Blockchain’s Big Daddy: What Is Bitcoin?

Every new movement has its “firsts,” trailblazers who set a new course and inspire change to the status quo. In cryptocurrency, there’s no question Bitcoin (BTC) fills this revolutionary role. Founded during the 2008 financial crisis, Bitcoin has grown from an experimental peer-to-peer (P2P) currency to a globally recognized and respected digital asset. Discover what makes Bitcoin so unique and why it continues to garner worldwide attention from traders. 

Bitcoin’s history

Despite earlier attempts at creating decentralized virtual currencies, Bitcoin was the first successful protocol in the history of cryptography. Most accounts of Bitcoin’s origins go back to 2008 when a solo cryptographer or group called “Satoshi Nakamoto” published a whitepaper detailing a “Peer-to-Peer Electronic Cash System.” In January 2009, Nakamoto put these theories into practice by launching the open-source Bitcoin blockchain and creating (or “mining”) the first BTC.  

In the early years, only dedicated cryptographers took an interest in Bitcoin—and some sites called “faucets” gave away free BTC to generate excitement for this technology. In succeeding months and years, however, news of Bitcoin steadily spread on forums and media outlets, eventually leading to a $1,000 price tag in 2013.

Despite this early enthusiasm, Bitcoin fell into multi-year lows after the 2014 hack on the major Bitcoin exchange Mt.Gox. As the dust settled from this event—and as more innovation entered the crypto market—Bitcoin eventually recovered and reached new heights after touching $20,000 in the 2017–2018 bull market. Bitcoin gained further strength in the 2020–2021 bull market, reaching a new all-time high of $69,000 before falling into a multi-year bear market after multiple scandals on centralized crypto platforms. 

In 2024, the U.S. Securities and Exchange Commission (SEC) approved spot Bitcoin exchange-traded funds (ETFs), which increased accessibility to the world’s top cryptocurrency and led to another significant rally above 2021’s all-time highs. Following news of the spot Bitcoin ETF approvals in the USA, Bitcoin breached a $1 trillion market cap, higher than the market cap for silver. 

How does Bitcoin work?

Nakamoto based Bitcoin’s software on an algorithmic program called “Proof-of-Work” (PoW) consensus. Originally designed to eliminate spam emails, PoW uses a process called “mining,” in which computers (aka nodes) compete every 10 minutes to solve an algorithmic puzzle and post new transactions on a distributed payment ledger. The first node to solve the riddle gets to create (or “mine”) new BTC and keep these coins in their crypto wallet. Every four years, these BTC block rewards are cut in half (aka “the halvening”) until Bitcoin’s circulating supply reaches 21 million. 

Most significantly, Bitcoin is a self-regulating system without third-party intermediaries. When people mine, store, or send BTC, they use a decentralized P2P blockchain solely governed by code. 

Bitcoin FAQs

Why do people buy Bitcoin? 

Initially dubbed “electronic cash” by Nakamoto, Bitcoin is a P2P payment network for goods and services. However, as the Bitcoin coin price continues to increase, some traders hold (aka HODL) BTC in their portfolios as a “store of value” asset, similar to “digital gold.” As Bitcoin’s accessibility and liquidity increase, traders also use spot BTC or derivative products as trading or hedging vehicles on Bitcoin’s price. 

Is Bitcoin Cash the same as Bitcoin? 

Bitcoin Cash (BCH) is a “hard fork” of the Bitcoin blockchain, meaning it’s a separate project based on Bitcoin’s original code. The Bitcoin Cash blockchain has more data storage than Bitcoin, which translates to cheaper fees and faster transaction throughput. However, the Bitcoin Cash community and the cryptocurrency’s market cap are significantly smaller than that of regular Bitcoin. Since these cryptocurrencies are on separate networks, traders can’t transfer Bitcoin Cash to a Bitcoin wallet address or vice versa. 

What is the Bitcoin Lightning Network? 

The Bitcoin Lightning Network is a protocol built on top of the Bitcoin blockchain that allows users to send instant BTC microtransactions for extremely low fees. Developers behind the Bitcoin Lightning Network hope this project will help realize Nakamoto’s vision of making BTC a viable everyday currency.

Disclosures

The above content is made available for informational purposes only and should not be relied on as investment, legal, or any other form of advice. dYdX Trading Inc. ("dYdX") does not guarantee the accuracy of the content above, and does not endorse or recommend any particular crypto-asset referenced. dYdX services and products are not available to persons or entities who reside in, are located in, are incorporated in, or have registered offices in the United States or Canada, or Restricted Persons (as defined in the dYdX Terms of Use). All use of dYdX services and products is subject to the Terms of Use and v4 Terms of Use.