How did Bitcoin get so expensive?

The history of the first cryptocurrency has many ups and downs. Let's take a look at what makes it unique and why Bitcoin is so expensive.

History and application of Bitcoin

Development of the first cryptocurrency began in 2007 under the leadership of Satoshi Nakamoto. It is not known for certain whether this is one person or a group of people, real name, surname or pseudonym. The Bitcoin developer wished to remain in the shadows, but made a huge contribution to the development of cryptocurrencies.

In 2008, Satoshi published a list of guidelines and described the blockchain protocol. In 2009, the client program code was completed. The first block was added to the peer-to-peer network on January 3, 2009. The mining reward was 50 BTC.

The first transaction between the two parties took place on January 12, 2009. Nakamoto transferred 10 BTC to programmer Hal Finney, with whom he was in active correspondence.

Their communication was fruitful. Finney made a huge contribution to the development of cryptocurrency - he was an early miner of Bitcoin blocks, found a way to increase the anonymity of the network, and increased the speed of transactions by ⅕.

A serious illness cut short his life path in 2014. In recent years, he was paralyzed, but continued to work with the help of software that responds to the movements of the eyeballs. Wrote a program to increase the security of bitcoin wallets. Worked on a second level concept for blockchain scaling.

It was Finney who first predicted that the cryptocurrency could be worth $ 10 million. In his calculations, the programmer relied on the dominant position of BTC among other payment systems, which Bitcoin will definitely take in the future.

In his opinion, in this case, the total value of the digital currency should correlate with the well-being of all households in the world. In 2009, this asset was valued from $100 to $300 trillion. With the 21 millionth issue of bitcoin, one coin will cost $10 million. Therefore, mining can bring a good profit — 100 million to one!

This post by Finney is considered the first example of evaluating the value of a virtual currency. Backed by support from early adopters of bitcoin, the coin has grown rapidly.

7 months after its creation, two bitcoin angels — Marty Malmi and a user with the nickname NewLibertyStandard — exchanged 5050 BTC for real money. The recipient received $5.02 in the PayPal account. This is exactly how much cryptocurrency mining costs.

The first purchase with digital currency took place in 2010. On a fine May day, US programmer Laszlo Hanech exchanged 10,000 of his bitcoins for two delivery pizzas. This day in the history of cryptocurrency is annually celebrated as Bitcoin Pizza Day.

More than ten years have passed since then. Today bitcoin is a store of value and is actively used for trading. Block mining has become a billion-dollar industry.

BTC can buy hundreds of thousands of goods — from real estate to croissants and coffee in progressive cafes. Its widespread use popularizes cryptocurrency, transforming it from a speculative asset into a convenient means of payment.

Why is Bitcoin so expensive

The rise in the price of cryptocurrency began from the moment of its creation. Its cost was influenced by many factors, ranging from anonymity, which users liked, to the possibility of making a good profit with minimal investment. Let's consider the main ones.

Limited emission

Unlike any national cryptocurrency, Bitcoin has a limited release. Its emission (number of coins issued) will be 21 million.

Considering that about 6 blocks are generated per hour, with an initial mining reward of 50 BTC, it would take a little under 8 years to issue all the coins.

To extend the process of generating tokens, a halving procedure was developed and implemented. Every four years since November 2012, the mining reward has been cut in half. The last halving took place in May 2020. After that, for the extraction of the block, miners began to receive 6.25 BTC.

 

 

The limited release and the regular reduction in the reward for adding a block to the network create two prerequisites for the constant growth of the cryptocurrency price.

Number 1. Every 2016 blocks, the complexity of cryptographic calculations is growing. This increases the cost of mining BTC and raises the cost of mining.

An important barrier is being formed — the break-even line, below which the bitcoin price did not fall even during the crisis years. Miners have been cutting network fees to keep the price of BTC above their generation costs.

Number 2. Halving is cutting the number of new bitcoins on the network. According to the law of supply and demand, the fewer assets in circulation, the higher their value. So the emission of bitcoin and reasonable halving directly affect the future of the cryptocurrency.

A limited number of coins helps fight inflation, serves as a cost support and gradually increases the value of tokens.

Do not forget that, according to analysts' calculations, only 14.3-33.3% of tokens from the total emission will be available for use. Access to the rest will be closed due to the loss of passwords and private keys to wallets.

Most of the cryptocurrency will end up in the cold wallets of institutional investors. Therefore, there will be very few coins in circulation.

Faith

Bitcoin is a high-risk and volatile asset. Its value is subject to ups and downs. According to analysts, a bull market is a period of growth in the price of a cryptocurrency that repeats itself in cycles. The frequency is 2-2.5 years.

The driving force behind the new growth is the belief that the price of BTC has not yet reached the threshold. At the same time, analysts' forecasts become more and more optimistic with each round.

For example, the CEO of Galaxy Digital, Michael Novogratz, in one of his forecasts said that the price of bitcoin at the end of 2018 will be from $ 8.8 to $ 9 thousand.In 2019-2020, the cost will be $ 20 thousand or more.

In 2021, Novogratz made a forecast for the next decade. He believes that the price of bitcoin will rise to $ 500 thousand largely due to the government's wrong actions to suppress the crisis - the introduction of financial incentives, the printing of new money. All of this will stimulate hyperinflation and lead to the collapse of fiat money.

Bitcoin, unlike traditional means of payment, has a unique technology and offers investors new opportunities. The expert noted:

"Bubbles and manias appear around those things that are fundamentally changing the way we think."

Belief in bitcoin is a hope that the way money works in the modern world will fundamentally change, Novogratz said. This will help avoid new economic crises and improve people's living standards.

Expensive system maintenance

The digital currency blockchain relies on regular block generation and overall network support. This task falls on the nodes of the blockchain (nodes). They are of several types.

Full nodes are nodes that contain the entire history of Bitcoin transactions. They are needed to store copies of the blockchain. To become a blockchain node, you just need to download the bitcoin distribution kit. Today it weighs over 371.15 GB.

Nodes can also provide their computing capabilities for block mining - adding information about new transactions to the blockchain. The Bitcoin network uses POW mining (proof of work).

Each device involved in mining must spend a significant amount of resources in order to add a new block and receive a reward. This provides protection against hacking and cyber attacks (DDoS), ensures the stability and immutability of the network.

Miners use high-performance systems (today, this is Asic) to perform complex cryptographic calculations to find a unique hash sum of a new block.

The first device that finds the required number adds the block to the network. In this case, the rest of the nodes must confirm the correctness of the added information.

The use of high-performance Asic miners is practically not available to individuals. The cost of devices in this category starts at $2.5 thousand.

Additional items of expenditure are the cost of paying for electricity, renting a mining room, creating a cooling system and depreciating equipment.

Popular miners price:

 

Miner

Hash power

Price

Antminer S19 Pro

110.0 TH/s

$8-10,000

WhatsMiner M30S+

100.0 TH/s

$2,550

WhatsMiner M30S++

112.0 TH/s

$2,850

AvalonMiner 1246

90.0 TH/s

$5,500

 

To build a farm, you need several devices. Therefore, Bitcoin blocks are usually mined by large companies or mining pools.

Demand

Bitcoin is actively used in a number of areas of business and the global economy:

  • Allows you to pay for goods and services (groceries, essential goods, cars, real estate, travel packages and much more).
  • Provides anonymous instant transactions around the world without borders and limits.
  • It is an asset that is well quoted by private and institutional investors.
  • It can become a store of value, which is especially important for countries with unstable economies.

The bitcoin network works around the clock and without interruption. It is deflationary in nature and provides easy access to investments for all holders. It is enough to buy BTC and store it on an exchange or cryptocurrency wallet.

Investments of large players

 

 

Many large companies have also invested in bitcoin and continue to invest their funds. Among them are Tesla, Microstrategy and others. This allows us to predict support for bitcoin in the event of a fall in its value.

In a word, BTC has plenty of prerequisites for a rise in value. If you decide to try your hand at the world of cryptocurrencies, do it with a trusted and reliable partner - BINANCE

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Coin Shark is not responsible for the content, accuracy, quality, advertising, products or any other content posted on the site. This article is for informational purposes, prepared on the basis of materials and information from open sources. Cryptocurrency is a high-risk asset, investments in it can lead to losses. Readers should do their own research before taking any action.