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The Bankless Guide to Bitcoin

Updated: Feb 2024
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Feb 16, 20244 min read

Bitcoin, conceived by an individual or group under the pseudonym Satoshi Nakamoto, emerged in 2009 as the first blockchain

Built on a peer-to-peer network, Bitcoin facilitates its digital currency, BTC, without a central authority. BTC offers direct and secure transactions between individuals without needing banks or other financial intermediaries.  

Additionally, Bitcoin’s capped supply of 21 million coins and widespread global recognition position it as a store of value and a hedge against inflation, akin to digital gold. 

How Bitcoin works

The Bitcoin blockchain operates as an immutable ledger of transactions maintained by a network of nodes. 

Transactions are grouped into blocks and verified by miners through a process called Proof of Work (PoW). Miners solve complex mathematical problems to validate transactions and add new blocks to the chain, earning Bitcoin as a reward. This decentralized consensus mechanism ensures security and prevents double-spending of BTC.

Bitcoin scaling solutions explained

Bitcoin, like Ethereum, can scale its transaction throughput capabilities via external execution environments. And while Bitcoin's scaling landscape is currently much smaller than Ethereum’s, it does have a growing range of contenders. Some of these projects include:

  • ⚡️ Lightning Network — A payment channels protocol that enables fast and low-cost BTC transactions directly between users.
  • 🧱 Stacks — A Layer 1 (L1) blockchain, often seen as a Bitcoin Layer 2 (L2), that extends smart contract capabilities atop Bitcoin without modifying its core protocol.
  • 💻 BitVM — A system focused on expanding Bitcoin's functionality via offchain program execution, commonly used for trust-minimized Bitcoin bridges.
  • 🦬 Bison — A zk-rollup L2 for Bitcoin that uses STARK cryptographic proofs in combination with Ordinals tech to facilitate data storage. 

The pulse of Bitcoin

How to get started on Bitcoin

To begin using Bitcoin, you will need two things: BTC and a Bitcoin wallet. 

The most straightforward way to acquire BTC is to purchase some on a crypto exchange platform like Coinbase or Kraken. You don’t have to purchase one whole BTC at a time and instead can buy fractional amounts as you please. For example, at the time of this guide’s latest update, $215 would fetch you 0.005 BTC per the current BTC /USD exchange rate. 

Once you have some BTC ready to go, you’ll want to deposit it into a personal wallet that you control. If you’re looking for an experience similar to what you’re used to in the Ethereum or Solana ecosystems, consider browser extension wallets like Leather, Magic Eden, or Xverse. All three of these wallets support BTC, Ordinals, BRC-20s, and rare sats. 

The Bitcoin NFT ecosystem

NFT-like assets were first ideated in the Bitcoin community as far back as 2012 via the concept of “Colored Coins.” Things next started to pick up in 2014 upon the launch of Counterparty, a protocol designed for creating digital assets on top of Bitcoin. 

However, the biggest activity surge in the Bitcoin NFT ecosystem to date has been around Ordinals, a system for creating digital artifacts entirely on Bitcoin that was first introduced in January 2023. 

Notably, Ordinals are created by inscribing data onto individual satoshis, a process that makes them distinct and tradable as Bitcoin-native NFTs. This innovation has transformed satoshis into collectible items, e.g. “rare sats,” and paved the way for innovations like recursive inscriptions that can make Bitcoin NFT collections dynamic. 

The rollout of Ordinals on Bitcoin has led to a huge surge of activity around Bitcoin’s NFT scene, inspiring innovations like BRC-20s and Runes and rejuvenating interest in older ones like Bitcoin Stamps. Some NFT projects that have risen to the fore here recently include NodeMonkes, Bitcoin Puppets, Bitmap, and Pizza Ninjas

The future of Bitcoin

In contrast to Ethereum’s ambitious development roadmap, Bitcoin is maintained more conservatively and doesn’t have any major network upgrades on the horizon. This conservativeness has made Bitcoin more palatable to the mainstream as evidenced by the recent approval of BTC ETFs in the U.S.

That said, the network has become a strong base for external protocols like Ordinals and Stacks that can extend its functionalities toward new ends. In the years ahead, look for a surge of more projects building on and around Bitcoin via these sorts of additional layers as interest has been renewed here since 2023. 

However, challenges do remain. For instance, Bitcoin’s mining rewards are halved every four years, a reality that could make it unprofitable to secure the chain in the distant future if transaction fee revenues don’t rise enough to compensate for the shortfall. Additionally, it seems likely that pressure will rise for Bitcoin to move to the greener Proof-of-Stake (PoS) consensus model as environmental concerns over the PoW mining approach continue on. 

All in all, with the growing recognition of Bitcoin as both a store of value and a platform for technological exploration, the future appears bright. The Bitcoin community's commitment to maintaining the network’s foundational principles while experimenting with new layers of functionality promises to keep the original blockchain at the forefront of the cryptoeconomy for the foreseeable future. 

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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