What is Bitcoin? - An Introduction to Blockchain Technology

What is Bitcoin (BTC)?

Bitcoin (symbols: ₿, BTC) is the first successfully launched decentralized network and cryptocurrency that utilizes blockchain technology.

Bitcoin is an ecosystem consisting of 3 components:

• Bitcoin blockchain network
• Cryptocurrency used within the Bitcoin network - bitcoin (BTC)
• Users ("nodes") who act as network administrators with their computers

Each of these three elements operates synchronously to create a decentralized payment system.

When referring to Bitcoin as a blockchain network, the word "Bitcoin" is written with a capital letter. When referring to the cryptocurrency, it is written with a lowercase b and denoted by the abbreviation BTC.

Bitcoin enables the secure transfer of value using the Peer-to-Peer protocol (peer-to-peer is a term used to explain that two people can directly exchange value without the need for a bank or other services).

Unlike fiat currencies (EUR, USD, etc.) we use every day, the bitcoin cryptocurrency is not controlled by a central bank or any other institution.

This means there is no entity that can simply "turn off" Bitcoin, or decide who can participate in the network's operations and who can have bitcoin cryptocurrency.

If there is no central body managing Bitcoin, how does the system function?

The entire Bitcoin ecosystem is powered by tens of thousands of users around the world. Anyone can participate in the operation of the Bitcoin network. It's enough to download open-source software on your computer and run it.

History of Bitcoin

Bitcoin is the first successfully created cryptocurrency that was launched in 2009.

However, the concept of digital currencies didn't just appear overnight.

Decades before, there were scientific papers focused on the idea of currencies that could be used in a digital environment.

Wei Dai and Nick Szabo are computer scientists who explored ways to implement electronic money.

They attempted to create their own electronic currency but were limited by the technology of their time.

In 2008, a new concept of digital currency called Bitcoin emerged. The technical specifications and operational methods of Bitcoin were published on the well-known forum BitcoinTalk.

On January 8, 2009, the first version of the open-source software that runs the Bitcoin network was successfully released.

Who is the founder of Bitcoin?

Nobody knows the true identity of the person who created and launched Bitcoin. The creator of Bitcoin used the now-famous pseudonym “Satoshi Nakamoto”.

It's still speculated whether it's an individual or a group of people. From 2008 to the present, the identity of the person or group has remained a mystery.

It was Satoshi Nakamoto who published the so-called Bitcoin Whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” on the BitcoinTalk forum and initiated the Bitcoin network.

Bitcoin was put into operation when Satoshi launched (mined) the first block, also known as the "Genesis block."

This block contained the first 50 bitcoins (BTC).

A few days after the first block was created, the first transaction on the Bitcoin network was made. The sender was Satoshi Nakamoto and the recipient was Hal Finney.

How Does Bitcoin Work?

Many still think that sending bitcoin as a cryptocurrency is done in the same way as sending money through mobile banking.

In reality, the process is a bit different.

For example, let's say Ivana wants to make a transaction and send bitcoin to Marko.

Ivana will not send bitcoin to Marko directly, as one would send euros or kunas.

A transaction within the blockchain more closely resembles writing on a piece of paper (that is accessible to everyone) that Ivana is sending 1 bitcoin (BTC) to Marko.

If Marko sends 1 BTC to Ivana, Ivana will first be able to check, using that list, that Marko indeed has 1 BTC available and that the transaction can be completed.

To better understand how transactions on the blockchain network function, check out our blog about blockchain technology.

This list of transactions is actually a database based on blockchain technology and it is called a distributed ledger, which is simultaneously distributed to all users.

Every person participating in the operation of the blockchain network has an identical copy of the transaction list.

This list is stored on the computer of the person using the blockchain network.

All network users update all changes (new transactions) within the list through consensus.

Transactions are carried out directly using the so-called Peer-to-Peer protocol.

Therefore, the transaction does not go through a payment service (such as Revolut, etc.) or a bank.

The transaction is confirmed by the network itself, i.e., all users within the network through a process called “mining”.

Through this process, transactions are added to new "empty" blocks. When blocks are filled with transactions, they are added to the blockchain.

Bitcoin Blockchain

As we mentioned earlier, Bitcoin is a large ecosystem consisting of 3 main elements: the Bitcoin blockchain network, BTC cryptocurrency, and network users/validators (also known as nodes).

The Bitcoin blockchain network is the core of the entire ecosystem.

In essence, it's a database that contains a list of all transactions that have ever taken place on the network, which are cryptographically secured.

The reason it's called a blockchain, or chain of blocks, is because it consists of blocks that store records of transactions.

The average size of a block is about 1 MB (megabyte).

This means that one block in Bitcoin can contain about 2000 transactions.

Once transactions fill up one block, that block must be linked to the previous one to become part of the blockchain chain.

Before a block is added to the blockchain, Bitcoin network validators check all transaction parameters.

Using the transaction list, or ledger, all network users (nodes) scan the data to ensure that the person making the transaction actually has the amount they are sending and is authorized to send it.

If these conditions are met, the transaction is considered valid.

The Bitcoin network is decentralized, which means that all users must agree that the transaction is valid.

In other words, network users apply a so-called consensus mechanism to determine the correctness of transactions.

All validators must agree that all rules have been followed; otherwise, the transactions will not be stored in the blockchain.

Thanks to such a system of recording and confirming transactions, it is impossible to carry out false transactions.

Thousands of validators (nodes) will stop any attempt at fraud precisely because they have real-time insight into the current state.

The consensus mechanism that Bitcoin network users use to confirm transactions is called Proof-of-Work (abbreviated as PoW).

In public, the process is more commonly referred to as Bitcoin mining.

Bitcoin Mining

Bitcoin mining is another term for validating new transactions and adding new blocks to the blockchain network.

Many people want to participate in Bitcoin mining because successfully confirmed transactions can earn a reward in BTC.

In the early years, Bitcoin could be mined using a regular computer.

As Bitcoin became more popular and its price reached record levels, many decided to participate in the mining process to earn bitcoin.

However, it's not all that simple because Bitcoin is designed so that mining becomes more difficult over time, and the rewards for mining become smaller.

Today, it is impossible to participate in the mining process with a personal computer, no matter how powerful it may be.

Specialized devices known as ASIC miners (Application Specific Integrated Circuits) have been constructed for mining.

Why do you need powerful computers for mining?

Mining can be compared to a race.

Each block of transactions we mentioned earlier contains a specific cryptographic puzzle (referred to as "a hash").

To link a new block with the previous one and make it part of the blockchain, validators must first solve the cryptographic puzzle.

Validators, or their computers (ASIC miners), compete to be the first to crack the combination of the cryptographic puzzle.

From 2009 to the present, the difficulty and the number of attempts required to solve the puzzle have gradually increased. It is estimated that currently, it takes 10 trillion attempts to find the final solution to the cryptographic puzzle.

When a computer finds the solution, the block is confirmed and stored on the existing blockchain. As a reward, the validator receives a certain number of BTC for their effort.

This BTC then enters circulation, thereby increasing the number of available bitcoins (cryptocurrency). So, in addition to confirming transactions, mining releases new bitcoins into circulation.

Currently, a user who successfully solves the cryptographic puzzle will receive a reward of 6.25 BTC per block. Every 4 years, the reward for miners is reduced by 50%. This process of reducing miners' rewards is called the Bitcoin halving process.

How to mine bitcoins?

The blockchain network must operate flawlessly and without interruption.

For this reason, the Bitcoin network has a protocol by which a new block of transactions needs to be produced every 10 minutes.

However, if there are about a million mining devices competing to solve the cryptographic puzzle first, a block could be produced in less than 10 minutes.

Varying block processing times could lead to uneven network operation.

To maintain continuity, the Bitcoin network somehow estimates the current difficulty of solving the cryptographic puzzle and adjusts it approximately every 2016 blocks or every 2 weeks.

As the number of powerful mining computer equipment increases, so does the difficulty of solving the cryptographic puzzle.

Therefore, a miner with a personal computer has virtually no chance of solving the puzzle and earning BTC.

Anyone can become a miner. The first step in this endeavor is to invest in powerful computer equipment.

Today, ASIC miner devices are most commonly used for mining. This device is created exclusively for mining cryptocurrencies.

The power of ASIC miners comes at a certain price because a large amount of electrical energy is required for its operation.

Adding that earning new bitcoins through mining is not guaranteed, mining can be considered an unprofitable venture.

Many miners have realized that going into mining alone is not profitable, which is why they have teamed up with other miners, thereby increasing the chance of finding solutions to cryptographic puzzles.

This association of miners is called a “mining pool”.

How to receive mined bitcoin?

In addition to the ASIC miner, a miner needs to have a digital wallet. If a miner successfully solves the cryptographic puzzle and adds a new block of transactions to the blockchain, the mining software will automatically send the reward to the digital wallet address.

Bitcoin Halving

Bitcoin halving is an important process within the Bitcoin system.

As mentioned, this process reduces the reward that a miner can receive for their work in confirming transactions.

Initially, the reward for a miner who solved the cryptographic puzzle was an incredible 50 BTC.

After every 4 years, or each time 210,000 new blocks are confirmed, the reward is halved.

Rewards for Bitcoin miners over the years:

• 2008: 50 BTC
• 2012: 25 BTC
• 2016: 12.5 BTC
• 2020: 6.25 BTC
• 2024: 3.125 BTC

Each time a miner solves the cryptographic operation and earns a reward, a new BTC enters circulation. However, an unlimited number of BTC cannot enter circulation.

The Bitcoin whitepaper emphasizes that there is a limited number of BTC, namely 21 million.

Bitcoin halving slows down the process of introducing a large number of BTC into circulation.

It is expected that the last of the 21 million BTC will be mined in the year 2140.

Due to the limited number of bitcoins that can exist and their slower entry into circulation, Bitcoin is considered a deflationary asset (unlike fiat currencies which are inflationary because the state and central bank can print new quantities at any given time.

The consequences of uncontrolled printing of new banknotes are seen today in the form of inflation and the loss of purchasing power of citizens).

Top 5 Advantages of Bitcoin

1. Bitcoin enables low transaction fees

Compared to conventional payment methods or money transfers, the Bitcoin network has very low transaction fees.

If you're sending money to an account in another bank or abroad, fees can be quite high.

Thanks to the Peer-to-Peer (P2P) architecture, with the Bitcoin network, you can send a certain amount without a bank, payment service, or any other third party, without having to worry about the amount of the fee.

Also, the transaction will be executed in a few minutes, no matter where and when you send a certain amount.

2. Bitcoin is available to everyone

Anyone can use Bitcoin, anytime and anywhere.

All you need to use the Bitcoin network is the internet and a computer with which you can create your own digital wallet.

The process of creating a digital wallet is simpler compared to opening a bank account.

You do not need an ID card or other personal information that banks or other institutions would use to investigate financial history to create a digital wallet.

One of the founding ideas of Bitcoin was to enable people easy access to the network and its benefits without having to go through various checks.

Bitcoin allows people to transfer value digitally in a simple way without the need for oversight from third parties.

3. Bitcoin is a secure network

The Bitcoin network is protected by the SHA-256 function. The name of the function itself may not tell you much, but it's enough to say that it guarantees a level of security that banks, the military, and virtual private networks have.

Bitcoin employs principles of cryptography to ensure the security of the entire system.

Each transaction is assigned specific cryptographic data that serves as an impenetrable identifier.

The Bitcoin network is considered secure also thanks to the consensus mechanism.

To confirm transactions and ensure smooth operation of the Bitcoin network, it's essential to have the agreement of all network users.

For example, if a person wanted to carry out false transactions within the Bitcoin network, they would need control over 51% of the network, which is impossible to achieve.

Likewise, transactions within the Bitcoin network cannot be reversed or altered. Once you perform a transaction, it is recorded in the blockchain and remains unchanged.

4. Bitcoin offers transparency to users

All information about Bitcoin, whether it's about the total number of coins that can ever exist, new coins entering circulation, and many other details, is available for every user to view at any time.

Also, every user can see every bitcoin cryptocurrency transaction that has been executed on the network.

Certainly, the personal information of users who have carried out transactions is protected.

Users with a digital wallet are assigned a unique identification number. Through this link, you can access real-time visibility into all transactions occurring on the Bitcoin network.

Such a level of transparency further secures Bitcoin network users. Every user can easily prove that they have received or sent a certain amount of BTC.

5. Independence from banks and other central authorities

The Bitcoin network is a decentralized system. There is no body or person that independently sets rules affecting the operation of the network and its users.

No one can impose themselves as an authority with the power to confiscate BTC cryptocurrency or halt transactions.

Theoretically, this approach grants every user autonomy in managing their own money (in this case, BTC cryptocurrency).

As previously mentioned, the Bitcoin network employs a unique Proof-of-Work consensus mechanism that confirms transactions and ensures the network's smooth operation.

How many Bitcoin (BTC) coins exist?

The Bitcoin (BTC) cryptocurrency has a limited number of coins that can enter circulation.

According to the protocol defined by the so-called Satoshi Nakamoto, the number of BTC coins that can ever exist is fixed at 21 million.

Due to the limited number of BTC that can ever exist, many consider Bitcoin to have been created to serve as a form of digital gold.

How do new bitcoins (BTC) enter circulation?

New BTC coins enter circulation approximately every 10 minutes. This is the period it takes for miners to store a block of transactions on the blockchain.

Each time a miner confirms a transaction, they receive BTC as a reward. According to the protocol, the reward for miners is halved every 4 years, or each time another 210,000 blocks are added.

Thanks to the gradual reduction of the miners' reward every 4 years, the last bitcoin is expected to enter circulation in the year 2140 .

When Bitcoin first began operating, the reward for miners was an incredible 50 BTC. As of 2020, the reward for miners has been reduced to 6.25 BTC.

Bitcoin Exchange Rate: How is the Value of Bitcoin Calculated?

The exchange rate of Bitcoin changes every minute.

Like other types of assets such as stocks, gold, and others, the Bitcoin exchange rate is influenced by numerous factors such as:

1. Conditions in global financial markets

Bitcoin is perceived as a means of preserving value as a cryptocurrency.

Although Bitcoin, as a traded asset, is highly volatile (it has a high percentage of price change in a short time), from 2009 to the present, its value has exponentially increased.

Since Bitcoin can be traded like stocks, precious metals, and other financial instruments, its prices are subject to changes.

The rise or fall of global markets is most often linked to geopolitical situations, global trade, etc.

Therefore, Bitcoin, as both a cryptocurrency and an asset traded on financial markets, is also not immune to the changes occurring in the world.

2. Bitcoin Production Costs

Like in any industry, the cost of production will affect the final price of the product.

The same applies to Bitcoin production.

As we mentioned earlier, miners and their computers are needed to introduce new bitcoins into circulation.

For a miner to have a better chance of confirming transactions, they need powerful computers, which require a large amount of electrical energy.

Therefore, investing in powerful computer equipment and accounting for the cost of the electricity that these computers will consume for bitcoin mining is necessary.

3. Supply and Demand

The price of Bitcoin also depends on the current supply and demand, or the mood of investors.

If cryptocurrency market prices are falling and analysts' forecasts and news from the media suggest a further negative price trend, it's reasonable to assume that investors will wait for a more favorable moment to buy.

A lack of interest in buying then leads to a domino effect where the price falls again.

When the price rises, investors buy, hoping the price will continue its positive trend.

4. Bitcoin in the Media

In recent years, the media have closely followed and reported on the price movements of Bitcoin.

News can be positive or negative, and they have a significant impact on investor sentiment. If the news about Bitcoin is positive, the price can increase, ultimately motivating investors to buy.

If the demand for Bitcoin is high, the price can rise further. Of course, if the news is negative, both the price of Bitcoin and demand will decrease.

How to Use Bitcoin?

Initially, Bitcoin was conceived as a network for Peer-to-Peer transactions between users without the intermediation of third parties.

However, the capabilities of Bitcoin have expanded over time.

Bitcoin is currently most commonly used as:

• A means of preserving value
• An investment instrument
• A medium of payment

Many view Bitcoin as a long-term investment. Users buy Bitcoin cryptocurrency (BTC) and hold it in their portfolio.

After a certain period, if the price increases, they sell BTC at a higher price than what they initially paid, thereby making a profit.

As Bitcoin became more popular, many companies began to integrate it into their business operations.

For example, PayPal and Revolut now support Bitcoin transactions. Others have started using Bitcoin as a means of paying for services.

El Salvador has even become the first country to recognize Bitcoin as an official means of payment.

The first thing you need to start using Bitcoin is a digital wallet.

What is a Digital Wallet?

A digital wallet allows you to store, send, receive cryptocurrencies, and track your balance.

Digital wallets have their own public and private keys.

The public key can be described as the identification number of your digital wallet.

This is the key you share with others.

For example, if you want someone to send you 1 BTC, you would give them your public key, which serves as the address for sending.

The private key is not shared with others.

The private key can be compared to a password.

With the private key, you actually confirm that you are the owner of the digital wallet and that you have personally authorized the transaction.

All the cryptocurrencies you own are actually stored on the blockchain network, so you must have a combination of public and private keys to access the data stored on the blockchain.

Which Bitcoin Wallet to Choose?

There are several types of digital wallets where you can store your bitcoins.

How to choose the right wallet? First, you need to understand that digital wallets can be divided into two groups:

• Cold wallets
• Hot wallets

Hot wallets are digital wallets that operate with an internet connection.

They are most commonly available as mobile or desktop applications.

On the other hand, cold wallets are physical devices where cryptocurrencies are stored and do not require an internet connection, making them more secure.

Now that we know the basic division of crypto wallets, it's necessary to determine which will be best for storing your bitcoins.

That's why we've compiled a table of the most popular digital wallets and listed their advantages and disadvantages so you can choose the one that best suits your needs.

How to Become a Bitcoin Owner?

There are two most common ways you can become a Bitcoin owner.

1. You can buy Bitcoin with fiat currencies (e.g., Euro) at one of the most popular crypto exchanges.

To store Bitcoin, you will need your own digital wallet.

At Bitcoin Store physical crypto exchanges, you can buy Bitcoin with cash.

2. You can become a miner and try to earn BTC by validating transactions on the network.

Today, it is almost impossible to earn BTC this way because it requires the purchase of expensive computer equipment.

Also, as a validator, you must account for the high costs of electricity consumed for mining. Due to the complexity of the entire process, most people usually opt to just buy bitcoins.

Buy Bitcoin

Currently, the easiest way to buy and sell Bitcoin is via the Bitcoin Store crypto exchange.

The entire platform is designed to simplify the whole process of buying and selling cryptocurrencies for the user.

All you need to do is create your own account, after which you will automatically receive your own digital wallet - Bitcoin Store Wallet.

The purchase can be made in 4 simple steps, and your Bitcoin (BTC) will be stored on the Bitcoin Store Wallet, where you can also directly monitor your portfolio's value in real time.

Where Can I Use Bitcoin?

Users often choose to store bitcoins in their own wallet and hold it as a means of preserving value.

Besides storage, you can also use Bitcoin for:

• Purchasing - many global companies have started accepting bitcoins as a means of payment. You can pay for certain services and products with Bitcoin.
• Money transfer - many people have started using bitcoin as an alternative way to send money abroad. Sending Euros through banks or other services usually takes a long time and comes with high fees. With the Bitcoin network, the transfer is executed in a few minutes (regardless of the place and time of sending) with very low fees.

Security of Blockchain Technology

Blockchain technology provides people with a secure and transparent way to exchange important data.

Each blockchain stores data in a chain of blocks using cryptography and innovative mechanisms that leave relatively little room for any form of manipulation.

For example, every blockchain network applies a consensus mechanism to verify all transactions and add new blocks of transactions.

This means that all users within the network must agree that all parameters are correct.

Such a decentralized approach to management prevents potential fraud attempts.

All users have direct access to all transactions in real-time thanks to the so-called ledger (public ledger), making it very easy to detect potential fraud attempts.

Is Bitcoin Safe and Reliable?

If we consider Bitcoin as a network that relies on blockchain technology, then it can be said to be a very safe and reliable technology.

However, when looking at Bitcoin as an investment tool, caution is advised because the price of Bitcoin is highly volatile.

Bitcoin Scams: What to Look Out For?

Blockchain technology and cryptocurrencies are still relatively new to the market and as such present an opportunity for many scammers.

Scammers try to find various ways to get hold of your money and cryptocurrencies.

When talking specifically about scams related to Bitcoin and other cryptocurrencies, the most common are:

1. Scams where a person tries to gain access to your digital wallet.
2. Sending Bitcoin or other cryptocurrencies to someone who presents themselves as a broker or another financial advisor promising you large and quick profits.

Impersonation Scams

Recently, there has been a significant number of scams where fraudsters use psychological manipulations to gain control over a person's important information.

In these scams, fraudsters pose as individuals working with the government, a well-known company, or as an acquaintance of yours.

They gradually build trust with the potential victim in an attempt to extract information such as digital wallet keys.

If they fail to extract information about digital wallet keys, they will try to persuade you to send a certain amount of cryptocurrencies.

If any unknown person asks you to send cryptocurrencies, ignore such requests as it is a clear sign of a scam.

Phishing Websites

Phishing is one of the most effective scamming methods. Through this, scammers aim to gain access to your digital wallet.

To gain access to your Wallet, they often send you an email pretending to be employees of a delivery company, bank, etc.

The email asks you to click on a link they've sent, which leads you to a certain website.

Although the website may look familiar to you, it is often an identical copy created by the scammers themselves.

Victimized individuals often enter personal information or even the private key of their wallet on such sites, after which they lose their cryptocurrencies.

Many scammers also create dating websites.

Victims believe they are communicating with real people; however, on the other end is usually a scammer who, after gaining the person's trust, will at some point ask them to send cryptocurrencies or money.

Before you trust anyone with your information, cryptocurrencies, or money, thoroughly research everything about the company or person who contacted you.

If someone sends you suspicious emails, do not open them. Also, always check that the websites you frequently visit have the correct links.

Phishing sites always look the same as the website you are visiting, but they can easily be recognized by the web address.

Frequently Asked Questions - Bitcoin

What is the Bitcoin exchange rate today?

Bitcoin prices change every second and follow the rates of global exchanges. The Bitcoin Store platform's rate list shows the average rate. You can follow the real-time price changes of Bitcoin here.

How to buy Bitcoin?

You can buy Bitcoin (BTC) in 2 simple steps.

Step 1: Choose an exchange to buy cryptocurrencies

There are several types of exchanges where you can buy Bitcoin.

Users who are new to cryptocurrencies often choose professional cryptocurrency trading exchanges, but due to advanced trading tools, they can find them complicated.

That's why the Bitcoin Store platform is currently the best exchange for beginners who want to buy their first Bitcoin.

Besides the online platform, users can buy Bitcoin with cash at one of the physical crypto exchanges.

Step 2: Create an account on the cryptocurrency exchange and make a payment

The process of creating an account on the Bitcoin Store platform is very simple. All you need to do is enter your email address and create a strong password.

After creating and verifying your account through the KYC process, you can make a payment and buy your first Bitcoin.

Your BTC will be stored on the Bitcoin Store Wallet you receive after creating an account.

Where to buy Bitcoin (BTC)?

You can buy Bitcoin on the Bitcoin Store online platform or with cash at physical crypto exchanges in Zagreb, Split, Osijek, and Rijeka.

Where to sell Bitcoin?

You can also sell Bitcoin on the Bitcoin Store online platform or at one of the physical crypto exchanges.