What Is Bitcoin?
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 that it’s here to stay.
When trying to understand exactly what Bitcoin is, it’s often worth stepping back and defining money. Check out ‘What is Money?‘ in the Collective Shift’s Knowledge Centre for more.
What Makes Bitcoin Valuable?
It’s true that the current system of money and payments works pretty well in stable, developed countries. Even though these currencies are controlled by central banks and governments, 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 very real 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.
A problem Bitcoin was aimed to solve is the fact that despite so much of our lives having transitioned online, money still remains in physical form and is relatively archaic. Bitcoin solves this issue by making it easier to transfer value across its platform, which is the reason why banks take so much time to move international currencies, for example.
Bitcoin is Resistant to Censorship & Tampering
Because banks and governments are unable to control an individual’s Bitcoin, this makes it censorship-resistant. It is the only currency that is 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 is able to skew its value.
Bitcoin’s immutability is also an attractive property to bitcoin users. (This just means that it’s virtually impossible for anyone to 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 a group of parties must agree on solving 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 is 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 architecture of the Bitcoin blockchain is incredibly strong, 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.
Whilst this new digital currency and associated technology presents several benefits, there are certain trade-offs to consider when learning about Bitcoin.
- Bitcoin presents as a digital currency solution, transgressing borders and establishing an equal, common monetary system.
- Bitcoin is censorship-resistant as people get to control their bitcoin. There is no oversight from governments, central banks or any other third party.
- Many see immutability as a valuable aspect of Bitcoin. It is nearly impossible to manipulate, replace or act fraudulently within the network.