Bitcoin is a cryptocurrency. Cryptocurrencies are digital forms of money. They use cryptography to secure transactions and control “printing” of new money. Bitcoin is a pioneer in the field of cryptocurrencies.
Heads up: This article was commissioned as a part of the Adam Rush Project. It was an experiment I did a few years ago to see if having books written by ghostwriters would be commercially viable. It wasn't. That said, the following article was written by someone else and not yet edited to my standards. I hope to find time to rewrite it myself in the future, but for now, read with caution.
Satoshi Nakamoto developed Bitcoin in 2008. Satoshi Nakamoto is a pseudonym for a person or group of individuals. The real identity of the inventor is unknown. Bitcoin is a form of currency like the US dollar or the European Union’s euro. As with all currencies, you can use bitcoin to exchange value with other people. It is the first decentralized cryptocurrency, meaning no single entity controls it. It exists in a peer network of computers. You can conduct transactions in bitcoin without having to go through an intermediary.
Just like we use dollars in the real world, we can use bitcoins in the online world. They are acquired, used, and stored only in their digital form. There is no physical form of bitcoin. Unlike the currency of different countries like the pound of the United Kingdom, the dollar of the United States, or the rupee of India, bitcoins are not minted by any government. They have universal value to prevent discrepancies in worth. They are used all over the world for all kinds of financial transactions including running businesses, selling stocks, purchasing goods, and many others. All these transactions related to bitcoins are done using complex mathematical applications run on supercomputers.
When it comes to bitcoin, there are no administrators who run the network of currency users. Instead, peers control the currency. Any two people who are willing to trade can send each other bitcoins without involving banks. It is the norm around the world to have the central banks of countries control the currency. No central bank or government can regulate bitcoin transactions. The creator of bitcoin did not intend to pass its control to central bankers. Because of this, cryptocurrencies like bitcoin might be the next big disruptor in banking. Not even the creator of bitcoin can manage the currency. Bitcoin is software that is available to anyone with an internet connection. What this means is that the currency’s circulation is international in scope. Early adopters are already using bitcoins to make purchases both online and in person.
Because a middleman such as a bank is not required to make a bitcoin transaction, you don’t have to pay fees for bitcoin transactions. With common currencies, banks charge fees for international transactions and large transfers. But bitcoin transactions can be free. Unlike money transfers and checks, the bitcoin mode of payment is quick and usually clears within a few minutes. It is safe and can be used anywhere in the world.
Cryptocurrencies use cryptographic proof to perform transactions. Cryptocurrencies do not rely on trust like traditional currencies. They rely on secure ledgers called blockchains to record payment transactions. Users can offer the computing power of their devices to help record transactions on the blockchain. In exchange for computing power, they receive new bitcoins. We call acquiring new bitcoins in this way mining.
Unlike traditional currencies like the dollar, nobody can issue new bitcoins. You have to mine the bitcoins. Mining bitcoins refers to peers in the network getting new bitcoins in exchange for helping to maintain the blockchain. People dig for a finite amount of gold in the ground. Bitcoin miners do something similar in concept. They extract a limited amount of bitcoins from the network. You can use the mined bitcoins as money at places that accept them as currency.
There is a limit to the total number of bitcoins people can mine. Only twenty-one million bitcoins can exist. Like gold mines, we will someday deplete the bitcoin mines. Based on current technology, bitcoin mining will end around the year 2140.
Advantages of Bitcoin Over Traditional Currencies
No one can seize bitcoins from you. If you have a bank account, the government can freeze it or take the money in it. This is not possible with bitcoin because it uses decentralized transaction records. In fact, the only way someone can move your bitcoins is by sending them to someone else within the network. Also, you alone are in control of the number of bitcoins you transfer. No second or third party can alter the amount specified by you.
Tracking bitcoin transactions is difficult. No one will know how many bitcoins you have or what purchases you’ve made unless you give that information to them. Financial privacy is one area where no bank can do better than bitcoin.
There are no chargebacks. You cannot reverse a completed transaction. This is helpful for merchants who often suffer losses due to fraudulent chargebacks. A problem retailers have with credit cards is that someone can demand a chargeback even after receiving the goods. It cannot happen with bitcoin.
The fees for bitcoin transactions are negligible. Because of the vast network managing bitcoin transactions, transaction costs are insignificant. Credit payments almost always come with transaction costs.
Purchases are not taxed. It is not possible to add a taxation system to bitcoin because there is no intermediary. This is part of the reason why governments frown upon the use of bitcoins.
Bitcoin has many uses, particularly in today’s online world. Its main setback is that many people are unaware of its existence or they misunderstand it. Some economists believe that bitcoin and other cryptocurrencies are the future of commerce.
A Brief History of Bitcoin
Satoshi Nakamoto created bitcoin in 2008. No one knows if Nakamoto is an actual person or a group of people. A research paper written under that name in late 2008 explained the concept. In that paper, Nakamoto put forth the idea of bitcoin as “a peer to peer electronic cash system.” Nakamoto developed bitcoin as software so that no one could control its use.
Nakamoto mined the very first block of bitcoins in January 2009. The reward for that transaction was fifty bitcoins. A programmer named Hal Finney was the first to download Nakamoto’s software. He received ten bitcoins for his first mining exercise. By design, bitcoins become more difficult to mine as time progresses. The computing power required to mine one bitcoin in early 2009 can now only earn you a tiny fraction of a bitcoin. Nakamoto is said to have mined almost one million bitcoins before leaving the system to other developers and enthusiasts.
On May 22, 2010, programmer Laszlo Hanyecz made the first real-world bitcoin purchase. The event established the real-world value of bitcoin for the first time. He used 10,000 bitcoins to pay for a couple of pizzas. In hindsight, those were the most expensive pizzas in history. 10,000 bitcoins are worth over half a billion dollars as of March 2021.
Software developers have improved bitcoin over the years to make it less susceptible to hacking. Before August 2010, hackers could manipulate the system to create any number of bitcoins they wanted. Such vulnerabilities have since been fixed, and bitcoin seems to be working the way that Nakamoto intended.
What is Bitcoin Worth?
Bitcoin’s price has been volatile. A growing community of bitcoin hunters around the globe is chasing the commodity. The demand drives the price of bitcoin upward, but skeptical news about cryptocurrencies cause it to plunge from time to time. Technology investors believe that bitcoin is the currency of the future. They are rushing to buy bitcoin in anticipation that it will continue growing in value. Some corporations have recognized the importance of the bitcoin network. Some banks have even begun to embrace bitcoin technology.
In late 2017, the hype surrounding bitcoin caused the value of one bitcoin to surpass $19,000. After that, its value dropped considerably to around $4,000 in early 2019. Then in 2021, its value surged to over $50,000 per coin. As you can see, the monetary value of bitcoin is extremely volatile. No regulatory body controls bitcoin, so its value can go up or down quickly. The unpredictable nature of bitcoin is one of the main reasons why many people are wary of it. It has made many retailers afraid of including it as a payment option. In 2013, the value of a bitcoin rose to over $250 and then fell back to about $50. In 2014, it rose to over $600 and then fell back to a little over $200 in early 2015. Many people have speculated on the value of the bitcoin. Some have made enormous profits while others have incurred considerable losses. When buying bitcoin, you have to be aware that its price fluctuates much more than standard currencies.
Bitcoin Privacy
In 2017, hackers released a virus and demanded ransom in bitcoin. It is becoming more common for hackers to demand their ransoms in bitcoin. Traditional payment methods like Western Union and MoneyGram require identification to complete transactions. Hackers prefer bitcoin payments because they can stay anonymous. Many bitcoin exchange services do not require people to reveal personal information.
That is, the receiver will have no clue of your actual identity other than the number tag that you are given during the time of registration. This feature provides a safety mechanism for both the buyer and the seller. It reduces the chances of identity theft or any other such foul play.
But since you can make bitcoin transactions anonymously, is there a way the authorities can track down cybercriminals? The answer is yes. The blockchain ledger keeps a public record of all bitcoin transactions. Law enforcement authorities can use the data on the blockchain to find criminals. Many bitcoin exchange companies still require personal information before they cash bitcoins. In reality, most criminals trade their bitcoins in person using services like LocalBitcoins. LocalBitcoins operates much like Craigslist. It facilitates in-person meetings to make bitcoin transactions without revealing personal information.
More Reasons to Use Bitcoin
Using bitcoin protects you from identity theft. Every time you give your credit card details to a specific merchant, you provide them with access to your entire line of credit, even if the transaction is small. Most credit cards operate on a “pull” system. The store initiates the payment and pulls the specific, required amount from your account. Bitcoins use a “push” system that allows the user to send precisely the amount of information that they are willing to share with the recipient. No additional information is transmitted. There is greater protection from identity theft.
Bitcoin allows for a quick settlement. When you buy a real estate property, it involves several third parties like lawyers and notaries, which delays the payment of fees. However, when you carry out your transactions via a blockchain like with bitcoin, you become a part of an extensive database of property rights. Blockchains can be designed to include any third party approval, references, or end dates. All this can be done at a fraction of the cost and time that it would have taken doing the transaction in the traditional way.
Bitcoin is accessible to everyone. Roughly 2.2 billion people in the world have access to the internet. At the same time, many of those people do not have access to conventional banking systems. Cryptocurrencies like bitcoin are therefore extremely viable for this group of people. The M-PESA system of Kenya, a phone-based platform for money transfer and microfinancing, is developing a bitcoin device to make transactions simpler. Technological advancements like this are significant because one in three Kenyans has access to bitcoin wallets.
Summary
- Bitcoin is a digital money.
- It was invented in 2008.
- No government or bank can control bitcoin.
- The price of bitcoin can go up or down drastically in a matter of days.
- Bitcoin payments can stay anonymous.
- Anyone can make bitcoin transactions without the aid of a bank.