have mined the last 2,016 blocks. On average, 144 new blocks are created each day. So, 2,016 blocks is usually 14 days. Miners vote by something called signaling. They do this by including signaling information into the blocks they create (Refer to BIP-34 and BIP-9 for how this works).
Note: Some BIPs do not require 95% support. I could not find any information why there are exceptions, but I did find some BIPs that required less than 95%.
Note: Many BIPs do not require signaling. Instead the BIP is added to the software and the signaling is simply when they install the new version. I tried to get more information about how BIPs get approved and received this from Luke Dashjr, the current BIP editor:
“No consensus is needed for most BIPs. The author simply needs to have plans to progress it to Final stage.”
Usually, if the miners approve a BIP, then the BIP gets added to the Bitcoin software, and the nodes and miners upgrade their software to the new version. However, that’s not always what happens. Why? Because the nodes running on the Bitcoin network do not get to vote, but they do get to decide which Bitcoin version to install. Over the years, there have been a few rebellions on installing a new version, and it will likely happen again.
BIP software upgrades can create soft forks and hard forks. This will be explained later.
Who Modifies the Bitcoin Software?
There are essentially two types of Bitcoin software programmers (also called developers or contributors), those who are paid and those who volunteer. Because there is a large amount of money to be made in Bitcoin mining or Bitcoin commerce, there are companies who will pay people to code improvements for Bitcoin. In fact, there are many well-paid Bitcoin developers, and I expect this to continue. Originally, all of the Bitcoin developers were volunteers.
Because Bitcoin is open-source software, anyone can propose a BIP and get it approved. That’s the power of Bitcoin. The Bitcoin developer network is very large, with thousands of people working on Bitcoin improvements.
What is the blockchain?
The blockchain is perhaps the most important part of Bitcoin to understand, because that is where Bitcoin is stored. The blockchain is currently comprised of over 550,000 blocks. It grows by adding new block approximately every ten minutes. Every day there are approximately 144 (6 per hour x 24) new blocks added. I say approximately, because block creation is determined by mining, which can have variability.
The first block was created in January 2009, and because the Bitcoin network has practically never been down, there has been one new block created, on average, every ten minutes for the last ten years.
Here are some characteristics of the blockchain:
1) Each block contains a group of transactions, which are validated by the network nodes and miners (explained later).
2) The number of transactions in each block varies, but it generally contains about 1,000 to 3,000 transactions.
3) Once a block is created, the transactions in that block cannot be reversed or modified (immutability). In fact, no part of the block information can ever be changed.
4) Each block contains a pointer to the previous block. This is why it is called a blockchain. Essentially, the blocks are linked together into one long chain, with the genesis block at the beginning and the most recently mined block at the end.
5) The Bitcoin blockchain is a public ledger which consists of all Bitcoin transactions that have ever occurred.
6) The entire blockchain is currently about 220 GB in size, but is constantly growing in size.
7) A new block is created through mining approximately every ten minutes. This means approximately 144 blocks are created each day.
8) The blockchain can be searched by a Blockchain Explorer. These are available for free on many websites.
9) The blockchain is decentralized and does not exist in a single location, but in multiple locations all at once. In fact, every full node has a copy of the blockchain, which is constantly growing in size as new blocks are added.
10) What determines the current blockchain is the one with the most proof-of-work. This could be the blockchain with the most blocks, but not necessarily. Instead, you have to sum the blockchain's difficulty (explained later). The difficulty total is the blockchain’s proof-of work.
What makes Bitcoin secure?
Bitcoins are secured by cryptography. This is why Bitcoin is called a cryptocurrency. The starting point for Bitcoin is a private key, which is a very large number (78 digits). Private keys can be generated randomly in a variety of ways, but are often deterministically generated from a master private key (explained later).
Each Bitcoin transaction associates Bitcoin to a private key. For instance, if you receive Bitcoin, it will be associated to a private key. As long as you retain ownership of that private key, then you will own that Bitcoin. However, if someone obtains that private key, they can spend your Bitcoin or move it to another private key.
As I stated earlier, a private key is the starting point for securing Bitcoin. From the private key, a public key (explained later) is generated. This key will be mathematically related to the private key. Next, a digital signature (explained later) is generated, which will also be mathematically related. The combination of these three values is what secures Bitcoin. As you can see, everything stems from the private key.
Another feature that secures Bitcoin is hashing. The word hash means to chop up, which is essentially what hashing algorithms do. They take a data input (a stream of letters and numbers), and then chop it up to produce an output. The way hashing works is that the same input always produces the same output. However, the output cannot be converted back into the input. Thus, the only way to reproduce the output is to know the input.
The main hashing algorithm used by Bitcoin is called SHA-256. This is a function that converts an input value into a 64 character hexadecimal value. Hexa means six. This means the output value is comprised of digits 0-9 and the first six letters of the alphabet (a-e). This 64 character hexadecimal value is also called the hash value, hash key, or hash.
The SHA-256 function is secure because no one has ever been able to reverse engineer the input value from the hash output value. Also, it is practically impossible to guess a hash value. It’s a 64 character password. The number of guesses required is a number with 78 digits. It would take the fastest computer thousands of years to guess using brute force.
Hash values are a major component of Bitcoin, because it is how new blocks are added and how transactions are secured. Every block has its own hash value (block ID), every transaction has its own hash value (transaction ID), and every public address has its own hash value.
Hashing is also how new Bitcoins are created. To create new Bitcoins a computer has to solve a math problem, and the process for solving this problem is hashing. The hashing process is done by making trillions of guesses. Basically, Bitcoin miners make trillions of guesses using the SHA-256 hash function until they guess the answer (explained later).
What is a Bitcoin block?
A block contains a single header and many transactions (usually 1,500 to 3,000). If there were six blocks created in the last hour, then approximately 12,000 transactions were added to the blockchain. However, this can be misleading when the Lightning Network is used (explained later).
The header contains the following six values:
1) Version Number: The current block version. This identifies the block validation rules that were used to create this block.
2) Previous Block: The previous block’s identifier, which is also called a hash key or hash. The block’s hash key is a 64 character hexadecimal value.
3) Merkle Root: Also called Merkle root hash key. This is the aggregate hash of all transaction hash keys in the block. This is used to validate the transactions in a block and by the miners to guess the next block’s hash key.
4) Timestamp: The UTC timestamp when the block was created.
5) Difficulty: This number is the difficulty for creating the next block versus the difficulty of mining the first block in 2009. It is currently about 7 trillion times more difficult today to mine a block versus mining the first block.
The difficulty is used to determine how much hashing is required to create the next block in ten minutes. It is based on the hash rate of the Bitcoin mining network, which is currently about 65 million terahashes (1 trillion) per second. The difficulty automatically adjusts every two weeks.
The difficulty is increased by adding another leading zero to the target (explained later), which effectively doubles the difficulty. Currently, there are about 18 leading zeros in the target. The next block’s 64 character hexadecimal number (block ID) has to be lower than or equal to the target.
The difficulty is a number that is used to calculate the target (also referred to as Bits in Bitcoin lingo) for solving the hash problem to create the next block.
6) Nonce: This is the nonce that was used to create the block. The nonce is an integer, but it can be very large (32 bits, or a maximum of 4.3 billion). To understand the nonce, you have to understand how Bitcoins are mined (explained later).
If you want to read the entire article refer to this link. I don’t know if I am right that Bitcoin is a collectible and that he has unique traits. I think that it does and that it is going to explode in value. But that is only my opinion after following it for a few years and doing a significant amount of research.
I think the Bitcoin maximalists have a good point, that Bitcoin is the only crypto that has any lasting value. However, I think that all of the other cryptos besides Bitcoin are software applications, and will rise and fall based on the use-case they provide. I think many of them will do exceedingly well, and some will perform even better than Bitcoin. However, none of them will have Bitcoin’s collectible traits, and none of them ever will.
Incredibly, Bitcoin is not a software application or a transactional currency, although it provides those functions. Bitcoin is a collectible, and that is why it has value. Who would want to collect it? Anyone who can afford it – just like gold. One final thought for you? Is gold money or a collectible? I would lean toward the latter.
This article was written by
Analyst’s Disclosure: I am/we are long GBTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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