BITCOIN: A MODERN DIGITAL CURRENCY
What is Bitcoin?
This is the fundamental question that anyone coming across Bitcoin for the first time will naturally hardly avoid asking. It may seem that the explanation that Bitcoin is a currency suffices. However, that does not go far enough to expound upon all of its critical value propositions.
It is important to note that Bitcoin is not a single solution. It is several solutions in one, and that is the reason describing it simply as money is not entirely accurate.
Bitcoin is a currency
Nevertheless, we will start with looking at Bitcoin as money. Indeed, bitcoin (spelled with small b) performs the functions of a currency like any other. It is, however, entirely a digital currency; it only exists in the virtual form.
Also, unlike the fiat currencies, both physical and digital, Bitcoin is decentralized. In the place of a central authority like a central bank, is a network of peer to peer computers running open source software. It is this network that issues new units of bitcoin and manages all of its transactions.
Even though the nodes in the network are independent of each other, the protocols in the software enables them to seamlessly and continually form consensus on the number of new units to be issued (25 bitcoins per block in 2015) and valid transactions to be confirmed.
And every node in the entire network has a copy of the blockchain, a distributed public ledger, where every transaction is confirmed and recorded.
To control the issuance of new bitcoins (mining) and secure transactions the blockchain uses public-private key cryptography. This qualifies Bitcoin as cryptocurrency.
Bitcoin like gold is scarce. There will ever be not more than 21 million bitcoins, with the last bitcoin being mined in the year 2140.
Since the inception of Bitcoin, other cryptocurrencies have been developed. All of them rely on the blockchain technology but have various differentiating features. Examples of such alternative cryptocurrencies (Altcoins) are Litecoin and Dashcoin, among hundreds of others.
Bitcoin as a technology for Noncurrency uses
As mentioned earlier above, Bitcoin is not just a currency. Indeed, it is a platform on which many other applications can be built. Currently, there are startups and companies developing a broad range of solutions on the blockchain such as smart contracts and document time-stamped storage.
Who created bitcoin?
A person by the name of Satoshi Nakakamoto is credited with creating Bitcoin. Nakamoto in 2008 published the whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System, which outlined the working of the cryptocurrency to a cryptography mailing list.
He later in 2009 released the first Bitcoin client and mined the first block, which is usually referred to as the Genesis Block.
No one has ever seen or met Satoshi Nakamoto. However, early core developers to join the project, in particular, Gavin Andresen, did communicate with the personality behind the name online before it left the project in 2010.
Despite the fact Nakamoto remains anonymous users have found every reason to trust Bitcoin. The payment system is not only decentralized, but also runs on an open source protocol and software that everyone is welcome to scrutinize and contribute to.
While 2008 is the year when Bitcoin was born, all of its constituent technologies did exist before then. For instance, by 1970s there was a discourse on the use of public-private key cryptography. The Proof of Work concept, which secures the bitcoin network, was already in use in the 1990s as an email spamming deterrent mechanism.
Is Bitcoin legal money?
Bitcoin is not a legal tender; debtors are not compellable by law to accept it. However, where two users recognize it as money and agree to exchange it for goods and services, hardly any law stands in their way anywhere in the world.