What is Bitcoin?
Bitcoin is probably the most buzzed word of the past decade, but amidst all this hype, what exactly is Bitcoin? Why is this technology driving so much debate? To clearly understand Bitcoin, let’s cut through all this hype and get straight to the fundamentals.
Bitcoin in itself much more than just a currency; it represents the technology, concept, network, digital asset, and currency all at the same time. To see from a broader perspective, bitcoin has two components – one is the digital coin and the other is the bitcoin system and the technology. From the perspective of the digital coin, bitcoin is a web-based currency which can be used to transmit value amongst individuals, just like the fiat currency. To be precise, bitcoin is not a digital coin per se, it is just a few lines of code, which can even be encoded at the back of an image or an emoticon. From the perspective of the system and technology, Bitcoin is a vast computer network spread all across the globe (called “nodes”) and a decentralized database which stores all the bitcoin transactions (called “Bitcoin’s blockchain ledger”).
NOTE: In order to differentiate the two components, we always capitalize “Bitcoin” when talking about the system and technology, and never capitalize “bitcoin” or “bitcoins” when talking about the currency units.
What’s amazing about this digital asset is that there’s no “central” institution such as the government or the central bank, which owns and controls it. Bitcoin transactions are made in a decentralized environment where people like you and I can transact peer-to-peer without the need for any bank or government institution. This virtually means that you’re your own bank and no one can stop you from transacting bitcoin. That’s amazing, right? But that’s not all, to add the cherry on the top, Bitcoin transactions are anonymous, which means that no one can track your personal data (information such as your name and ‘physical’ address) while making transactions.
WHO CREATED BITCOIN?
Well, that remains a mystery to date! Yes, we do know of an individual or a group of individuals by the pseudonym ‘Satoshi Nakamoto’ who created Bitcoin. However, because of the anonymous nature of Bitcoin, the true identity of the creator(s) is still unknown.
WHERE DID IT COME FROM?
Although many of us might think of Bitcoin as relatively a new technology, there have been predecessors to it. Attempts have been made in the past to develop a decentralized currency, however, none of them have been able to take-off from the ground. Nevertheless, Bitcoin has successfully borrowed concepts from these previous developments;
- David Chaum’s Blind Signature Technology, which permitted anonymous transactions
- ‘How to Make Mint: The cryptography of anonymous electronic cash’ by National Security Agency Office of Information Security Research and Technology in 1996. This paper highlighted the core fundamentals of any electronic cash system.
- Wei Dai’s B-money and Nick Szabo’s BitGold, which highlighted some of the similar protocols such as the proof-of-work being used by Bitcoin.
Due to their close association with digital currencies, David Chaum, Wei Dai, and Nick Szabo have repeatedly been suspected to be Satoshi Nakamoto despite their denial.
Even though Bitcoin was not one of the first decentralized currency, it became the first peer-to-peer digital currency to solve the double spending problem and since its inception, it has taken the world by a storm.