Bitcoin is a digital payments system and form of cryptocurrency invented in 2008 and launched in 2009. It’s the world’s first widely used cryptocurrency, and its creation follows several failed attempts at digital forms of peer-to-peer money.
The creator of Bitcoin goes by the pseudonym Satoshi Nakamoto, and their true identity remains unknown to this day. Satoshi published the Bitcoin whitepaper in October 2008, which described a way to create a monetary network without the need for a central authority.
With Bitcoin, you can transfer a digital source of money to anyone from anywhere in the world.
It is a new monetary asset class where transactions are recorded on a ledger. This ledger is the Bitcoin blockchain. All transactions ever recorded on this blockchain are visible to anyone. As a result of the vast amount of computing power it takes to ‘mine‘ blocks of Bitcoin, some describe it as ‘digital gold’.
Many believe that Bitcoin will continue gaining legitimacy as a financial product. Whilst Bitcoin’s purpose, growth expectations and environmental impact are subject to each individual’s perception, more and more people believe it’s here to stay.
What Makes Bitcoin Valuable?
Indeed, the current system of money and payments works pretty well in stable, developed countries. Even though central banks and governments control these currencies, anything radical and extreme rarely occurs. Even though banks and payment processors can freeze your funds, reject your transactions and cancel your accounts, the reality is that most people will never have to deal with such concerns.
But if you’re one of the billions living in countries that are relatively less stable and developed, this can be a genuine occurrence.
Transactions can happen without the oversight or control of banks or governments. This means the 1.7 billion adults worldwide who are either unbanked or from corrupt countries can manage their finances independently.
Bitcoin presents as a digital currency solution, transgressing borders and establishing an equal, common monetary system.
Bitcoin was aimed to solve because, despite so much of our lives transitioning online, money remains in physical form and is relatively archaic. Bitcoin solves this issue by making it easier to transfer value across its platform, which is why banks take so much time to move international currencies.
Bitcoin is resistant to censorship and tampering.
Because banks and governments are unable to control an individual’s Bitcoin, this makes it censorship-resistant. It is the only currency wholly owned by the individual, without any interference by a third party. In other words, Bitcoin is an open-source, peer-to-peer monetary system.
In contrast, because fiat currency involves middlemen such as governments and banks, it is open to bureaucratic hierarchies. Central banks have the ability to corrupt the pricing valuation system. Through Bitcoin’s decentralised network, no central entity can skew its value.
Bitcoin’s immutability is also an attractive property to bitcoin users. (This means that no one can alter previous Bitcoin transactions.) As the network can be audited at any time due to its transparency, this bolsters Bitcoin’s integrity as a viable source of currency. There are tens of thousands of computers working to verify every new transaction.
Additionally, the Byzantine generals problem describes a situation where parties must solve an issue together. However, some of the members are corrupt and are sharing false information. For decades, this has been a big issue in computer science. It is believed that Bitcoin has essentially solved this issue due to its transparency, security and immutability.
Another reason why Bitcoin matters are because of the technology that it uses. Blockchains record and transparently shows all of their data. Anyone who uses the software can add to the blockchain, but it is incredibly difficult to modify or take information away. (This would require every digital device to consent to the change, which is highly unlikely.)
When a new transaction is approved, every node running the Bitcoin software updates their respective copies of the ledger. The Bitcoin blockchain architecture is robust, as it has been able to run billions in value securing whilst sorting valid and invalid transactions without being hacked. On top of this, no central authority has ever been in charge of the whole system.
While this new digital currency and associated technology present several benefits, certain trade-offs are considered when learning about it.