What exactly is Bitcoin?
Bitcoin is a digital currency that was formed in January 2009 in response to the 2008 financial crisis and the housing market catastrophe in the United States and most developed and developing countries across the world.
Any kind of payment that is solely electronic is referred to as digital currency. It isn’t as tactile as a dollar bill or a coin. Computers are used to account for and transfer money.
Smartphones, credit cards, and online cryptocurrency exchanges are all used to swap digital money. It is frequently converted into real currency in various instances, such as by withdrawing cash from an ATM.
There are many different types of cryptocurrencies, but Bitcoin is the most commonly acknowledged, popular, and widely utilized kind of digital money or cryptocurrencies today.
Why was Bitcoin created?
Many of the world’s most popular currencies were convertible into set amounts of gold or other precious metals during the 19th and 20th centuries. Between the 1920s and the 1970s, however, most countries abandoned the gold standard, partially due to the strains of paying two world wars and worldwide gold production’s failure to keep up with economic progress.
Furthermore, actual assets like gold and silver were traditionally exchanged for goods and services. Banks, on the other hand, kept tangible assets for customers because they were burdensome to transport and prone to lose and theft. They produced notes authenticating users’ bank holdings.
Banks are entrusted with maintaining the value of their currency and safeguarding their funds. Nonetheless, several banks and other financial institutions failed around the world between 2008 and 2009, requiring governments to bail them out at the expense of taxpayers.
The failure of banks (as custodians of public monies) demonstrated how vulnerable the modern financial system may be, as well as the necessity to decentralize financial services to improve the consumer experience. As a result, it has been viewed as a reaction to the Great Financial Crisis and the financial world’s reliance on banks to facilitate financial transactions.
Satoshi Nakamoto had the idea of replacing banks in financial transactions with a peer-to-peer (P2P) payment system that didn’t require third-party confirmation, removing the need for banks to facilitate every transaction. Bitcoin and other cryptocurrencies create trust through the blockchain, which is a network-based ledger. So, when did it come into being?
The blockchain was officially established on Jan. 3, 2009, when the first block, known as the genesis block, was mined. The first test transaction took place a week later. For the first several months of its existence, the Bitcoin blockchain was only accessible to miners validating Bitcoin transactions.
At this stage, Bitcoin had no monetary value. Miners — devices that perform complex math problems in order to discover new Bitcoin and verify that existing Bitcoin transactions are valid and accurate — would trade Bitcoin for entertainment.
On May 22, 2010, a Florida man arranged to have two $25 Papa John’s pizzas delivered in exchange for 10,000 Bitcoin, which took more than a year to accomplish. Since then, this day has been known as Bitcoin Pizza Day.
As a result of this transaction, the initial real-world price or value of Bitcoin was fixed at four BTC per penny. Bitcoin is currently being used for supply chain management, cross-enterprise resource planning, logistics, energy trading, DAOs (decentralized autonomous organizations), and a variety of other applications.
Understanding Bitcoin’s features
While Bitcoin has been in use for over a decade, its buyers, dealers, and trades have developed a distinct terminology and manner of operation.
According to the official Foundation:
Whenever “Bitcoin” is mentioned as an entity or concept, the style notes are written.
When referring to a quantity of the money (e.g., “I traded 20 bitcoin”) or the units themselves, “bitcoin” is written within the small letter. “Bitcoin” or “bitcoins” are frequently used as plurals.
Bitcoin is also known by the abbreviation “BTC.”
It is a network of computers, or nodes, that run the Bitcoin code and store the BLOCKCHAIN.
A BLOCKCHAIN is a network of blocks (computer stations) linked together through the internet. Each block contains a collection of transactions, as well as a public ledger that records and displays every Bitcoin transaction. As a result, no one can deceive them using Bitcoin transaction features.
The overall volume of Bitcoin and the transactions that occur are recorded on a public ledger, and all transactions are transparent. It is possible to see who swapped bitcoins with whom (through their identity numbers)
No one can make a fraudulent transaction because everything is recorded in a public ledger that can be viewed on a computer screen. A bad actor would need to control at least 51 percent of the processing power that makes up Bitcoin in order to commit a criminal crime.
Perhaps conspiring with a population of more than 10,000 nodes (and growing) would be nearly impossible, rendering such an attempt pointless.
If an assault were to occur, Bitcoin nodes, or users who participate in the Bitcoin network through their computers, would most likely split to a new blockchain, rendering the attack useless.
Features That Make Bitcoin a Unique Asset Class
With hedge funds, family offices, and institutional bankers including Bitcoin in their portfolios, the cryptocurrency is now being recognized as a distinct asset class. Although this is a well-known truth among those who have been following Bitcoin from its birth, this digital asset is unlike traditional asset classes like real estate, stocks, and even gold.
Here are five characteristics that distinguish Bitcoin.
Bitcoin is the world’s first genuinely decentralized digital currency. While governments control (to varying degrees) stocks, real estate, and currencies, Bitcoin’s network is meant to maintain authority decentralized. Instead, the network’s algorithm determines supply and distribution.
There are no gatekeepers in this scenario. Anyone with internet access can join the Bitcoin network and add the cryptocurrency to their personal portfolio. Bitcoin’s peer-to-peer structure is its distinguishing feature, setting it different from all other asset classes.
2 Censorship resistant
Bitcoin cannot be banned or controlled by any government or corporate body due to its decentralization. This is one of Bitcoin’s many distinguishing features.
Private property and money have been seized in the past. Executive Order 6102, signed by US President Franklin D. Roosevelt in 1933, “forbidding the hoarding of gold currency, gold bullion, and gold certificates within the continental United States.” Under Europe, Canada, and the United States, eminent domain laws allow the government to confiscate private property for public purposes in unusual circumstances.
However, due to Bitcoin’s decentralization and digital nature, it is impossible to block access to the network. This democratizes the asset class and gives everyone the ability to store wealth in their own name. The German authorities recently demonstrated this when they confiscated a miner’s crypto stockpile but were unable to access it without the password.
3 Hard Capped
The hard cap on Bitcoin’s supply is another important characteristic. Satoshi Nakamoto guaranteed that there will never be more than 21 million Bitcoins. This is maybe the first time a digital object’s supply has been restricted. Inherent rarity, together with the half every four years, contributes to the high value of each BTC.
On the network, each transaction is stored in a block that is linked to a previous block of transactions. Because blockchain technology is immutable, no entity can delete or edit any data on the network. Bitcoin transactions are cryptographically confirmed by network nodes and recorded in the blockchain (which is essentially a public ledger).
The network’s immutability makes it dependable and trustworthy. It distinguishes it from all other asset classes in which a lack of transparency, falsification, or corruption could put the investor at risk.
5 Network effects
Bitcoin has progressively become a mainstream asset during the last 12 years. According to estimates, there are over 100 million active BTC users worldwide. That’s about the same population as Japan, where the yen is the third most widely traded currency in the world.
Bitcoin’s popularity and widespread use make it more valuable. Bitcoin has more liquidity and acceptability than most other traditional assets since it is seen as a real store of value and is used by so many people.
What Makes it Work?
Bitcoin was one of the first digital currencies to leverage peer-to-peer (non-interactive sharing of data or assets) technology to enable fast payments. Nodes or miners are persons or businesses who hold the governing computational power and participate in the Bitcoin network.
In a nutshell, how does it work?
- It is a decentralized digital money that is transacted using a distributed ledger known as a BLOCKCHAIN.
- Bitcoin miners use high-powered computers to solve difficult riddles in order to confirm groupings of transactions known as blocks.
- These blocks are added to the blockchain record, and miners are rewarded with a small amount of Bitcoins as a result.
- Other market participants can buy or sell tokens through cryptocurrency exchanges or peer-to-peer transactions.
- The ledger is a component of Bitcoin that protects against fraud through a trustless system; Bitcoin exchanges also attempt to secure themselves against theft, however high-profile thefts have occurred.