What Is Bitcoin?
|— Bitcoin was the first successful decentralized digital currency created by anonymous founder Satoshi Nakamoto in 2009.|
— Bitcoin is a public blockchain network, a digital ledger that is available for anyone to read, and impossible to alter. This ensures its security without a central entity.
— Bitcoin network supports transparency and complete ownership and control of your own money in a way traditional banking cannot.
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, its creation led to the start of the cryptocurrency market we know today. To get into it more, check out the full article on the history of cryptocurrencies. But for the purposes of this article, it’s important to know it was the first and is still the most powerful cryptocurrency in the world.
But what is Bitcoin really?
What is Bitcoin?
Bitcoin is the first public blockchain that allowed peer-to-peer transactions whilst solving the double-spending problem. Bitcoin was the Pioneer: The first of its kind. It is completely open-source, with every single transaction being publicly visible while maintaining anonymity for its users. And its native cryptocurrency is Bitcoin or BTC.
BTC is necessary in order to process each transaction on the network. However, unlike traditional money which can be printed infinitely by governments, Bitcoin has limits on its supply. No more than 21 million BTC can exist in 2140 – the system is programmed in a way in which that is guaranteed.
Right now, you can still mine new BTC. However, every four years this amount is halved in an event known as the Bitcoin halving.
What is Bitcoin For?
Satoshi Nakamoto aimed to remove “trusted” third parties from transactions, allowing for peer-to-peer transfers of electronic cash instead. He wanted to remove the need of trusting your funds to banks or financial institutions. Not just that, he saw Bitcoin as a way to remove the struggle of currencies crossing borders, as it allows anyone around the globe to transact freely.
And that’s exactly what it is for. As the common motto goes, with Bitcoin, you can be your own bank.
However, there is a bit more to it than that. Let’s explore why this network caught on.
Why Is Bitcoin So Popular?
As desired by its mysterious creator Satoshi Nakamoto, a key element of Bitcoin is its decentralized nature, which ensures that no one entity can control, throttle, or limit access to its network. But it brings much more than that too.
Bitcoin possesses a unique combination of key attributes which makes it stand out against traditional money or other assets. Here is a simple and memorable way to go about explaining those attributes: the old-good yet effective acronym: B.I.T.C.O.I.N.
Be your own bank
As mentioned, Bitcoin allows you to be your own bank, keeping the custody of your assets away from banks and financial institutions. Plus, it lets you transact peer-to-peer without the stress of trusting the other party.
Impossible to hack
The internet uses servers to store information. So, for a single website, the information is stored on a single computer. That single computer is a single point of failure, and this is why websites are so easily hacked.
The Bitcoin network stores its data across many thousands of nodes globally. That means hacking or overruling the network would involve taking more than 51% control of it. A hacker would need to attack so many different computers to take control that it’s practically impossible. Plus, it’s far too many people to convince to act maliciously. As all the transactions are validated by the community network, there is no possible fraud. If there is a false transaction, it would be rejected. That’s how you can be sure it’s a safe way to transfer your money – it is quite simply impossible to hack.
Thick & fast
Bitcoin transactions can be sent much quicker than the banking system can handle from anywhere in the world to any country, regardless of borders. National and international transactions take the same amount of time and fees. While traditional international transactions take between 1 to 4 working days, a BTC transaction takes about 10 minutes to process.
Bitcoin leverages transparency, by being completely open-source. This means that everyone can take a closer look at its code and verify how it works. All transactions are also publicly available on the blockchain, meaning you can verify all the data relating to your Bitcoin accounts and balances.
Own your assets
With Bitcoin, there is no central authority that could tell you what you can and cannot do with your own money. Unlike the money you’ve left in the care of a financial institution, with Bitcoin you can be completely in control of your own crypto funds while retaining complete ownership of your money thanks to your Bitcoin wallet. No abuse of authority. No breach of trust.
While Bitcoin’s transactions are fully public, you can still remain pseudonymous as you transact. The addresses used on the network are strings of data that, on their own, cannot point to a single individual. It’s worth noting that when you buy your first crypto, you’ll normally have to give some real-world ID, known as a KYC. In theory, this could link you to the transactions emanating from that very first wallet. However, on the blockchain itself, you can transact to your heart’s content without revealing your personal data.
Not only for speculation
BTC is not just a speculative asset. It’s also a means of payment – a sort of “digital cash”. Its popularity has led to more and more acceptance and use cases. Including the purchase of goods and services, from pizzas to Lamborghinis. The first-ever purchase using BTC was for two pizzas! At the time, these two cost roughly $40. Today, the same amount of BTC is worth over $200 Million (USD).
How Does the Bitcoin Blockchain Work?
Bitcoin uses a network of blockchain nodes using a specific consensus mechanism in order to create new blocks in the chain. This consensus mechanism powers many other blockchains as well as Bitcoin and is called Proof-of-Work.
The proof-of-work system validates new transactions by incentivizing miners to solve incredibly complex puzzles – like a giant Sudoku – to verify blocks before adding them to the blockchain. The miner who solves the puzzle fastest gets to add the new block to the chain and is awarded an amount of BTC for doing so. This process is called crypto mining.
So why use this competitive system? Because in the process of competing to solve the new block, miners give their combined computing power to the Bitcoin network, which gives it stability, security, and decentralization. Indeed, if one miner is acting maliciously or is compromised, all other participants in the network will still verify the correctness of the transactions and only permit accurate blocks to be added to the chain. Taking control of the majority of the network to override this consensus would require so much power that it’s more or less impossible for any hacker to do.
This is the point of the proof-of-work system.
Upgrades To The Bitcoin Network
Apart from its basic workings, Bitcoin is also open source, meaning people can create new protocols and upgrades for the system which are only used by participants if they all agree. Bitcoin underwent two major updates in the last few years; Segwit and Taproot.
Segwit( Segregated Witness) reduced the size of each transaction’s data on the Bitcoin network. To accomplish this, it separated some of the transaction’s data from the transaction itself. Since the transactions became lighter, more transactions could fit into each block in the chain, which made the system faster.
The Taproot upgrade offered Bitcoin users a higher level of privacy, security, and scalability, In short, it reduced the transaction data, introducing new features on the Bitcoin network, including;
- New Signatures called “Schnorr Signatures” allow for better security, lower fees, and even offer a multi-sig feature.
- More complex conditional features allow users to specify how a certain coin is spent
Put simply, each of these scaling improvements made it easier for people to create more ambitious projects on the Bitcoin network.
Bitcoin NFTs: Do They Exist?
The Bitcoin network is not capable of handling smart contracts with executable functions, so no, it doesn’t support Non-fungible tokens (NFTs). However, it does support some other similar types of assets. For example, Bitcoin ordinals, a protocol created in 2023, offers users the ability to inscribe messages and information on small denominations of Bitcoin called Satoshis. In essence, these are much like NFTs, but much more permanent and much more experimental.
Since then, a new type of NFT-like Bitcoin asset has already emerged named a Bitcoin Stamp. While these assets aren’t hugely popular today, only time will tell where the movement could go.
How to Access the Bitcoin Network Securely
With Bitcoin, there is no central authority that could tell you what you can and cannot do with your own money. It can be fully in your hands and not at the mercy of any financial institution. More importantly, this form of financial freedom is accessible to everyone, no matter where they come from.
Unlike with money you leave in the banks, when you buy Bitcoin you can be completely in control of your own funds. No one can take down or hack the Bitcoin network. Plus, the opportunities don’t just stop at financial exchange either, with more use cases opening up for the network each day for multiple types of assets.
However, it’s important to note that although the blockchain allows users custody of their assets, not all platforms that build upon it use that model. In fact, some exchanges retain complete custody of your assets, meaning they could take down the website and take your assets with them.
Luckily, the Ledger Ecosystem offers the tools anyone might need to access and interact with the Bitcoin network. Firstly, Ledger devices keep your private keys, the keys to your assets, safe from online threats. This is because Ledger devices use Secure Element Chips known to be the most secure computer chips in existence. Using Ledger Devices and their technology, you can transact knowing you’re really signing the transaction that you planned to sign.
Furthermore, Ledger Live offers a friendly interface to buy, sell and manage your Bitcoin. Lastly, since Ledger has a dedicated Bitcoin wallet and hardware wallet, you can actually host multiple accounts on your single Ledger device, meaning staying secure on the world’s most popular network is just getting easier.