History of Bitcoin
From being worth less than a large-sized pizza to being worth more than a 2021 Chevrolet Camaro ZL1, Bitcoin has definitely taken the world on one high ride. But what is Bitcoin, and why should you care? This article will teach you everything you’ve always wanted to know about Bitcoin.
To better understand Bitcoin and its underlying technology, we need to retrace our steps to its origin and answer two fundamental questions. “What is bitcoin and why was it created?”
A mysterious man named ‘Satoshi Nakamoto is in the best place to answer our questions. He created the first bitcoin in 2008. Unfortunately, he did not disclose his true identity, so there’s no way we can get through to him. However, Satoshi left a detailed whitepaper on his reasons for creating bitcoin and the use cases.
In this whitepaper, Satoshi stated one significant fact about bitcoin:
Bitcoin was created as an electronic cash (peer-to-peer) system that eliminated third-party institutions when performing online payments and transactions. This implies that as we advance with this digital cash, traditional financial institutions like central banks will play little to no role in initiating and executing financial transactions.
In just a few words, Bitcoin was created to take power away from financial systems and hand it back to ordinary, everyday people. According to the whitepaper, Bitcoin was created as a solution to the financial crisis of 2008.
Satoshi also stated other vital points that set the tone for bitcoin and other cryptocurrencies now in existence. However, before we take a look at these use cases, let’s take a closer look at the technology behind Bitcoin, the blockchain.
Bitcoin runs on an open-source technology called the blockchain. Blockchain Technology generally sounds like rocket science the first time you hear it, but it’s really simple.
A blockchain is a record of transactions that runs digitally and operates within a specific set of rules. In more technical terms, a blockchain is a chain that allows you to keep records of your transactions (a block being a piece of coding and not an actual brick).
Think of yourself as a store owner. A block is like a page of the ledger used to record transactions. Once you’re done recording transactions on a page, you move on to the next, right? That’s the same way it works with Bitcoin- just that instead of a ledger, we’re storing the details of the transaction on a block, and once the block is full, we turn to the next one.
Note that because we wish to keep a record of all our previous bitcoin transactions, we need to find a way to link them. Hence, once the page is full, one block is added to an existing block, and information is stored on the next block. Once information is stored on this new block, it is added to the previous block, and since these blocks are constantly coming together, they make a long chain of blocks called the blockchain. Get it now?
Blockchain Technology in Context
You’re probably wondering, “so, what are these guiding rules and instructions that make bitcoin any different from traditional fiat currencies? What is the aim and how does the blockchain operate?”
- A blockchain is a decentralized ledger: This means that any central network like central banks does not control it. Unlike bitcoin, traditional fiat currency bodies are centralized. They are controlled by the central bank, an authority that can choose to value or devalue the currency based on what they feel the economy needs. However, a decentralized system like a blockchain does not have a single body at the center of its transactions. Instead, it uses a more streamlined user-oriented network- the peer-to-peer network.
- A blockchain takes record of transactions across a peer-to-peer network: This implies that users within the framework of the network can confirm transactions within the network. Since it’s an extensive network, everyone on the network gets to see the records on the blockchain. Another excellent thing about the peer-to-peer network: no singular entity can alter transactions on the network.
Bitcoin Use Cases
The present and potential applications of bitcoin are very vast. Let’s examine a few of these use cases:
- Store of Value: Bitcoin is the first of a whole new asset class to emerge since equities in the 1600s, and just like investors turned to gold and silver in times of uncertainty then, we can expect that investors will turn to bitcoin as a store of value in the same way.
It’s not an old wive’s tale. We saw it happen in 2020. Right after the Covid-19 pandemic hit, more investors began to dump their fiat currencies in exchange for bitcoin. Through that period, the value of bitcoin increased by over 400%. We can reasonably project that there’s a tendency for investors to turn to bitcoin in delicate times.
- Fast Digital Payments: Traditional payment techniques require a confirmation from banks and other financial institutions. The process of approving these transactions takes time and hence reduces transaction speed. Bitcoin, however, does not need permission from anyone. Within a few minutes, you can make payments digitally to anyone, anywhere on the globe.
- Privacy: Centralized banking systems operate by limiting access to information to the parties involved in a transaction. Sounds pretty standard. However, bitcoin proposes a better way to do things. By announcing the transactions publicly but keeping the users private, users can transact anonymously. This also means that transactions can be monitored and confirmed by several users within the network.
- Complete Control of Your Finance: Traditional currency systems require you to trust financial institutions with your finances. If the bank sees it fit, they could close your account, freeze it, or pull funds out of your account without your express permission. With bitcoin, however, it’s much different. You have more control over your transactions. With a single bitcoin wallet, you can hold coins ten times the worth of the Empire State building and control how it ebbs and flows without the slightest hassle. Holding bitcoin also frees you from some severe effects of specific monetary policies occasionally imposed on fiat currencies.
- Internet of Things: With smart gadgets and appliances, you can automate orders when supplies are running low and pay for products and services with bitcoin in real-time.
The supply of Bitcoin is limited because only 21 million bitcoins can exist. This means two things:
- Bitcoin will not be oversupplied into the economy
- The rest of the Bitcoin supply will have to be mined into existence by ‘miners’ within the peer-to-peer network.
The idea that bitcoin will not be oversupplied into the economy gives it an edge over fiat currencies. It will always be relevant. Remember that scarcity brings value. While central banks can print more money into an economy simply because they want to devalue it, the same can’t happen with bitcoin.
Also, bitcoin miners receive incentives for every block mined. This system further fosters an active community of users dedicated to seeing the digital cash system remain functional.
The Potential Future of Bitcoin
One thing is certain: bitcoin is here to stay. The evolution of bitcoin feels much like the evolution of the internet between the 90s and 2000s.
Experts, in fact, predict that bitcoin- and other altcoins- with overtake mainstream traditional investments in just ten years. As bitcoin continues to revolutionize how we think about money, payments, and the world, remember: today is always a good day to start. If you’ve not already adopted bitcoin or learnt about it, now you have a rock-solid foundation. You don’t want to be caught sleeping when the world turns entirely to bitcoin only a few years from now.