History
Bitcoin was officially invented by some entity ( we don’t know if it is an individual or a group) going by the pseudonymous name of Satoshi Nakamoto on 3rd January 2009. This genius of a name created the world’s first cryptocurrency, which would have a huge impact on the world, as we are seeing it now.
Bitcoin (B) is a protocol which is borderless, decentralized and global which facilitates peer-to-peer exchange or transaction of bitcoin(b). The captivating thing about bitcoin is that it has a fixed number of maximum supply and decreasing issuance rate.
It could allow someone to make transaction within and beyond border, at a much lower transaction fee, and without an intermediary. In short, Bitcoin offers an alternative to the existing inflationary and inequitable financial system. In traditional financial system, we see the bank as being in charge of the financial system as a centralized third party and monitor and validate its transactions. Bitcoin offers a permission-less network that anyone can be a part of, getting rid of us to need for trust in a central governing system.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”
-Satoshi Nakamoto
Benefits of Bitcoin
- Inflation-proof: Bitcoin cannot be just created like the normal fiat currency as it has a cap of 21 million. When the supply of dollar increases, its value decreases, inflating the money supply. Our purchasing power decreases with normal currency over time. However, with bitcoin, our purchasing power doesn’t decrease over time. Since the bitcoin supply is capped, there will be scarcity. As demand for bitcoin rises, so will its price, and thus, its purchasing power as well.
- Verification: With bitcoin, we are able to validate and verify that there will be no fake bitcoin, unlike the normal fiat currency which has millions of fake notes in circulation.
- Security: Bitcoin network is secured with cryptography via a public blockchain (ledger system) which can be validated.
- De-centralization: With bitcoin, we are in no need of a centralized 3rd party system such as bank or money transfer company. We can confirm and validate our transactions without them. When you have a centralized fiat currency like the US dollar (the current global reserve currency), you are coerced into a financial system that can change the rules at any time. You are subjected to the big banking system that charges you overdraft fees, requires minimum balances, and lends your money out to other people only to pay you less than minute % in annual interest. Bitcoin is an opportunity for the unbanked to store and grow their wealth in a secured way, where nobody can be locked out or denied — and it doesn’t care about your credit score.
- Personal freedom: In traditional financial system, you need to get approvals based on credit scores or government identification. There is also susceptibility to identity fraud in such system. With bitcoin, you can participate anonymously, the transactions on the Blockchain are not tied to names or personal data.
Although most of the crypto exchanges require a Know Your Customer (KYC) process that verifies our identity through an identity document linked to us, once the bitcoin is taken off the exchange into your own self-custodial wallets, all transantions from that point on are pseudonymous.
Money versus Bitcoin
We use money to buy goods, services or to pay taxes or loans. Even if not in the form of bills and notes, money can be anything that has the fundamental use cases of being a medium of exchange, a unit and a holder of a value. A prime example is gold. In ancient barter system, even grains could count as money.
Even though bitcoin supply is capped, each bitcoin can be split into “satoshis,” kind of like how dollars can be split into cents. Each bitcoin contains 100 million satoshis, and so there are 2.1 quadrillion satoshis in total.
What is Bitcoin Blockchain?
Bitcoin Blockchain can be said to be a chain of blocks that holds the transaction data. The transaction history are validated and verified by Bitcoin full nodes around the world. These nodes keep a full copy of the blockchain history. New blocks are added every 10 minutes. It is a public ledger which is transparent and secured by public blockchain. The mathematical and cryptographically driven blockchain is all the proof which we require instead of a 3rd party verifying agent.
Hashing is the most used cryptographic concept used in Bitcoin. Upon application of a hashing algorithm, a message of any length is converted to a text of fixed length. In all bitcoin transactions, SHA-256 algorithm is used. SHA-256 is a part of the SHA 2 family of algorithms where SHA stands for Secure Hash Algorithm.
If we want to look for an alternative to the current currency system which is backed by control and power, Bitcoin offers that alternative with no central authority.
What is Proof of Work (POW) in Bitcoin? Learn more by clicking here