How Bitcoin Works

As the progenitor of a multibillion-dollar industry, Bitcoin has a long and fascinating history. In this lesson, you’ll look at the key events and developments that shaped the world’s first and most widely used cryptocurrency. You’ll also learn how Bitcoin differs from other cryptocurrencies.

Bitcoin has always sparked intense debate. People from many fields—politicians, regulators, crypto-enthusiasts, and everyday users—have argued, and continue to argue, over whether this digital currency can serve as a means of payment or whether it is primarily an investment instrument. Depending on how Bitcoin is used, different rules and regulatory measures apply.

In this lesson, you’ll learn about Bitcoin’s investment potential. You’ll also find out where you can invest in Bitcoin and review the cryptocurrency’s advantages and disadvantages.

The early days of bitcoin were similar to the gold rush that took place in America in the eighteen-forties and eighteen-fifties. In the first years, not much was written about it, and only ardent fans of information technology and cryptocurrency could find out about it. By the end of two thousand thirteen and the beginning of two thousand fourteen, anyone who had heard of bitcoin had the opportunity to earn dozens or even hundreds of dollars a day using a computer or a powerful laptop. To do this, users simply connected their MacBooks and mined bitcoin. You will learn more about how to mine bitcoin in this lesson. In addition, you will explore free and paid ways of obtaining bitcoin.

Fewer people mine Bitcoin solo, and more miners are joining pools, which leads to centralization. That’s the focus of this lesson, along with the fifty-one percent attack. You’ll also learn about areas where blockchain is applied.

One of the main issues with Bitcoin as the first cryptocurrency is the problem of scaling (scalability). This is arguably Bitcoin’s most striking and substantial drawback—it prevents it from fully functioning as a means of payment. That is the subject of this lesson. In the supplemental materials, you’ll learn about the blockchain scalability trilemma—one of the most serious hurdles for cryptocurrencies.

One ongoing debate around Bitcoin concerns the anonymity of its transactions. Some users are convinced that all payments are fully anonymous, enabling shadow operations that leave no trace. Others argue this is far from the truth and that, with sufficient effort, it’s possible to reveal the identity of anyone behind a Bitcoin address. In this lesson, you’ll learn how things actually stand. The supplemental materials include the best methods for making anonymous payments in cryptocurrency.

As you’ve learned in previous lessons, mentions of Bitcoin are often linked to illegal trade, money laundering, illicit financing, and so on. Given that no one controls its transactions, such activities can indeed occur. People involved in crime choose cryptocurrency because it enables transfers that appear to leave no trail. However, that’s only how it looks at first glance. In the final lesson, you’ll learn about several high-profile cases connected to Bitcoin and the takeaways from them. In the supplemental materials, you’ll find tips on protecting yourself from cryptocurrency scammers.