What is Bitcoin?
|— Bitcoin was the first successful decentralized digital currency created by Satoshi Nakamoto in 2009|
— It uses a system for verifying transactions called Proof of Work, where miners provide the network with computing power and are rewarded in BTC for doing so
— Not only is Bitcoin fully decentralized, it also leverages transparency, privacy, fast global transactions, disinflation and complete ownership and control of your own money
Bitcoin was first outlined in Satoshi Nakamoto’s whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” in October 2008 and since created the world of cryptocurrencies we know today. In this article, we’ll take a closer look at what Bitcoin is and why it’s become so popular.
Bitcoin’s emergence during an economic crisis
In the year 2008, an economic crisis was plaguing the world. Unemployment was exceptionally high and banks were being bailed out by governments. In this exact year, the whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” was published by Bitcoin’s mysterious creator(s) Satoshi Nakamoto which outlined how Bitcoin would work. Sure enough, on the 3rd of January 2009 Bitcoin’s first block known as the Genesis Block was created. This marked the beginning of Bitcoin, while at the same time being the pilot of blockchain technology. In time, Bitcoin’s creation led to the start of the cryptocurrency market we know nowadays. To this day, Bitcoin’s still the market leader by far.
If you want to learn more about the history of Bitcoin and cryptocurrencies, this article is a must-read.
What Bitcoin aims to do
Satoshi Nakamoto’s work aims to take out trusted third parties from transactions through a purely peer-to-peer version of electronic cash as indicated in the whitepaper he wrote. This means that there’d be no banks or other institutions that you’d have to entrust your money to and you can freely transact with anyone around the globe. As the common motto goes, with Bitcoin, you can be your own bank.
Bitcoin is also designed to not be aimlessly printed like traditional money can be. There’s a hard maximum amount of Bitcoins that can ever be created to prevent this. It is completely open-source, with every single transaction being publicly visible while maintaining anonymity for its users. Speaking of which, let’s take a closer look at how their transaction system works.
Bitcoin (BTC) makes use of a system for verifying transactions known as Proof of Work (PoW). In this, there are miners that try to solve complex cryptographic puzzles to create a Block for the blockchain. Each Block contains the information of several Bitcoin transactions. The miner who succeeds is awarded a small amount of BTC for the work they’ve done. In turn, all miners combined give their computing power to the Bitcoin network which gives it stability, security and decentralization.
Even if one miner is acting maliciously or is compromised, all other participants in the network will still verify the correctness of the transactions. As such, there’s not a single point of failure in the network and there’s strength in numbers – Vires in numeris in Latin. You can find even more details on Proof of Work in this article.
Why Bitcoin: key fundamentals
There are many key features of Bitcoin that make it stand out against traditional money or other assets. Bitcoin’s unique combination of many factors makes it stand out.
Bitcoin is the first financial system to successfully use a fully peer-to-peer network. It does this through blockchain technology as invented by Satoshi Nakamoto. The decentralized nature of Bitcoin helps in so many ways.
Firstly, it increases the security of the network. In a centralized environment, if a computer is hacked it’s simply game over. In a decentralized network like a blockchain you’d need to attack so many different computers where in Bitcoin’s case it becomes a herculean task.
Furthermore within a decentralized network there is not a central authority who can dictate whatever takes place on the network.
Lastly, there are many actors worldwide involved in the Bitcoin network. As such, the network functions fully for 24/7. Equally anyone can join the network anywhere.
As mentioned in the beginning, Bitcoin is completely open-source. This means that everyone can take a closer look at its coding and verify how it works. All transactions are also publicly available on the blockchain, meaning you can verify all data relating to your Bitcoin accounts and balances.
Censorship-resistant & Full Ownership
With Bitcoin, there is no central authority that could tell you what you can and cannot do with your own money. Unlike with money you’ve left in the care of a financial institution, through Bitcoin you can be completely in control of your own funds while retaining complete ownership of your money. While there are options to leave it in someone else’s custody (e.g. cryptocurrency exchanges), there are equally secure options to have full ownership over your own funds.
Unlike traditional money which can be printed infinitely, Bitcoin is hard-coded to have an absolute maximum of 21 million Bitcoins to exist in 2140. New Bitcoins are still being made at the moment, but the amount created is cut in half roughly every four years in an event known as the Bitcoin halving.
While Bitcoin’s transactions are fully public, one still remains anonymous at the same time. The addresses used in Bitcoin are strings of data which on its own cannot point to a single individual. What’s more: nowadays you can use a feature known as Hierarchical Deterministic Keys or HD in short. This ensures that each time you’ve used a certain Bitcoin address, you can generate a new address under your control to send new funds to. As such, no one could know your total balance.
Lightning-fast Global Transactions
Bitcoin transactions can be sent from anywhere in the world to any country. It doesn’t take country borders into consideration – a national or international transaction takes the same amount of time and fees. On average, a BTC transaction takes about 10 minutes to be completed. Especially for international transactions, it puts traditional wire transfers to shame which can take anywhere between 1 to 4 working days.
Taking Back Control with Bitcoin
Sure enough, with Bitcoin you can regain the control over your own money. It can be fully in your hands and not at the mercy of any financial institution – and this form of financial freedom is accessible to everyone.
Most importantly, it can be done securely as well.
At Ledger, we specialize in providing the masses with security for their Bitcoins. What we provide are devices known as hardware wallets. These keep the access code known as Private Keys to your Bitcoin restricted by securely storing them offline, away from online hacks. Ledger devices set themselves further apart by using only the most secure chips known as Secure Elements to provide resistance to even sophisticated physical attacks.
At Ledger, we empower you to securely be in charge of your own Bitcoin.
Keep learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block video Why is Bitcoin So Hot?