So, what is Bitcoin?
Bitcoin has been around for over 11 years now and is by far the most popular and well-known digital asset in the world. Launched on 3 January 2009, it’s the first-ever cryptocurrency to enjoy mainstream adoption and widespread appeal.
To truly appreciate the importance of Bitcoin, you should learn about its history and gain a basic understanding of its core principles and underlying technology.
A key factor that differentiates Bitcoin from other major cryptocurrencies is the mystery surrounding its creator, ‘Satoshi Nakamoto’. The name represents the identity of an individual (or group) who developed and launched Bitcoin in the years leading up to 2009. Since no living person with that name has been found to be the inventor of Bitcoin, it is widely accepted that the name is a pseudonym. It’s possible that Nakamoto wished to remain anonymous in the event that Bitcoin one day threatened the financial status quo.
In the run-up to Bitcoin’s launch, several people interacted with Satoshi Nakamoto online, via email, cryptography forums, and digital currency boards. Amongst these were British computer scientist Hal Finney, Chinese computer engineer Wei Dai, American computer scientist Nick Szabo, and British cryptographer Adam Back. Over the years, many crypto enthusiasts have speculated on whether one or more of these people are the real Satoshi Nakamoto, but all evidence remains inconclusive.
Over the years, Bitcoin has attracted its fair share of controversy and criticism, some of which have hindered its progress. While few would claim the system is perfect, much of the criticism is either unwarranted or not related to a specific problem inherent in Bitcoin itself.
One of the most notable events in Bitcoin’s long history involved the online dark web marketplace ‘The Silk Road’. When the FBI busted the illegal website in 2013 and confiscated $1 billion worth of Bitcoin, it became infamous as a currency widely used for illicit activities. In reality, however, the vast majority of criminals still use traditional cash and the transparent nature of blockchain technology actually makes Bitcoin unattractive for illegal transactions.
Bitcoin operates on a type of distributed ledger technology (DLT) known as a blockchain. DLT describes a ledger or database of information that is not stored on any one single computer but is rather spread across many computers in a network. The idea being that no single entity has complete control over the database and all transactions must be verified by every computer on the network.
Blockchain expands upon this technology by introducing cryptography to the mix and collating data into blocks. Once completed, each encrypted block is stored on the chain in chronological order, after which no more changes can be made. This immutability combined with a decentralized network makes blockchain a highly secure technology that becomes more secure the larger it grows. In order to successfully attack the network, you would need more than 50 percent of the entire networks computing power.
With an estimated 100 million users worldwide, Bitcoin is by far the largest and most secure cryptocurrency network today.
#Bitcoin explained by a 3 year old 🙃 pic.twitter.com/sNlZPetauD— Lily’s Show (@LilyKnightShow) February 15, 2021
Why we need Bitcoin
When minting the first block of the Bitcoin network, Satoshi Nakamoto embedded within the code a newspaper headline from the day, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” It is widely believed that this text serves as Nakamoto’s reasoning for why the world needs a decentralized, peer-to-peer electronic cash system.
Just one year prior, the 2008 financial crisis revealed to the world how unreliable the existing financial system is. Despite clear evidence of corruption and widespread disregard for regulations, governments around the world bailed several banks that were complicit in the crash and pushed the cost onto the taxpayer.
With no central control, a transparent ledger, and a fixed supply of only 21 million coins, Bitcoin has several features that could solve these issues and many others commonly found in traditional financial systems. Beyond providing financial freedom and security, Bitcoin is free to store, historically provides excellent long-term gains, and can be sent internationally for a fraction of the cost and time associated with traditional cross-border payments.
In his seminal 2009 ‘Bitcoin Whitepaper’, Nakamoto outlines the specific mechanics behind how the Bitcoin network operates. Using a consensus method known as ‘Proof of Work’, Bitcoin requires participants known as miners to contribute computing power to the network in order to keep it running.
Every 10 minutes, miners compete to solve a complex equation for which the winner is rewarded a small amount of Bitcoin. To ensure scarcity and increase Bitcoin’s value, the amount created is halved approximately every 4 years. So far, over 18 million of the 21 million coins have been created but the halving events ensure that the remaining 3 million will still take many decades to produce.
However, you don’t have to be a miner to own Bitcoin, there are hundreds of convenient ways to get involved in this exciting new asset class. Normal citizens can buy and sell Bitcoin through a myriad of online methods, including exchanges, peer-to-peer marketplaces, and smart investment apps. Apps like Bamboo provide an easy way of buying Bitcoin by simply rounding-up purchases and investing the remaining cents.
Over the past 11 years, Bitcoin has proven its strength and resilience as an excellent store of value and one of the strongest forms of digital money available. It has grown in value from less than a single cent to over $50,000 USD per coin, and during that time overcome many technological, political, and regulatory issues.
As a result, some of the biggest companies in the world are now adding Bitcoin to their balance sheet. From Paypal and Mastercard to Tesla and Square, companies from all different industries are getting involved. After many years of fighting to prove its worth, it seems Bitcoin has finally achieved institutional acceptance and secured its position in the financial future of the world.
This article is not intended to be construed as financial advice and does not take into account your personal financial situation, needs or objectives.