Bitcoin and Blockchain Technology: How do they Work?

Originally valued at less than $0.01 in 2010, Bitcoin experienced a meteoric rise to over $19,000 by December 2017, despite only gaining public recognition in 2013. Created by an anonymous cryptographer, Satoshi Nakamoto, Bitcoin faced initial skepticism and governmental resistance before gaining wider acceptance. Notably, futures trading in Bitcoin commenced on major US exchanges in December 2017, signaling a shift in perception within the financial community.

Bitcoin’s journey since then has been marked by significant price volatility, reaching an all-time high of $73,798 in March 2024. Concurrently, the adoption and regulation of cryptocurrencies have evolved, with some nations embracing them while others remain cautious or outright ban them.

Bitcoin, a digital currency, enables peer-to-peer transactions without the involvement of intermediaries like banks or governments. At its core, Bitcoin operates on blockchain technology, a decentralized online ledger that ensures secure and transparent transactions. Blockchain’s key features include distributed ledger, cryptographic hashing, consensus mechanism, and immutability, which collectively enhance security and streamline processes.

Blockchain technology facilitates Bitcoin’s value proposition by providing a large network for validating transactions. The network’s security relies on mining, where miners compete to solve complex cryptographic puzzles using specialized hardware, contributing to the network’s integrity. However, becoming a miner requires substantial computing power and energy consumption, limiting individual participation.

Blockchain’s appeal extends beyond Bitcoin, offering a decentralized alternative for various business applications. Retailers utilize blockchain for food safety, while banks and stock exchanges invest in its development. Despite its potential, Bitcoin’s current situation remains uncertain, with conflicting price signals and debates over its status as a financial instrument.

Bitcoin’s recent price surge may be attributed to the introduction of futures trading on major exchanges, attracting risk-takers and expanding its appeal to investors. However, the ability to trade Bitcoin derivatives without ownership could lead to decreased demand, potentially impacting prices. Analysts caution against speculative investments in Bitcoin, emphasizing the unpredictable nature of its future trajectory.