Most people struggle to answer the question: What is a Bitcoin? because there are so many different ways to respond.
First, Bitcoin is considered the first and the most widely used cryptocurrency. A cryptocurrency is a completely digital, decentralised currency that is built using principles of computer science, cryptography, and economics. The term Bitcoin refers to the protocol governing this currency.
Second, bitcoin lowercase refers to the actual units of currency. A Bitcoin user will say that they have a certain amount of bitcoins, similar to how we say we have a certain amount of dollars when referring to the US Dollar.
Third, Bitcoin is the inspiration for the BlockChain, which is the underlying data structure of this cryptocurrency.
A data structure is a virtual format for organising, retrieving, and storing information. The Bitcoin blockchain in particular stores a permanent history of all transactions to ever occur in the history of Bitcoin. It is an append-only ledger, meaning that any information added to the ledger cannot be deleted. But most importantly, Bitcoin is a cultural revolution.
Rooted in ideals from Cypherpunks and libertarians, Bitcoin represents a shift towards privacy and decentralisation. This cryptocurrency is not backed by any central organisation, government, or company. Instead, Bitcoin is built by the users, for the users.
As we said, Bitcoin was inspired by the Cypherpunk Movement of the late 80s.
Cypherpunks advocate for the protection of privacy using cryptography. They do not trust governments, corporations, or large organisations to respect privacy. These points of centralisation accumulate a great deal of power over society by collecting unimaginable amounts of information from millions of users. And the Cypherpunks were some of the first to be concerned about central entities stripping away the freedom of the general public.
One massive point of centralisation in modern day society is the financial system, where: banks govern the economies of entire countries. Several different companies and researchers attempted to make a decentralised or anonymous currency, but all of them failed. Bitcoin was the first technology to succeed as a cryptocurrency.
The Bitcoin whitepaper, or research paper, was published in October 2008 by Satoshi Nakamoto. The whitepaper was a 9-page, concise proposal for the structure and function of a peer-to-peer electronic currency. Satoshi Nakamoto is a pseudonym, or a false identity, of an individual or a group of individuals. No one knows his real identity. However, what is important is that this whitepaper envisioned a currency where users do not rely on financial intermediaries or trust anyone in order to make transactions with each other.
In Bitcoin, users do not need to use their real world identities; instead, they are represented by addresses, strings of random letters and numbers. Bitcoin takes control out of the hands of third parties and gives users the freedom to transact while protecting their privacy. So how does Bitcoin do it? On a high level, the Bitcoin network validates transactions and stores the entire transaction history.
The Bitcoin network is a group of users communicating with each other as part of the Bitcoin protocol. This network serves as the substitute for the central bank and must have certain properties to function correctly. Bitcoin is trying to create an open, accessible cryptocurrency not subject to censorship or centralisation.
But what are the problems?
Keep in mind the problems of trying to create an open, accessible cryptocurrency not subject to censorship or centralisation: there are no central parties to ask for information about user accounts, and there are no central parties to kick out or censor malicious users. Decentralised networks generally suffer from these problems, leading to inconsistencies between parties and malicious messages infecting the network. The most popular attack is known as the double spending attack, an attack where some value is used for more than its worth.
In real life, it is easy to prevent double spending: since dollar bills cannot be copied and pasted. However, in digital currencies needs to be assurance that the virtual tokens have not been promised to more than one person. Bitcoin as a technology is trying to solve a very specific problem in the realm of distributed systems: when any “node,” or computer within the network, can come and leave as it pleases and behave however it likes.
There are enormous possibilities for failures given the complete removal of centralisation, which is why there were so so many Bitcoin’s predecessors to Bitcoin which failed.
So how does bitcoin solve these problems?
Bitcoin solves these problem through two things: First, the BlockChain, and the Proof-of-Work consensus protocol, both of which are Satoshi Nakamoto’s most popular and influential innovations. Because of these two things, anyone with access to internet and a computer can join the Bitcoin Network.
There are NO banks or any equivalent of the Federal Reserve on the Bitcoin Network. Instead, everyone can verify and audit the transaction history on their own. And even the creation of money is decided not by a central authority, but through the process of mining, of Proof-of-Work.
Question: True or False?
The primary issue Bitcoin took with big banks was inefficiencies in finance. “Bitcoin wasn’t targeting inefficiencies in centralisation. In fact, Satoshi Nakamoto pushed for a more inefficient system despite the foreseen inefficiencies of a decentralised network. Bitcoin was focused on decentralising power and enabling privacy-centric tech.”
Feel free to answer in the comment section.
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