What are bitcoins and cryptocurrencies

What is bitcoin

Bitcoin can neither be physically printed nor controlled, regulated or even manipulated by a central bank or other central institution. Nevertheless, the currency can be used like any other for the purchase of goods, services or even as Store of value (digital gold) can be used.

Bitcoin.org website

Bitcoin is based on the so-called blockchain. The name results from the cryptographically linked blocks that contain the transaction data. This decentralized register is not subject to any state control, nor is it subject to any central bank that can control the amount of money or set the framework conditions. The currency is thus self-governing and is therefore ahead inflationary fluctuations or protected from state influences.

Blockchain simply explained

In our comprehensive article on blockchain, you will find out in an easy and understandable way what a blockchain is and how it works.

Cryptocurrency pioneer

Bitcoin is considered the oldest crypto currency in the world and still defines the defining aspects of the blockchain and crypto currencies today. The Bitcoin network has by a wide margin most network participants and is therefore considered to be safest, most stable and most censorship-resistant cryptocurrency. In the media and in public discussion, Bitcoin is still the currency that is used as a proxy for the overall concept.

However, the theoretical construct on which Bitcoin is based goes back to the 1990s. However, the theory was only implemented with the release of Bitcoin in 2008 and implemented as a working system in 2009. As a result, Bitcoin is not only the pioneer among digital currencies, but also precisely defines the standard on which most of the later crypto currencies were built. The origin of Bitcoin is also surrounded by a mystery. So far, no one can say with certainty who is really behind the development of Bitcoin.

Bitcoin was launched by Satoshi Nakamoto (Technical white paper). However, it is unclear whether there is an individual software developer or an entire group behind this name or pseudonym. Countless theories are circulating on the Internet about who could be the father of cryptocurrency. A valid answer is still not available.

However, it is considered certain that the first Bitcoin Early 2009 and billions of transactions have been carried out since then. The blockchain grew to an impressive 210 gigabytes during this time, with Bitcoin now dominating the digital currency market.

Current figures and data on Bitcoin

inventorSatoshi Nakamoto
publication2009
Consensus algorithmProof of work
Maximum amount21.000.000
Bitcoin price$36.107,32
Market capitalization$675.703.810.991,50
Trading volume$2.395.496.816,62
Transactions per day207.409
Average block size1.31 MB
Blockchain size345,792.06 MB

The current numbers are automatically obtained from Blockchain.com.

more statistics on Bitcoin

How many bitcoin are there?

The total number of Bitcoin is running out 21 million bitcoin limited and is therefore a (mathematically) limited resource. Forecasts assume that the last Bitcoin will probably be created in 2140. Smaller Bitcoin amounts are also often given in "Satoshi". A satoshi corresponds to one hundred millionth of a bitcoin and is the smallest unit that can be recorded in the blockchain. Incidentally, the name of the unit pays homage to the founder of the digital currency.

Is Bitcoin Anonymous?

The Bitcoin is considered to be Pseudo-anonymous. Even if the rise of bitcoin originally on the darknet began, the popular currency is now less used as an anonymous means of payment for illegal transactions.

The reason for this is the nature of the Bitcoin blockchain. In this will every transaction transparent saved. A transaction includes both the amount of Bitcoin transferred and the data of the sender and recipient. While doing so, in the blockchain no names in plain text displayed, but it is technically possible to assign the Bitcoin addresses to real people. Therefore, Bitcoin is only of limited appeal for illegal activities such as money laundering or drug trafficking. In addition, there are now other currencies, such as Monero, Zcash or Dashthat offer a far higher level of anonymity. In the meantime, however, there are also possibilities with special methods Disguise bitcoin transactions (e.g. CoinJoin, Bitcoin Mixing).

Anonymous cryptocurrencies

In our articles on Monero, Zcash and Dash you can find out more about their privacy functions and special features.

How does Bitcoin work?

The decentralized structure of Bitcoin means that all transactions take place transparently within the Bitcoin network. In order to become part of the network, one needs a kind of "Bitcoin account", which is called a wallet.

The wallet has a unique identifier and a cryptographic key pair (so-called "private key" and "public address") and can be installed both on the computer and on the smartphone. This is where the private key as a digital signature, a kind of password to be able to dispose of your Bitcoin in the blockchain. The public key serves as a public address (comparable to an email address) to which bitcoins can be sent.

For deeper details on how the technology behind Bitcoin works, see our article on blockchain.

The benefits of Bitcoin

The decentralized and Tamper-proof architecture Bitcoin makes middlemen / middlemen, such as banks or credit institutions, partially superfluous. This eliminates the expensive transaction costs that banks often charge their customers for international transactions.

The fact that all transactions have to be signed gives the participants the security that the transaction will actually reach the intended recipient. In addition, transactions within the network are processed and confirmed in a few minutes, without detours.

The advantages of Bitcoin at a glance

  • Censorship-resistant and tamper-proof
  • Decentralized: Bitcoin is not controlled by an entity or company, the network belongs to "everyone and nobody"
  • "Permissionless" - Anyone can participate in the financial system, even without a bank account
  • Global network for value transfer and storage
  • Freed from strong inflation by limiting the total amount in the protocol code

Where can I buy Bitcoin?

Bitcoin can be bought on various exchanges and trading platforms. You can find an overview of reputable providers here: Exchanges for Bitcoin. Among other things, we recommend eToro (Our experience with eToro) for trading Bitcoin.

In case you need a guide, you can check out our guide to buying Bitcoin.

Bitcoin's weaknesses

Bitcoin is subject to some restrictions that have been deliberately set out in the protocol. With those all the time increasing number of users the volume of transactions increases. The high frequency means that Transactions nowadays many times no longer fast enough can be processed.

The source of the problem lies in that established by the protocol Block sizewhose limit is simply insufficient for the current transaction density. The current block size was based on in 2010 1 MB set. This means that all blocks that exceed this size will be rejected. The measure was originally intended to prevent hackers from crippling the system through attacks. Nowadays, however, this decision is a limitation for the network and is increasingly causing frustration for users. So it is not uncommon for users to work on a transaction during times of heavy workload Waiting times have to accept several hours. Many Bitcoin developers and groups are currently working on solutions for the Scaling problems of bitcoin. One of the most ambitious and advanced projects is the so-called Lightning Network.

Can the Lightning Network solve the scaling problem?

There are different approaches to solving the scaling problem, which have sparked numerous discussions within the community. One of the best-known proposed solutions is the so-called Lightning Network, which not only does transactions more quickly, but also cheaper could handle.

The Lightning Network is basically a billing system that can be set up as a "second protocol level" on the Bitcoin blockchain. In the first step, several transactions are made on their own Payment channel laid and through Smart contracts executed.

What are smart contracts?

In our article on smart contracts you will find interesting information about the functionality and advantages of smart contracts.

The Executing Transactions therefore only needs few seconds and generates significantly lower fees. It does this by lowering the amount of transactions that must be stored on the blockchain forever. Instead, the transactions flow into so-called "Payment channels"and are exchanged between the payers outside the blockchain.

The final state of the payment channel can be sent to the Bitcoin network at any time, which securely offsets the funds on the blockchain. The capacity of the network is currently around 1,000 Bitcoin. Further information and technical details are available on the Lightning Network website.

The future of bitcoin

Bitcoin is Open source softwarewhereby the Community constantly on new technological developments, Innovations and features works. Two of the currently most interesting and promising developments are the so-called "Schnorr signatures" and "MimbleWimble".

Schnorr signatures

Every Bitcoin transaction that takes place within the network must be signed. These Signature enlarges the transaction data and thus has a negative effect on the speed and inflates the size of the blockchain. With the help of the Schnorr signature multiple transactions signed together. This will reduce the transaction size noticeably and can help solve storage and scaling issues.

MimbleWimble

"MibleWimble" is a protocol that is based in particular on Scalability and anonymity focused. The basis of the protocol is again the blockchain. Everyone will Transactions cryptographically obscuredso that they can no longer be clearly assigned. Thanks to mathematical algorithms, however, it is still ensured that no false coins can be generated. In addition, it is not possible to send more money than is actually available in the account ("double spending"). The lean architecture of the system reduces the Transaction data sizewhich greatly reduces the scaling problem. The approach is currently only in its infancy, which means that MimbleWimble is currently only being used and tested in a few projects.

Where can I buy cryptocurrencies?

We recommend eToro for trading cryptocurrencies. In our overview of the best exchanges for cryptocurrencies you can find a comparison of other reputable providers.

Register with eToro

Disclaimer: Cryptoassets are highly volatile, unregulated investment products. No EU investor protection. Your capital is at risk

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Cryptocurrencies simply explained