Over the past week, Bitcoin’s value hit a record high, now surpassing $73,000, almost $10,000 more than its last major peak in late 2021. This follows from billions of dollars worth of the cryptocurrency being purchased by American finance firms spurring on further trades in the crypto community. 

We always hear about cryptocurrencies on the news, from Bitcoin to notorious “shitcoins” like Dogecoin making headlines in 2021 as Elon Musk stoked the fire through his posts on X, formerly Twitter. But the chances of the average Joe knowing more than just the tip of the iceberg of what Bitcoin is, and the larger concept of cryptocurrencies, is likely slim, given their introduction to the limelight has been relatively recent. So how did it all start?

Bitcoin was first devised and invented in 2009 by an individual under the alias of “Satoshi Nakamoto” — whether this person or group of people really exists or not still remains a mystery. It was initially designed and specified by the currency’s original whitepaper as a method that allows for a “peer-to-peer cash system” which does not require financial institutions to act as middlemen, as is the case for banks with regular currencies that we are familiar with. In theory, Bitcoin was to remain as a decentralized money system, out of the control of any organization. This is why the current spike in Bitcoin price is rather ironic, given that financial institutions were its cause. The term “blockchain” is frequently used alongside cryptocurrencies; to understand this term, we can imagine the blockchain to be a ledger stored on many devices, rather than just one server, where all Bitcoin is created, distributed, traded or stored, giving it the “decentralized” property. A block in the blockchain can be likened to a folder that stores information such as transaction count, software versions, and most importantly, encrypted information about previous blocks, thus the word “chain” being in its name. This means that every block contains encrypted information leading back to the first block, fittingly named the “genesis block”.

Mining these blocks entails finding a cryptographic solution to validate the encrypted information within the block. The first miners to successfully reach the solution are rewarded Bitcoin for their efforts, which are then also put into circulation. Simultaneously, miners also verify Bitcoin transactions through this process of working towards a solution. The rewards given by successfully mining each block is also halved every 210,000 blocks, starting with 50 Bitcoins at the genesis block to the current 3.125 Bitcoins per block, which is expected to halve again some time this year. The total number of Bitcoins allowed into circulation is capped at 21 million coins, expected to be met in 2140. After this point, miners will no longer be rewarded new Bitcoins, but instead will have to rely on the rewards generated by verifying transactions, which is done through fees paid by individual users for every transaction. Currently, mining is done through the use of graphical processing units (GPUs) or application-specific integrated circuits (ASICs), which are capable of generating more than 300 trillion attempted solutions (hashes) per second. Given the existence of ASIC or GPU farms with thousands of these units each, each unit costing upwards of $10,000, being the first to reach a solution and successfully mine Bitcoins is becoming harder and harder. Currently, a block is mined every 10 minutes through the entire mining network across the world.

Due to the extremely high price of Bitcoin, compared to the cents that it was worth during the currency’s conception, Bitcoins can be traded as its denominations rather than with full coins, which can be divisible up to eight decimal places of one whole Bitcoin. They can be bought through exchange platforms such as Coinbase or the now bankrupt FTX using traditional currency. After a payment is processed, Bitcoins are then sent to your private cryptocurrency wallet, which is an interface where users hold private keys to access the blockchain network and conduct further transactions. 

As a result of the sudden surge in popularity of Bitcoin, as well as its seemingly ever-increasing value, there has been a large spawn of new cryptocurrencies to jump on the bandwagon, such as Ethereum and Tether. Some, such as Bitcoin Cash, use the same blockchain as Bitcoin with minor variations to properties such as mining speed or coin cap. The popularity of cryptocurrencies has been on the rise since the first spikes of Bitcoin in 2016, though investing has proven to be risky given the extreme volatility of these currencies. Regulatory bodies and governments have previously attempted to impose regulations around these cryptocurrencies, but these attempts have proven to be difficult due to its growing popularity and the economic benefits it brings. The proliferation of cryptocurrencies shows a significant shift in traditionally existing financial paradigms, with Bitcoin leading this change. All we can do now is to hold on and brace for the transformative trajectory that is the future of our financial markets.