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Funding and Fundamentals: Down the Rabbit Hole of Bitcoin
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Funding and Fundamentals: Down the Rabbit Hole of Bitcoin

The top cryptocurrency in the world is being snapped up by investors, here’s what you need to know to get in the game. 

For a huge variety of reasons, bitcoin is a highly attractive asset. Not just because it has historically made a lot of people a lot of money, but also because of what the network itself represents. Investing in bitcoin is investing in the technology of the future, and that investment requires an amount of familiarity.

While enticing, bitcoin can still be somewhat intimidating, especially for newer investors, but with exchange platforms like Bitvavo, and the many media outlets and forums dedicated to it- understanding bitcoin doesn’t have to be difficult.

Understanding Bitcoin Funding:

Bitcoin funding can actually refer to a few different things within the realm of bitcoin. “Funds” can refer to specific investment opportunities, market sentiment, or how the bitcoin network finds money for its upkeep. For the purposes of this particular article, we’ll be talking about the funding from a “funding network developers” point of view. Meaning- how exactly do the people that maintain bitcoin’s network get paid? 

Network maintenance, consensus mechanisms, and protocol updates are all incredibly important aspects to curating a healthy and useful bitcoin experience. While the network is technically “self-maintained”, meaning that those that use the network are the same that maintain it, these individuals still require some sort of compensation for their time and effort. 

Most of this sort of compensation is accrued from mining. Mining is the process in which individual computers (nodes) that are connected to the bitcoin network, compete to solve complex equations. Once an equation has been solved, the associated bitcoin transaction is considered valid and added to bitcoin’s public ledger (blockchain). After a node has added a transaction to the blockchain, it is rewarded bitcoin. 

When it comes to developing specific code (protocol) used to create and maintain the network itself, this is often done by developers that volunteer their time. When new protocol is created and developers want to add it to the network’s operating system, it must go through a vote. There is also a type of protocol-level monetization or sort of “crowdsourcing” that goes on. Often with the development of new ICOs. As new tokens hit the market and are bought, this money goes towards a number of projects that the ICO’s represent. 

What Are Bitcoin Fundamentals? 

Fundamentals is another word that seems to get used in a number of different contexts when discussing bitcoin, but again, we’re taking a closer look at the fundamentals that make bitcoin tick. They are the bare bones that allow the network to exist, and allow bitcoin to be worth a monetary value. Fundamentals can be a good metric by which to gauge the health of the network overall, if your fundamentals are functioning well, chances are bitcoin is booming. These fundamentals are also key participants when it comes to the speculation of bitcoin pricing. Protocol improvements and mining have already been mentioned to a superficial degree above- but these are also two fundamentals of bitcoin. 

Artificial Scarcity:

Artificial scarcity is an economics term that describes the relationship between how much of a good, product, or asset exists, how much of it is currently demanded, and how much of it is obtainable. In relation to bitcoin, this is the relationship between the 21 million bitcoins that can ever exist, how many of them have already been mined, and how many of them are available for buying or trading. 

Safehaven Decentralization:

Bitcoin is considered a “safehaven” asset not only because it functions well during times of economic downturn, but because of its decentralized nature. In places where government all overreach has caused societal unrest, or hyperinflation has destroyed the value of that country’s national currency, bitcoin can function as an asset that would maintain it’s worth, and stay well out of the overreaching government’s hands. 

Hashrate: 

Hashrate defines how many bitcoin transactions can be processed at any given time. It is a measure of how many nodes are currently supplying computing power to the network. The more power available to the bitcoin network, the more secure it is and the quicker transactions can be processed. With larger Hashrate s, mining becomes much more attractive to users, which can also serve to give an idea regarding general adoption and bitcoin’s price outlook. 

Halving:

Halving is an event that happens roughly every four years, or every time 210,000 blocks have been added to the blockchain. During a halving event, the reward that miners received for solving the complex mathematical algorithms is halved. This can have a huge impact on hashrate and network security. 

Global Politics:

Global political sentiment is another fundamental that can affect the price of bitcoin. While it’s not directly related to the cryptocurrency in and of itself- because bitcoin is looked at as a safehaven asset, when political instability is noted, bitcoin adoption often increases. 

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