Bitcoin: Digital Money and Decentralized Protocol

Bitcoin is the first and most widely recognized cryptocurrency
Bitcoin enables peer-to-peer exchange of value in the digital realm:
- Uses a decentralized protocol, cryptography
- Achieves global consensus
- Has a periodically updated public transaction ledger called a 'blockchain.'
Bitcoin is digital money:
- Exists independently of any government, state, or financial institution
- Can be transferred globally without the need for a centralized intermediary
- Has a known monetary policy that arguably cannot be altered
On a deeper level, Bitcoin is political, philosophical, and an economic system
Bitcoin refers to the Bitcoin software protocol and the monetary unit (BTC)
Bitcoin uses include:
- Transactions outside the traditional financial system
- International payments, offering faster, more secure settlements, and lower transaction fees
- Settling small-value transactions; 1 Satoshi = .00000001 BTC
- Storing value and is emerging as a legal tender, medium of exchange, and unit of measure
The basic features of Bitcoin:
- Decentralized
- Distributed
- Transparent
- Peer-to-peer
- Permissionless
- Pseudonymous
- Censorship resistant
- Public
Bitcoin's economic features include:
- Fixed supply of 21 million coins
- Incentive-driven (Proof of Work)
- Disinflationary, with new bitcoins gradually added to the circulating supply via a defined schedule
- The issuance rate is cut in half every 4 years
- The next “halving” will be in 2024
Factors that influence the value of Bitcoin:
- Scarcity
- Demand
- Production costs
- Competition from other cryptocurrencies
- Regulation
- Institutional involvement

Mining BTC

Bitcoin mining:
- The process of keeping records on the Bitcoin blockchain
- Participants are called 'miners'
- Miners group new transactions into a 'block' and keep the blockchain ledger complete
- The block is verified by nodes on the Bitcoin network
How Bitcoin mining works:
- Make a new block, the network creates a hash for the block of transactions
- Miners start generating hashes using mining software
- The first miner to generate a hash gets to attach the block to their copy of the blockchain
- Other miners and security nodes check the block is correct
- The miner then receives block rewards
After the block is mined, the miner applies a mathematical SHA-256 cryptographic hash of the previous block
Once the formula is solved, the new transactions are added to the blockchain as a block
The block is formally circulated throughout the network for verification
After completing the whole process, the miner receives rewards of 12.5 Bitcoins by the Bitcoin network.
Miners earn money through:
- Transaction fees: When bitcoins are transferred, the sender incurs a fee
- Mining subsidy: A reward is paid to the miner that first successfully adds the next block to the network
Every time a new Bitcoin clock is mined, roughly once every 10 minutes some transaction from the block a claimed by the miner
Final coins will be minted around 2140
Once the circulating supply reaches its maximum, Bitcoin miners will no longer receive block rewards
Miners are instead rewarded with transaction fees, assuming their are no major protocol changes to Bitcoin between now and ther

BTC ETFs

Bitcoin ETFs (Exchange-Traded Funds):
- Investment vehicles that increase investor exposure to Bitcoin's price movements without directly owning or managing the cryptocurrency itself
- These ETFs operate like traditional stock exchanges
Spot Bitcoin ETFs: Hold Bitcoin directly as their underlying asset
- Bitcoin is purchased and stored in secure digital vaults managed by registered custodians
- The value of these ETFs closely mirrors the actual market price of Bitcoin.
Bitcoin Futures ETFs: Instead of holding Bitcoin directly:
- Invest in Bitcoin futures contracts
- Aim to track Bitcoin's price movements through derivatives rather than owning the cryptocurrency itself
The fund purchases Bitcoin (for spot ETFs) or Bitcoin futures contracts (for futures ETFs)
Shares of the fund are issued and traded on stock exchanges
The price of these shares generally reflects the current market value of Bitcoin
Investors can buy and sell these shares through regular brokerage accounts during standard market hours

Advantages

They allow investors to gain exposure to Bitcoin without setting up cryptocurrency wallets or using crypto exchanges
Bitcoin ETFs are regulated by financial authorities (SEC), offering investor protection
They eliminate the need for investors to manage private keys or deal with cryptocurrency storage
Some Bitcoin ETFs may include other assets, allowing for portfolio diversification

Considerations

Bitcoin ETFs incur fluctuating management fees
ETFs are restricted to stock exchange trading hours
Investors do not directly own Bitcoin when investing in these ETFs

Wrapped BTC

Wrapped Bitcoin (wBTC) is an ERC-20 token on the Ethereum blockchain:
- Represents Bitcoin in a 1:1 ratio
- Brings Bitcoin's liquidity and functionality to the Ethereum ecosystem
- Allows BTC holders to participate in Ethereum-based decentralized finance (DeFi) applications

Getting and Keeping Bitcoin

Buying Bitcoin:
- Central Exchanges: Binance, Coinbase, and Kraken
- Decentralized Exchanges: Uniswap, Quickswap, SushiSwap
  - Decentralized exchange facilitates trading between individuals without an intermediary
Methods for Keeping Bitcoin:
- On the exchange
- In Wallets: Hot storage and Cold storage