What Is Bitcoin? History, Characteristics, Pros & Cons

At the peak of the 2008 financial crisis, people’s trust in banks and monetary authorities was beginning to deteriorate. Those in charge of keeping our money safe and secure seemed to be abusing their power in the eyes of many. At this time, technology was already radically changing the way people communicated with each other, so a group of revolutionary minds turned their attention towards money. Our current method of transacting had revealed itself as archaic and broken.

Clearly, there was room for improvement. What if a digital currency was created which no longer relied on central authorities for security and scarcity? As an answer to this question, one of the most promising technological campaigns of the 21st century was born, and it was named, Bitcoin.

WHY WAS BITCOIN CREATED?

In 2008, as the Occupy Wall Street movement waged on, many people stopped trusting central authorities like banks and the Federal Reserve. Later that year, Satoshi Nakamoto released a paper titled “Bitcoin: A Peer-to-Peer electronic cash system” which promised to implement a distributed ledger called the blockchain where all transactions could be anonymously verified through consensus from all participants of the network.

Instead of requiring a bank to verify transactions, they could be carried out by achieving a majority consensus. This was a genuinely transformational idea.

WHAT MAKES BITCOIN SO SPECIAL?

There are some fundamental characteristics that make Bitcoin better than money. By removing the hierarchy from money management, this technology is able to decentralize the financial world. This has some major implications on the nature of Bitcoin transactions in comparison to the traditional way of exchanging digital money:

1. Bitcoin transactions are irreversible. After confirmation, transactions cannot be reversed by anyone, they’re in the ledger forever.
2. They are anonymously carried out. Neither transactions nor accounts are attached to any meaningful personal information. Everything is encrypted, allowing for Bitcoin wallets to still be held accountable without giving away sensitive information.
3. These transactions are fast and global. The blockchain network is easily accessible from anywhere in the world as long as an internet connection is available.
4. Blockchain ledgers are extremely secure. The requirement of a multitude of nodes to approve transactions creates a system that is extremely robust against hacking attempts. If a hacker wanted to process malicious transactions, they would have to fool all the nodes of the network simultaneously.

Finally, Bitcoin transactions are permissionless. There is no hierarchy, so a central authorizer is not needed to allow people to use crypto.

The thing that makes Bitcoin unique is simply that it’s the first of its kind; the first truly digitized and decentralized currency, or cryptocurrency. This has powerful implications on the role Bitcoin plays in the cryptocurrency markets. For starters, the market is absolutely dominated by Bitcoin, with a cap usually hovering around 80%. This prominence of Bitcoin in the market actually gives it the most flexibility of any coin out there.

For example, if I wanted to switch from one type of cryptocurrency to another, I usually have to buy Bitcoin first; this keeps it very relevant in the market. Furthermore, vendors who are now opening up to accepting cryptocurrency payments are most likely to accept Bitcoin first.

HISTORY 101: BITCOIN

In October 2008, a group of computer scientists working under the pseudonym, Satoshi Nakamoto, published a paper with quite a revolutionary approach to payment systems. First of all, it was a completely open source. Which meant that the source code for the underlying software was publically available for anyone to implement.

Furthermore, the truly groundbreaking promise of Bitcoin was the blockchain ledger system. This provided a way to create a trust-less ledger system where all transactions could be executed in a completely secure way, without the need for a central authority overlooking everything.

After the official release of Bitcoin, the programmers behind Nakamoto walked away from the project, and a man named Gavin Andresen took the reigns as lead developer.

As soon as Gavin became the head, he made his intentions clear; Bitcoin was to become so decentralized that it could continue to function as a currency, even if he “was hit by a bus.”