Cryptocurrency Guide: Bitcoin

What is Bitcoin?

Bitcoin is a fundamentally new, innovative way to transfer and store value without the need for trusted 3rd parties (banks, companies, or governments). Bitcoin can be sent from one individual to another with no authority to oversee, cancel, or edit the transaction. The monetary properties of a bitcoin token can’t be changed – there will only ever be 21,000,000 (which can be divided into 100,000,000 sub-units called Satoshis) and the release of them to miners for securing the network follows a predictable 4 year halving cycle.

This means Bitcoin is global, borderless, portable, permission-less, secure, immutable, divisible, and lives on the internet. It is a digital accounting ledger distributed across millions of computers around the world.

Who Created Bitcoin?

That might be the question of the century when it’s all said and done. Satoshi Nakamoto is the pseudonym used by the author and creator of Bitcoin. He/She/They didn’t want to be known for a few reasons, and it might be the greatest strategic gift they gave to Bitcoin.

When was Bitcoin created?

The Bitcoin whitepaper was published 10/31/2008 and the network went live 1/3/2009.

How Does Bitcoin Work?

Network

The Bitcoin network is spread across millions of computers that secure the network and verify the accounting. It s a combination of nodes, the blockchain, and miners. For me detail on each of these continue reading below. These 3 components combine to create the most secure network in the world – one that has never been hacked. Some crypto exchanges have been hacked (not the ones we review and recommend!), but we’ll teach you how to buy and secure your Bitcoin properly. This network has far-reaching potential that reaches beyond just the transfer of bitcoin tokens.

There are networks and protocols built on top of Bitcoin, called 2nd layer solutions or layer 2 solutions, that are adding even more capability to the Bitcoin economy. The most promising and developed layer 2 network is called the Lightning Network and increases the number of transactions and speed considerably.

Nodes

Nodes are the referees of the Bitcoin protocol and make sure everyone plays by the rules. Anyone can run a Bitcoin node to participate in the audit and verification process. This capability is truly groundbreaking since participants can now verify supply, balances, and validity of the user’s bitcoin. No other monetary system on earth allows this level of transparency and accessibility.

The ability for anyone to participate, generate a wallet, transact, and audit the network are necessary trade-offs that make Bitcoin the most inclusive financial network in the history of mankind.

Blockchain

The blockchain is a new and complex database that validates each Bitcoin and confirms the rightful owner. As new transaction blocks are confirmed they are added to the blockchain. This means each bitcoin is accounted for and verified going all the way back to the genesis block! This auditable record of transactions can be accessed by anyone, anywhere in the world who runs a node.

This process of cataloguing transactions has many potential uses and innovators are just scratching the surface.

Mining

Insanely powerful computer networks use complex math equations to create new bitcoin. This is called mining! Bitcoin are slowly released to miners as a reward for securing the network, but there will never be more than 21 million bitcoin.

Bitcoin ‘miners’ aren’t really like gold miners. Yes, they are rewarded bitcoin for their work similarly to gold, but gold miners actually make gold worth less by increasing the supply (which is an unknowable amount), but bitcoin miners secure the network and don’t increase the supply as there will never be more than 21,000,000 bitcoin. Also, as the price of gold goes up more and more miners will enter which will increase the supply and lower the price. Bitcoin miners have no power over bitcoin production as it is capped by the protocol.

Why is Bitcoin Valuable?

Monetary Princinples

Bitcoin holds its value because there is a capped supply – kinda like a digital version of gold. As Bitcoin grows in popularity and utility this scarcity makes the price go up. Some of the world’s best engineers and entrepreneurs are building applications on top of Bitcoin to make it more accessible and useful. The price of Bitcoin has gone up A LOT over the last decade, but you can own as small a piece of Bitcoin as you want – even pennies!

Digital Gold + FinTech Entrepreneurs = The Future of Finance

Bitcoin has some great innovative monetary qualities (easy to store/protect, auditable, programmable, etc…), but also has many of the best qualities of our most sound historical money: fungible, non-consumable, portable, durable, divisible, secure, transactable, scarce, and sovereign. For more about Bitcoin and how it functions as sound money, click here.

Check out this interview with Robert Breedlove to hear his perspective on why Bitcoin is the apex predator of financial networks and currencies.

Why is Bitcoin Useful or Desirable?

Network

Bitcoin the network and bitcoin the digital currency accomplish different goals and are each important. 

The Bitcoin network connects users from all over the world in a way that has never been done before. It spans borders and countries since it lives on the internet. It is also the most secure computer network in the world as it is geographically distributed, decentralized, and protected by an incredibly large computer network solving complex math equations. The incentives protect the network.

For further reading about the Bitcoin network, click here.

Currency

Bitcoin, as a currency, is programmed monetary stability. Everyone knows exactly how many bitcoins have been created, are being created now, and will be created in the future. No politician or banker can change this schedule. It takes power away from governments and banks and into the hands of the voluntary participants.

Bitcoin’s Potential
  1. Banking alternative as users can hold their own money and private keys.
  2. Worldwide savings technology.
  3. Replacement for Visa, Paypal, Venmo, and other financial networks.
  4. Replacement for FedWire, ACH, Western Union and remittance services.
  5. Replacement for Central Banks and government-backed currencies.
  6. Distributed information network.
  7. Baselayer for a new financial system based on collateralized debt instead of future earnings-backed debt.

Further Reading

Still interested in reading about Bitcoin? We recommend you start with our What is Bitcoin series below:

What is Bitcoin? Part 1 – Origins

What is Bitcoin? Part 2 – Technology

What is Bitcoin? Part 3 – Principles of Money

The Bitcoin Revolution

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