Laura explains Bitcoin's history, an upcoming event known as a halving, and why the cryptocurrency is controversial.
Laura explains Bitcoin's history, an upcoming event known as a halving, and why the cryptocurrency is controversial.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Whether you're a Bitcoin enthusiast, believe it's a scam, or aren't sure what to think about cryptocurrency, it's wise to learn more about it. The idea of cryptocurrency has existed for about 40 years, but it became a reality in 2009 when the first Bitcoin was created.
This post will review Bitcoin's history, an upcoming event known as a halving, and why the cryptocurrency is controversial.
Hi, friends, and thanks for joining me this week! I'm Laura Adams, an author, media spokesperson, and money speaker hosting the Money Girl podcast since 2008, with over 42 million downloads.
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What is the history of Bitcoin?
Here are some highlights in Bitcoin's history:
Bitcoin was the first cryptocurrency and is now the most well-known and valuable coin. Its creator was a computer programmer (or a group of them) using the pseudonym Satoshi Nakamoto.
He or they published a white paper in 2008, revealing the blockchain system that supports Bitcoin. I'll explain blockchains more in a moment. But Nakamoto's identity has never been verified.
What is a blockchain?
To understand Bitcoin, you need to grasp the concept of a blockchain. You might think about it as open-source software that's a digital ledger of transactions. The ledger is distributed across a vast network of computers which secure it. Many public and private blockchains are used by companies and other cryptocurrencies besides Bitcoin.
The Bitcoin blockchain is made up of blocks, which are a group of Bitcoin transactions. Each block creates an unbroken link on the public chain. Every block of data gets linked to previous blocks through cryptography, hence the name cryptocurrency.
You can see the Bitcoin blockchain in action as new transactions and blocks get recorded in real-time at Blockchain.com/explorer.
What is Bitcoin?
After releasing the Bitcoin white paper, Satoshi Nakamoto summarized how it would get created. I'll explain who makes the coin in a moment. Bitcoin has no central authority, server, storage, or administrator. It's a distributed, peer-to-peer network that exists to legitimize transactions on the Bitcoin blockchain.
Nakamoto wrote that total circulation would be 21 million bitcoins, with the amount created cut in half every four years. That's known as the halving, which I'll explain in a moment.
The 21 million cap and distribution schedule is part of the Bitcoin code, which experts say can never be increased. Bitcoin's schedule is 10.5 million coins created in the first four years, 5.25 million the next four years, 2.625 million the next four years, and so on, never to exceed a total of 21 million.
So far, just over 19.7 million Bitcoins have been created, leaving just 1.3 million more to come. The limited supply of Bitcoin differentiates it from other cryptocurrencies and state-issued currencies like the U.S. dollar. Our Federal Reserve can add or remove dollars from circulation as needed in response to economic conditions, potentially devaluing our currency.
For better or worse, Bitcoin's supply and creation schedule is permanent and shared across its network. Changing it would require an unfathomable amount of agreement and coordination across the Bitcoin community.
The 21 million cap makes Bitcoin scarce compared to regular currency and other cryptocurrencies, adding to its appeal for many investors, including me. I own a small amount of Bitcoin relative to my total portfolio.
But I only recommend investing in Bitcoin or any cryptocurrency if you genuinely understand it and can withstand the risks of losing some or all its value. Crypto can be extremely volatile from minute to minute, so it's not an investment to make lightly.
You can learn more about Bitcoin and purchase just a few dollars of it on exchanges like Coinbase and Binance. There are also platforms that allow you to purchase Bitcoin and other cryptocurrency in retirement accounts, such as Alto IRA and iTrustCapital.
LISTEN ALSO: 8 pros and cons of investing in crypto in your 401(k
How is Bitcoin created?
You may have heard of Bitcoin miners, the people and companies creating Bitcoin. Mining is a validation process that happens using software on specialized, high-powered computers.
The miners' computers rush to solve a cryptographic mathematical puzzle, and the first one to solve it gets rewarded in Bitcoin for creating a block, which gets added to the blockchain.
Once new transactions are officially entered into the blockchain, new Bitcoins go into circulation. So, "mining" refers to the computational work done to validate data contained in blocks. So, you can think of miners like Bitcoin auditors.
To sum up, new Bitcoins enter circulation as block rewards for the miners who verify and add them to the blockchain.
Mining is lucrative but also comes with many expenses. For example, on March 8, 2024, Bitcoin's price topped $70,000 and closed at $68,285. The mining reward at the time was 6.25 bitcoin, or $426,781.
What is the Bitcoin halving?
I mentioned the Bitcoin halving, which is when its production gets cut in half roughly every four years. It happens each time another 210,000 blocks get added to the blockchain. It's happened three times since 2009 when Bitcoin was created.
The halving also means the reward for miners is cut by 50%. When Bitcoin began, mining one block earned 50 bitcoin. In 2012, it was cut to 25 bitcoin, and in 2016, to 12.5 bitcoin.
As I'm writing, the last halving occurred on May 11, 2020, reducing the mining reward to 6.25 bitcoin. This year's halving is predicted to happen around April 20, 2024, and will cut the mining reward to 3.125 bitcoin.
At the current pace of Bitcoin distribution, it's estimated that around 2140, coins will no longer be created. At that time, only transaction fees paid by users will be the incentive to participate in Bitcoin's network.
What is the Bitcoin controversy?
Nakamoto left clues that he or they created Bitcoin for political reasons, making it a bit controversial. The first Bitcoin block features the headline of a newspaper article: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks."
Many people interpret that statement as a sign that Nakamoto believed Bitcoin could potentially reduce governments' power over monetary policy, including bank bailouts.
Some Bitcoin enthusiasts believe it will become a global reserve currency, and the U.S. is taking initial steps to explore using cryptocurrency. In March 2022, President Biden signed an executive order to examine the regulation of digital assets and consider a U.S. Central Bank Digital Currency (CBDC), a digital version of the dollar.
While some countries, most notably China, have banned cryptocurrency mining and trading, many fully embrace it.
Bitcoin is also controversial for its massive electric power usage and relationship to climate change. The University of Cambridge publishes the Cambridge Bitcoin Electricity Consumption Index (CBECI), which estimates the greenhouse gas emissions related to Bitcoin. It found that crypto mining is responsible for 0.1% of global greenhouse gas emissions.
At just 15 years old, Bitcoin has quite a rich history and likely a long future ahead of it.
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That's all for now. I'll talk to you next week. Until then, here's to living a richer life. Money Girl is a Quick and Dirty Tips podcast. It's audio-engineered by Steve Rickeberg. Our Director of Podcasts is Brannan Goetschius, our digital operations specialist is Holly Hutchings, our advertising operation specialist is Morgan Christianson, our marketing and publicity associate is Davina Tomlin, and our marketing assistant is Kamryn Lacey.