An Overview of Bitcoin
It is hard not to have heard about Bitcoin with its recent surge in price all the way up to $20,000 per coin in December 2017. But many still don’t understand the fundamentals of what Bitcoin really is, how it works, and what it really means for the future of money. This piece aims to bring clarity to what Bitcoin is for those who are just beginning their cryptocurrency journey.
Bitcoin is the original cryptocurrency. Before all else, there was Bitcoin. It is the first decentralised digital currency. Bitcoin exists on the internet, it does not belong to any government or is not controlled by any bank. Bitcoin is an electronic money protocol, similar to VOIP or HTTP, Bitcoin can be classified as Money Over the Internet Protocol (MOIP).
Anyone can use bitcoin to send money to another person, without having to go through a centralised intermediary, like a bank. It is controlled collectively by the participants in the network. Bitcoin is a completely global and open system of money that anyone can participate in.
…So how does it all work?
The bitcoin blockchain is secured by miners who verify transactions between parties and are rewarded newly generated bitcoins as a reward for doing so. Every transaction that is verified is recorded on a transparent public ledger. Transactions are grouped into blocks before being verified by miners. This ledger is accessible by anyone and the transactions that occur on each block can be seen on sites like http://www.blockchain.info . Once this record is created on the blockchain, it cannot be reversed or altered, this is what makes blockchain technology so powerful. Mining can be carried out by anyone with enough computing power to solve the complex mathematical problem required by the system to validate the transaction. This also acts as a built in security mechanism as it is intentionally resource intensive method to govern the monetary system.
Another unique property of Bitcoin is its scarcity. There will only ever be 21 million Bitcoin in existence and the current circulating supply today is just under 17 million coins. Based on the estimated block reward halving frequency every 4 years, it is estimated that all 21 million Bitcoin won’t be in circulating supply until the year 2140. Due to this scarcity, Bitcoin has recently been equated to an internet based digital form of gold and store of value. Gold is universally scarce, and so is Bitcoin. The qualities that make gold a sound source of money are also true for Bitcoin, both are scarce, divisible, portable, durable, recognisable and fungible. There are around 7 million people that own Bitcoin today, still a staggeringly small percentage of the world population.
The Original Bitcoin Whitepaper
If you have understood everything so far, great! The original bitcoin whitepaper was written by an unknown person/people going by the pseudonym of Satoshi Nakamoto all the way back in 2008 and it sets out all of the technical details and intricacies of how Bitcoin actually works. If you want to know the finer details you can check it out. https://bitcoin.org/bitcoin.pdf . Nakamoto outlines the vision as to why the world needs a purely peer-to-peer version of electronic cash and how this can be done by providing a solution to the double spend problem and removing the need for centralised financial institutions to approve transactions.
At a fundamental level, Bitcoin poses a huge threat to centralised financial institutions, governments and nation states around the world. It is open, it is borderless, it is transparent and it gives anyone the ability to interact and transfer value on a peer-to-peer level. It removes the barriers to trade and democratises the transfer of money, just like email democratised communication.
For more in depth information you can check out some of our other articles breaking down the Crypto space here.