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What Is Bitcoin?
Table of Contents
Everyone likes to talk about money. It’s one of the world’s favorite topics. One particularly interesting talking point has been the rise of a new form of electronic currency known as Bitcoin.
In this article, we will look at:
- What is Bitcoin?
- Origins of Bitcoin
- The dark side of Bitcoin
- How to get into Bitcoin
Bitcoin has been around for 10 years, but is just now breaking into mainstream recognition.
To provide some context, a survey by the Global Blockchain Business Council and Survey Monkey early in 2018 found that:
60% of US citizens had heard of Bitcoin – but only 5% owned it.
So what is Bitcoin? Well, it’s a form of digital currency – often called cryptocurrency – that is created by solving a series of complex mathematical puzzles (mining), leading to the reward of a “coin” that carries a monetary value outside the traditional financial system.
It's digital currency and anyone can get a piece of it.
Once it’s created, the resulting Bitcoin can be transferred with or without a central authority, traded either via an exchange or peer-to-peer among individuals.
It can also be used for purchases at a growing number of retailers, airlines, art dealers, jewelers and food outlets.
Any transaction with Bitcoin is traced by the network of users along a blockchain, which consists of a growing list of records called blocks.
These contain information on transactions and are time-stamped. Individuals known as “miners” confirm each transaction. By confirming, they earn Bitcoin. These can then be sold, saved or used in transactions.
The blockchain can’t be changed, and when a transaction is confirmed, it’s added to the chain, providing a permanent record.
The Bitcoins created so far have ranged in value up to USD20,000 during their relatively short life, an incredible rise that has drawn all sorts of skepticism from the established financial industry.
But Bitcoin actually has its roots in some of the bedrock of our current financial system. The US stock market, now considered one of the most stable markets in the world economy, was somewhat stagnant when it was first created in the 1800s.
There were not a lot of people trading in the first few years, mainly because it seemed so risky. It was viewed as a way to lose your money.
Fast forward to today and stocks and bonds are considered a standard part of any financial portfolio, and the world economy eagerly awaits news of the reactions and prices on various stock exchanges around the world.
That’s what Bitcoin is all about - opening up a new world of opportunity.
Where once location and social stratification and the economics of your region determined your financial fate, now globalization has provided, in the form of online engagement, decentralization, and e-commerce – new social elevators for everyone.
Cryptocurrency is a strong component of that vision, as it enables the artificial constraints of borders to melt away.
Some of the largest financial institutions in the world have explored Bitcoin and other altcoins, and many governments are deep in the weeds toward creating their own cryptocurrency. However, to date, Bitcoin remains the standard for cryptocurrency, and is the most valued of all the cryptocurrencies available.
Origins of Bitcoin
The basis of Bitcoin is a technology known as blockchain. It is relatively new, having been spawned in a 2008 white paper titled Bitcoin:A Peer-To-Peer Electronic Cash System.
The paper’s authorship was credited to someone named Satoshi Nakamoto, a person (or persons) who has never been identified, seen or heard from much beyond the white paper and a few interactions in emails and online forums.
This has led to all sorts of authorship claims, and not a little speculation as to whether Satoshi really exists, or is a made-up name by a group of computer scientists.
In the white paper, Satoshi talked about a decentralized system, something that no one controls. This technology records information in a public space and doesn’t allow anyone to change it or remove it.
It’s transparent, time-stamped and decentralized, making the information immutable. Think of it as a ledger that preserves information without any interference from third parties.
What really excited people about blockchain’s advent was the ability to create Bitcoin, a digital coin that could be created by solving complex encrypted mathematical formulas. In essence, computer savvy users were able to “mine” Bitcoin, creating products that had value using sheer computer processing power.
On January 3, 2009, Satoshi mined the first block of Bitcoin (called block number 0, or the “Genesis” block), which produced a reward of 50 Bitcoins for the effort. Six days later, the software was released to the world, allowing anyone to mine Bitcoin.
The first Bitcoin miners were deep into computer science, and most of them used Bitcoin as an intellectual activity and challenge. The value of the Bitcoin was initially established as worth merely a few cents, with trading done between users via an online Bitcoin forum.
Gradually, word of mouth helped grow the audience, and more people began trading this cryptocurrency.
And here we are today.
Bitcoin is now worth quite a bit more than a few cents, rising as high as $20,000 per single coin in December 2017. It has since declined in price from that lofty level, and is extremely volatile in terms of value, jumping hundreds of dollars in a day or declining an equal amount.
Bitcoin is, however, a worldwide system of monetary value that is recognized by many in the general online community and accepted for transactions as varied as real estate, airline tickets and hamburgers.
However, because it is so volatile, many users – particularly those selling real-world items – convert it to fiat currencies upon receipt. Hardcore Bitcoiners annually remember one early adopter who spent 10,000 Bitcoins on two pizzas one May 22.
That day has become known as “Pizza Day” among cryptocurrency fans, mainly because the value of those Bitcoins spent on a few slices is now in the millions of dollars, making the pizzas the most expensive fast food in history.
See the original forum post that started it all.
Bitcoin has since spawned a world of imitators, called altcoins, that mimic and improve on many of its features. But Bitcoin remains the largest by market capitalization, and its price swings generally dictate the way the rest of the coin values swing.
That’s the basic primer of this virtual economic ecosystem.
It was something of an underground phenomenon for the first five years, confined to a small circle of computer scientists and technically oriented laymen who were fascinated with that world. It wasn’t until 2014 that others began seeing the potential for blockchain to be used in different ways, and that’s when this sector truly started to become a real business.
The dark side of Bitcoin
Because it was anonymous and largely untraceable in its early days - not to mention so technologically advanced that few regulators understood it - Bitcoin was used for some unsavory and criminal activities when it was first created, particularly in drug transactions on the infamous Silk Road dark web.
Naturally, that and a few notorious hacking incidents in the early days led to some public relations problems that Bitcoin is still struggling to overcome in some sectors.
But the gradual mainstreaming of digital currency, the investment by prominent technology people, and the experimentation with blockchain by most of the world’s largest financial institutions has mostly lifted that cloud of suspicion, particularly as Bitcoin payments become accepted by more and more mainstream retailers, both online and offline.
Dell and Overstock.com were early adopters, but today such companies as NewEgg, Shopify, Expedia, Dish Networks, Microsoft and CheapAir gladly take Bitcoin payments.
The list is expanding daily, and payment services like Square are also adopting cryptocurrency options for their services.
How to get into Bitcoin
So how do you get in the Bitcoin game? You can buy Bitcoin from a cryptocurrency exchange like Liquid. Options for purchase include linking a bank account that uses fiat currency or buying with a credit card –– a feature soon to be added to Liquid.
Once you are a Bitcoin owner, you can hold it, trade it for fiat or other cryptocurrencies, or spend it with your smartphone or computer.
Some countries are friendlier towards Bitcoin than others. China banned exchanges earlier this year, while Japan, where Liquid is based, has openly embraced Bitcoin, taking a major role in regulations that allowed exchanges to become licensed.
Once you’re in the Bitcoin game, you may find yourself obsessing over the price swings that are a daily occurrence. You may even be tempted to do some day trading to take advantage of the swings.
It’s all part of the fun of being a pioneer in a new financial system, and while there are risks, the rewards of becoming a savvy Bitcoin investor can be great.
As with anything, never invest more than you can afford to lose and learn as much as you can.
Good luck, have fun, and welcome to the world of Bitcoin!