He's at it again! 

In May of this year, Tesla founder Elon Musk announced that his car company will no longer accept bitcoin as payment for his top-of-the-line electric vehicles, citing the harm the intensive bitcoin mining process causes to the environment. And then, in the early days of June, he tweeted out what most interpreted as a break-up message.

Bitcoin's value plummeted and the crypto-community, particularly the hacktivist group Anonymous, took the billionaire to task for playing with people's lives and livelihoods.

Less than a fortnight later, Musk reversed his position again, proclaiming that if Bitcoin miners could confirm that they've reduced the energy consumption needed to perform their task by at least half, he will again accept bitcoin as a form of payment for Tesla cars.

Once again, the market soared.

Is Elon Musk just having fun making the market flex to his whims or is there really something to his stand on energy consumption and environmental protection? Some argue that his SpaceX venture offers real proof of his convictions.

And why is he laser-focused on Bitcoin?

Superprof sheds some light on the debacle by demystifying Bitcoin.

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Let's go

The Birth of Bitcoin

How poetic is it that the author of Bitcoin's white paper first posted it on a cryptology mailing list?

There's nothing sinister about a crypto mailing list. There are also cyberpunk mailing lists, P2P mailing lists and P2Presearchers mailing lists. Just like any other community, cryptenthusiasts like to stay in touch. So, again: it's poetic. Consider these dates...

On August 18 - coincidentally the birthdate of Egyptian-American cryptographer Taher Elgamal, the bitcoin.org domain was registered. On Halloween 2008, Satoshi Nakamoto posted his paper, titled Bitcoin: a Peer-to-Peer Electronic Cash System. That date is generally thought to be tied to ancient harvest festivals.

On the following January 1st, a date typically considered symbolic of new beginnings, the open-source code for Bitcoin was released. Three days later, the genesis block was mined. See? Poetry! Not that there's necessarily any significance to those particular dates; it's all just speculation.

The very first bitcoin recipient was Hal Finney, a cyberpunk who devised the original proof-of-work system (in 2004). Upon bitcoin's release, he downloaded and installed the software, making him well-positioned for that 10-coin grant from Satoshi.

Other cryptocurrencies predate bitcoin, notably those created by Nick Szabo (bit gold) and Wei Dai (b-money). However, none incorporated a blockchain design; Bitcoin pioneered the distributed ledger concept.

In 2010, Satoshi Nakamoto 'vanished' after handing Gavin Andresen the (figurative) keys to the castle. To this day, nobody knows who Satoshi is.

By contrast, the Ethereum team, also called the Ethereum mafia are much more visible and renowned. Are you interested in buying Ethereum? Let Superprof show you how...

Bitcoin Terminology

You may have noticed that, throughout this article, sometimes 'bitcoin' is capitalised and sometimes not. There's a reason for that. 

Unless we're starting a sentence with that word - in which case, grammar rules dictate that we must capitalise it, Bitcoin refers to the Bitcoin Foundation or any entity with Bitcoin in its name. The lowercase bitcoin represents the unit of cryptocurrency.

The symbol for bitcoin is easily confused with the symbol for the Thai sovereign currency, the baht.

To make the distinction clear, note that while both currencies consist primarily of a capital B, the baht has a single vertical line visible all the way through it while the bitcoin suggests double vertical lines through its placement of twin nodes on the top and bottom of the B and no lines running through it.

Bitcoin has four nodes but baht has a line running through it
Bitcoin is easily distinguishable from the Thai baht by its nodes on the top and bottom of the B. Photo credit: joncutrer on VisualHunt.com

Now, for a touch more confusion. The abbreviation for these crypto coins is BTC, not BTS. That's the name of the super-hot Korean boy band.    

New technology demands new vocabulary and cryptocurrency is no different. Sure, some words have been adapted to fit both real-world and virtual currencies; wallets and coins are a prime example of such. When you buy bitcoins, you are purchasing a stake in a protocol/process; you will not receive any shiny gold coins engraved with a B.

Other words and phrases had to be invented out of whole cloth, like blockchain and dead cat bounce. Let's go over some of the more often-used words in the cryptocurrency lexicon.

  • blockchain: the record of bitcoin transactions, similar to a ledger, consisting of networked computers (nodes) that validate transactions and update the ledger.
  • node: units that confirm and validate transactions
  • bit: a fraction of a bitcoin; each coin has a million bits
  • broker: someone who trades in cryptocurrencies for a living; also called a dealer
  • Merkle Root: a summary of all transactions in a block (transaction details are reflected in the Merkle tree)
  • altcoin: any cryptocurrency that isn't bitcoin

What about that most intriguing-sounding term, dead cat bounce? That's when a cryptocurrency bounces back from a steep drop. With all of his tweets about bitcoin, Elon Musk is becoming a master at generating dead cat bounces...

Why is he so fixated on bitcoin, anyway? Does he not know how to buy the Binance coin?

A diagram to explain blockchain
This diagram explains the basic function of blockchain technology. Photo credit: U.S. GAO on VisualHunt

Explaining the Blockchain

If you're into dystopian fiction, you might visualise the blockchain as a never-ending stream of sad, exhausted people endlessly trudging on a monstrous, eternally-moving treadmill while alien guards - maybe large insects exhort them ever onward.

The reality of blockchain is much less gruesome and far niftier.

First, understand that the 'block' in question represents a records storehouse. Any time a bitcoin transaction takes place, information must be recorded; they are then stored in blocks.

A block of such information includes a hash of the previous block in the chain, a representation of the current block's transactions (called the Merkle Root) and the challenge of finding a new block. Each block also bears a timestamp reflecting when it was found.

Once a block is complete, it cannot be changed. Thus, all of the information contained in that block stands as a permanent record of the transactions it recorded. Furthermore, it is hack-proof - at least so far, it has been.

There have been a few cryptocurrency thefts; some totalling millions of dollars. Discover the role Tether played in some of these dramatic heists.

Because a blockchain is essentially a ledger, albeit in digital form, it may be used to record anything that can be represented by a string of binary - 1s and 0s. Thus, uploading marriage licenses and birth certificates, property deeds and other important permanent documents to the blockchain is entirely possible.

In fact, blockchain technology is what makes non-fungible tokens possible.

If you've been keeping up with the news, you surely know about high-dollar NFTs being sold off. For instance, Twitter CEO Jack Dorsey's first tweet recently sold for $2.9 million. The buyer did not get a framed copy of that tweet, only a certificate that they are now the proud owner of a one-of-a-kind digital artefact.

The record of that sale rests in a block, somewhere on a blockchain, in cyberspace.

As awareness of blockchains' possibilities grows, more governments and businesses are studying ways to incorporate blockchain technology into their operations.

For the rest of us, bitcoin is one of the top five currencies to invest in this year.

The QR code gives you access to your bitcoin when you're on the go
To spend bitcoin in retail outlets, you only need to scan your account code for the funds to be debited. Photo credit: zcopley on VisualHunt.com

How Does Bitcoin Work?

Regardless of the role you see cryptocurrencies playing in your future - as an investment vehicle, an income stream or a nifty way to pay for your coffee - always providing your fav coffee shop accepts payment in bitcoin, bitcoin works the same way.

First, you need to research cryptocurrency exchanges to see which ones offer the best deals. Superprof recommends you stick with those overseen by the Financial Conduct Authority because there are more than a handful of platforms that have a less-than-sterling reputation.

You should also decide how you're going to manage your cryptocurrency.

If investing is your primary goal, you should opt for a hardware wallet to store your coins on. This would be something like a USB, to which you load your account particulars, removing it from your device so that your wallet is no longer connected to the internet (until you plug your USB back in).

Conversely, if you plan to actively trade - become a day trader, there's nothing wrong with keeping your coins on the exchange.

That's why checking out what brokers have to offer is important. You want to make sure their platform will have all the tools and features you're looking for.

Once you settle on a broker, you may open your account but beware that you will have to upload some sort of identification and then wait for your account to be approved. Once you're cleared, you must fund your account.

In the UK, most commonly, people use their debit or credit cards. Even if you stop by a bitcoin machine, those that look like regular banking machines but deal in bitcoin, you will still have to pay for the coins you're buying; using your bank card is the most efficient way to do it.

Once you have bitcoins, you can spend them on whatever you wish.

Let's say you do want that coffee and your fav shop does accept payment in bitcoin. Come time to pay for your brew, you only need to flash your Bitcoin account's QR code at their code reader.

You can also use bitcoin for online activity. You might want to diversify your portfolio by trading bitcoin for other cryptocurrencies and invest in a few stablecoins, whose value doesn't fluctuate. You might also loan your coins out for a time, collecting interest when they're returned.

We owe the engine that drives cryptocurrencies' potential - the blockchain, and the network of nodes that keep it going. and the miners who drive the process and everyone willing to take a chance on these new technologies a huge debt of gratitude. They're making possible a safer, freer world for us all.

But nobody deserves more thanks than Satoshi Nakamoto, that mysterious individual who gave the world his brainchild.

Now, discover why Cardano's price predictions are so encouraging...

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Sophia

A vagabond traveler whose first love is the written word, I advocate for continuous learning, cycling, and the joy only a beloved pet can bring. There is plenty else I am passionate about, but those three should do it, for now.