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What is Bitcoin?


Shaan Kooner

Shaan is the Community Manager at ethos. He has a passion for building community and has been interested in blockchain technology from an early age.

Shaan is the Community Manager at ethos. He has a passion for building community and has been interested in blockchain technology from an early age.

How it started 

Bitcoin was created in 2009 by an anonymous figure or group of people who referred to themselves as "Satoshi Nakamoto". Deemed the world’s first cryptocurrency, Bitcoin laid the foundations for every cryptocurrency that would come after it. It was originally created with the intention of being a peer-to-peer online cash system, meaning users can send bitcoin to one another without having to rely on the direct intervention of a third party. 

As time went on, Bitcoin became more than just a peer-to-peer transaction system. In 2017, Bitcoin gained tremendous popularity, skyrocketing from under $1,000 to over $20,000 per Bitcoin. This rapid appreciation drew attention to the entire crypto ecosystem, and Bitcoin began to be viewed as a potentially sound store of value. Bitcoin has thrived because it has never been hacked, and its distribution is arguably the most decentralized out of any crypto. Also, since nobody knows who "Satoshi Nakamoto" really is, there is an interesting element of trust in the code that stems from this anonymity. 

How does it work? 

Bitcoin is, in essence, a distributed ledger that allows users to transact with one another. In other words, it can be seen as a spreadsheet that keeps track of wallet addresses and their balances. Wallet A can have X bitcoins, and if it sends them to Wallet B, the ledger will update, increasing Wallet B’s balance by X bitcoins, and decreasing Wallet A’s by the same amount. 

What truly makes this technology trustworthy, is the fact that there are people (or machines programmed by people) validating these transactions. They’re called miners. By providing computing power and maintaining the integrity of the ledger, miners are rewarded with new Bitcoin that is automatically created every new transaction. 

In essence, Bitcoin is three things: 

  • A safe, decentralized peer-to-peer cash system. 
  • A store of value. 
  • A way to earn money by verifying transactions. 

But some may ask, what is the benefit of using something like Bitcoin instead of a proven, traditional value transfer system like cash? 

Why Bitcoin may be better than cash 

For starters, Bitcoin is native to the internet. While online payments are efficient and have been around for a while, the actual settlement of funds is still done through a bank. But with Bitcoin, the entire system lives on the internet. So in other words, payments and receipts actually take place on the web. This means that anyone, anywhere can create a wallet, and as long as they have internet access, they can take part in the Bitcoin economy. 

Bitcoin is also separate from central banks, meaning that nobody "prints" or "restricts" its supply. As new transactions occur, some bitcoin is created as a reward to miners, but this amount is cut by half every four or so years. There will only ever be 21 million bitcoins in circulation - no more and no less. So by nature, it is a deflationary currency, and its supply cannot be controlled by any party. 

There are also very limited measures institutions can take to stop people from owning Bitcoin. It is impossible to "firewall" it, because it doesn't live on one specific site or server. It is also not feasible to "reverse" or "halt" transactions, and unless you give away your wallet’s secret password (called "private key"), nobody can freeze your funds for whatever reason. 

The Future of Bitcoin 

The future outlook for Bitcoin is uncertain, to say the least. While Bitcoin has gained value and notoriety over recent years, it is still very new, and its price is volatile. Its efficiency as a day-to-day cash system has been brought into question, particularly since transactions can be sometimes expensive and take longer than traditional systems such as credit cards. Another critique of Bitcoin is the environmental impact that mining creates. It’s well known that for Bitcoin to be a sustainable currency, changes are required. Although some efforts to improve Bitcoin’s transactions are underway, it is still too early to tell if the cryptocurrency will play a mainstream role in society.. For now, Bitcoin is a promising technology that has set the groundwork for a lot of future innovation.