Bitcoin vs Cryptocurrency: A Comprehensive Guide

Bitcoin is the first decentralized cryptocurrency, created in 2009 by an individual or group using the pseudonym Satoshi Nakamoto. It's the most well-known and widely used cryptocurrency.

Bitcoin's primary function is to facilitate peer-to-peer transactions without the need for intermediaries. This is achieved through a decentralized network of computers that validate and record transactions on a public ledger called the blockchain.

The blockchain is a secure and transparent way of keeping track of transactions, ensuring that all Bitcoin transactions are immutable and tamper-proof. This technology has sparked a lot of interest in the field of cryptocurrency and has inspired the development of other cryptocurrencies.

Bitcoin's total supply is capped at 21 million, which helps to prevent inflation and maintain its value.

Bitcoin is a digital currency that was created to speed up cross-border transactions and simplify the process without third-party intermediaries. This has brought down transaction costs significantly.

Bitcoin was founded in 2008 by Satoshi Nakamoto and started as open-source software to transfer money. It's a decentralized digital currency that uses blockchain, a distributed ledger secured by cryptographic techniques.

Using blockchain provides a low-cost, safe, and secure environment for peer-to-peer transactions. This is one of the best ways to ensure the safety and security of transactions.

Bitcoin is not physically present, making it very safe and secure, and it's used worldwide for various transactions. It's not a formally accepted payment medium in all countries, but people use it nonetheless.

Blockchain gives the information to the public, so anyone can access and view the financial transaction that has been executed. This transparency is a key feature of blockchain technology.

Bitcoin is the end product of the work of many people, but it is generally accepted that Satoshi Nakamoto created it and introduced it in 2008.

Bitcoin is a public blockchain used to create and manage the cryptocurrency of the same name. This means that all transactions are recorded and visible to anyone, making it a transparent system.

To be considered a cryptocurrency, a system must meet six specific conditions. These conditions include not requiring a central authority, maintaining a record of cryptocurrency units and ownership, and allowing transactions to change ownership of these units.

Here are the six conditions in more detail:

Understanding the basics of cryptocurrency can be a bit overwhelming, but don't worry, we've got you covered.

Bitcoin is the end product of the work of many people, but it is generally accepted that Satoshi Nakamoto created it and introduced it in 2008. The system is decentralized, meaning it doesn't require a central authority, and its state is maintained through distributed consensus.

A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp, and transaction data.

The validity of each cryptocurrency's coins is provided by a blockchain, which is a distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

There are two main timestamping schemes used by cryptocurrencies: proof-of-work and proof-of-stake. Proof-of-work is the most widely used scheme, which is based on hashing algorithms such as SHA-256 and scrypt.

Here are some key differences between proof-of-work and proof-of-stake schemes:

A node is a computer that connects to a cryptocurrency network, supporting the network through either relaying transactions, validation, or hosting a copy of the blockchain.

Bitcoin is the end product of the work of many people, but it is generally accepted that Satoshi Nakamoto created it and introduced it in 2008.

Cryptocurrencies use various timestamping schemes to "prove" the validity of transactions added to the blockchain ledger without the need for a trusted third party. The most widely used proof-of-work schemes are based on SHA-256 and scrypt.

Mining is the validation of transactions on a blockchain, and successful miners obtain new cryptocurrency as a reward. This effort decreases transaction fees by creating a complementary incentive to contribute to the processing power of the network.

The reward for finding a hash has diminished over time, and often does not justify the investment in equipment and cooling facilities, as well as the electricity required to run them. Popular regions for mining include those with inexpensive electricity, a cold climate, and jurisdictions with clear and conducive regulations.

Some miners pool resources, sharing their processing power over a network to split the reward equally, according to the amount of work they contributed to the probability of finding a block.

Proof-of-work cryptocurrencies, such as bitcoin, offer block rewards incentives for miners. These rewards increase the supply of the cryptocurrency and make sure that verifying transactions is a costly business, which preserves the integrity of the network.

The current value of the cryptocurrency supports the reward scheme to incentivize miners to engage in costly mining activities. However, the efficiency of the bitcoin system can be significantly improved by optimizing the rate of coin creation and minimizing transaction fees.

Bitcoin rewards are halved every 210,000 blocks. For example, the block reward was 50 new bitcoins in 2009, and on May 11, 2020, the third halving occurred, bringing the reward for each block down to 6.25 bitcoins.

Here are some of the key characteristics of a cryptocurrency, as defined by Jan Lansky:

Cryptocurrency is a medium of exchange, allowing users to purchase goods and services from vendors who accept it.

It's enabled by the Lightning Network, a second-layer technology that enables instant transactions, allowing for more economic activity than traditional on-chain transactions.

Cryptocurrency can settle payments faster than credit cards at a fraction of the cost, making it a more efficient option.

This is just the beginning for cryptocurrency, which also has properties as a store of value and investment utility, exceeding that of other cryptocurrencies.

Cryptocurrencies are virtual currencies that operate independently of banks and governments, but can still be exchanged like any physical currency.

Bitcoin was the first decentralised cryptocurrency, launched in 2009, and since then thousands more have been launched, known as altcoins.

Bitcoin remains the market leader, but other cryptocurrencies like bitcoin cash, bitcoin gold, ether, litecoin, ripple, EOS, stellar (XLM), and NEO could challenge in the future due to rising demand, expanded applications, and technological advances.

Altcoins are alternative cryptocurrencies that emerged after Bitcoin's early innovation in 2008. They're often referred to as "shitcoins" but more accurately described as alternative versions of Bitcoin.

As of early 2020, there were over 5,000 altcoins, each with its own unique features and differences compared to Bitcoin. Some altcoins, like Litecoin, aim to process transactions faster than Bitcoin, while others, like Ethereum, have smart contract functionality that allows decentralized applications to run on their blockchain.

Litecoin's maximum supply of 84 million coins is four times greater than Bitcoin's, giving it a more abundant supply. Ethereum, on the other hand, had the largest "following" of any altcoin in 2016, according to the New York Times.

Significant market price rallies across multiple altcoin markets are often referred to as an "altseason." This is a period of time when the prices of many altcoins rise rapidly, often in response to increased demand and speculation.

Altcoins often have underlying differences that set them apart from Bitcoin, making them attractive to traders who are looking for alternative investment opportunities.

Stablecoins are cryptocurrencies designed to maintain a stable level of purchasing power. Notably, these designs are not foolproof.

A notable example of a stablecoin's failure is Terra's UST, which fell from $1 to 26 cents on 11 May 2022. This led to the loss of nearly $40B invested in the Terra and Luna coins.

The subsequent failure of Terraform Labs resulted in South Korean prosecutors requesting the issuance of an Interpol Red Notice against the company's founder, Do Kwon, in September 2022.

Memecoins are a category of cryptocurrencies that originated from Internet memes or jokes. The most notable example is Dogecoin, a memecoin featuring the Shiba Inu dog from the Doge meme. Memecoins are known for extreme volatility, with the record-high value for a Dogecoin being 73 cents. Scams are prolific among memecoins. Dogecoin's value had plunged to 13 cents by mid-2024, showing just how unpredictable these currencies can be.

Staking is a popular use for crypto, where you lock up your assets to validate transactions or contribute to a protocol's liquidity in return for a reward.

The reward is typically expressed as an annual percentage yield (APY), which is alluring because it could represent a passive income stream.

However, the dynamic and opaque nature of the rewards reduces the overall investment utility, making it a less reliable option.

The potential to earn "yield" on assets is still attractive, but it's essential to consider the risks involved.

There are two main hardware options for Bitcoin mining: using your existing computer and mining software, or purchasing an ASIC miner.

If you have a computer that's compatible with Bitcoin software, you can join a mining pool to combine your computational power with other miners.

One of the most well-known mining programs is CGMiner, and some popular pools include Foundry Digital and Antpool.

You can also purchase an ASIC miner, which can cost around $10,000, but keep in mind that using one or two ASICs is still no guarantee of rewards.

For example, Bitcoin mining firm CleanSpark claims to have 195,059 miners deployed, making it a tough competition for individual miners.

Joining a pool can increase your chances of being rewarded bitcoins, but rewards are significantly decreased because they are shared.

It's essential to find out how the pool pays out rewards, what fees might be, and read some mining pool reviews before joining.

Atomic swaps are a mechanism where one cryptocurrency can be exchanged directly for another cryptocurrency without the need for a trusted third party, such as an exchange.

This means that users can exchange their coins quickly and securely, without having to rely on a central authority.

Atomic swaps can be used to exchange different types of cryptocurrencies, including those that are not supported by traditional exchanges.

They offer a high level of security and convenience, making them a popular choice for cryptocurrency traders.

The process of an atomic swap is typically done through a smart contract, which ensures that the exchange is executed correctly and efficiently.

Users can initiate an atomic swap by sending a transaction to the smart contract, which then verifies the transaction and executes the exchange.

The result is a seamless and secure exchange of cryptocurrencies, without the need for a third party.

Initial coin offerings, or ICOs, are a way for new cryptocurrency ventures to raise funds. They've become a popular means of fundraising, but they're also been a source of controversy.

Some startups use ICOs to avoid regulation, but securities regulators in many jurisdictions have indicated that if a coin or token is an investment contract, it's a security and is subject to securities regulation. This means that if you invest in an ICO, you're essentially investing in a security, just like stocks or bonds.

Switzerland has become a hub for ICOs, with four of the 10 biggest proposed ICOs using it as a base. The Swiss regulatory agency FINMA has taken a balanced approach to ICOs, allowing legitimate innovators to navigate the regulatory landscape.

The Swiss government has established a legislative ICO working group to issue legal guidelines and remove uncertainty from cryptocurrency offerings. These guidelines are intended to establish sustainable business practices and protect investors.

Investing and trading in Bitcoin can be a wild ride, with prices fluctuating wildly over the years. Between 2009 and 2017, cryptocurrency exchanges emerged, and prices began to rise, slowly growing demand until 2017, when its price broke $1,000.

Many people believed Bitcoin prices would keep climbing and began buying it as long-term investments. Traders began using cryptocurrency exchanges to make short-term trades, and the market took off. Prices reached as high as $69,000 in November 2021, but then crashed in 2022.

Bitcoin's price tends to follow stock market trends because it's treated similarly to other investments. However, its price movements are greatly exaggerated and can change by thousands of dollars.

Investing in Bitcoin can be a wild ride, with prices fluctuating by thousands of dollars per day. Many people believed Bitcoin prices would keep climbing and began buying it as long-term investments.

Investors and speculators became interested in Bitcoin as it grew in popularity, with cryptocurrency exchanges emerging to facilitate sales and purchases. Between 2009 and 2017, prices began to rise, and demand slowly grew until 2017, when its price broke $1,000.

Bitcoin's price crashed in 2022, dropping from $47,454 in March to $15,731 by November. However, it then recovered in 2023, seeing a price as high as $31,474 before dropping back below $30,000.

Bitcoin prices tend to follow stock market trends because investors treat it the same way they treat other investments. However, Bitcoin price movements are greatly exaggerated and sometimes prone to movements of thousands of dollars.

Investing in Bitcoin is very risky, but there is also the possibility of high returns. Speculative trading, also known as gambling, is a popular use case for crypto, but it does not provide investment utility to a portfolio.

The differences between cryptocurrencies matter to traders because they give vital clues as to how supply and demand for each coin may change over time, in turn influencing market prices and how cryptocurrencies are traded.

Exchanges are a crucial part of the cryptocurrency market, allowing customers to trade cryptocurrencies for other assets, such as conventional fiat money, or to trade between different digital currencies.

Crypto marketplaces don't guarantee that an investor is completing a purchase or trade at the optimal price. As a result, it was possible to arbitrage to find the difference in price across several markets as of 2020.

Bitcoin was initially designed as a peer-to-peer payment method, but its use cases are growing due to its increasing value and developments on the blockchain.

To use your bitcoin, you need to have a cryptocurrency wallet, which is your blockchain interface and can hold the private keys to the bitcoins that you own.

A cryptocurrency wallet is a means of storing the public and private "keys" or seed, which can be used to receive or spend the cryptocurrency.

There exist multiple methods of storing keys or seed in a wallet, ranging from paper wallets to hardware wallets and digital wallets.

To use your bitcoin, you need to enter the private keys when conducting a transaction, which are stored in your wallet.

A cryptocurrency wallet is a means of storing the public and private "keys" (address) or seed, which can be used to receive or spend the cryptocurrency.

There are multiple methods of storing keys or seed in a wallet, including paper wallets, hardware wallets, digital wallets, exchanges, and digital media like plaintext.

You can use a paper wallet to store your public, private, or seed keys, which are written on paper.

Hardware wallets provide a secure way to store your wallet information in a physical device.

A digital wallet is a computer with software that hosts your wallet information.

Exchanges, where cryptocurrency is traded, can also host your wallet information.

To use your bitcoin, you need to have a cryptocurrency wallet that holds the private keys to the bitcoins you own.

Wallets are your blockchain interface and can be used to conduct transactions.

If you don't want to mine Bitcoin, you can buy it using a cryptocurrency exchange. Most people will be unable to purchase an entire BTC because of its price, but you can buy portions of one BTC on these exchanges in fiat currency, such as U.S. dollars.

You can buy a bitcoin on Coinbase by creating and funding an account using your bank account, credit card, or debit card. The following video explains more about buying a bitcoin.

You can also exchange Bitcoin for most fiat currencies. Bitcoin is a convertible currency that can be exchanged for most fiat currencies.

Here are the steps to exchange Bitcoin for cash:

The first bitcoin ATM was launched in the United States on 20 February 2014 by Jordan Kelley, founder of Robocoin. This kiosk installed in Austin, Texas, is similar to bank ATMs but has scanners to read government-issued identification to confirm users' identities.

You can use Bitcoin as a means of payment for goods and services at many merchants, retailers, and stores. Some brick-and-mortar stores display a sign that says "Bitcoin Accepted Here" to indicate their acceptance of the cryptocurrency.

To use your Bitcoin, you need to have a cryptocurrency wallet, which serves as your blockchain interface and holds the private keys to the bitcoins you own. These keys must be entered when conducting a transaction.

You can easily accept Bitcoin as payment for your online business by adding it to your other online payment options, such as credit cards and PayPal. This makes it convenient for customers to use Bitcoin as a payment method.

The top use for Bitcoin today is as a store of value, as people feel comfortable storing their wealth in Bitcoin due to its scarcity, decentralized network, and other unique features. Bitcoin's monetary policy is enforced by code, not a governing body, which adds to its appeal as a store of value.

Here are some key features of Bitcoin that make it a popular store of value:

Transaction fees can be a bit tricky to understand, but basically, they depend on the network's supply of capacity versus the demand for faster transactions. The network's recommended fee often changes depending on the time of day due to varying network load.

Transaction fees can be set manually by users, but this often depends on the wallet software used. For example, some wallet software like Coinbase Wallet might support adjusting the fee.

Central exchanges for cryptocurrency usually don't allow customers to set custom transaction fees. One exchange, LiteBit, had to cease operations due to market changes and regulatory pressure in August 2023.

Transaction fees for Ethereum differ based on computational complexity, bandwidth use, and storage needs. In February 2023, the median transaction fee for Ether corresponded to $2.2845.

Bitcoin transaction fees, on the other hand, differ based on transaction size and whether the transaction uses SegWit. In February 2023, the median transaction fee for bitcoin corresponded to $0.659.

Some cryptocurrencies, like Nano (XNO), have no transaction fees and instead rely on client-side proof-of-work for transaction prioritization and anti-spam mechanisms.