1.09 What is bitcoin?

If cryptocurrencies and blockchain applications are the branches and fruits, Bitcoin is the very root of this entire industry tree. While attempts at digital currencies have been made in the past, Bitcoin is the first successful cryptocurrency that has attained remarkable success and popularity. Today, tens of thousands of digital assets exist in the market; however, Bitcoin leads the crypto market dominance to date. 

Over the next few lessons, we go over Bitcoin’s fundamentals and features to better understand its value as a digital asset. 

In this lesson, we dig deep into the roots of the crypto and blockchain tree - Bitcoin.  

Contents

• What is Bitcoin?
• The origin of Bitcoin 
• Unique features of Bitcoin

What is Bitcoin?

Bitcoin is a form of digital currency that allows you to buy, sell, or exchange directly without relying on intermediaries like banks and other financial institutions. 

Bitcoin, the most popular cryptocurrency, is the first real-time application of blockchain technology. It paved the way for all other alternative coins or altcoins. As Bitcoin exists only on the internet, it is also called digital currency. 

The transactions of Bitcoins are recorded and stored on a decentralized public ledger. 

In other words, the ledger and the network are managed and operated by the nodes (participants) of the Bitcoin blockchain. The Bitcoin network does not have any gatekeepers and hence anyone across the globe can become a member of the blockchain without seeking any permissions. 

The cryptographic methods used to create this digital currency ensure that there are no loopholes to double-spend Bitcoin. In other words, one Bitcoin can never be spent twice. 

Origin of Bitcoin

After the global financial crisis in 2008, an anonymous person or an institution issued a white paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. It was published on 31 October 2008 under the pseudonym “Satoshi Nakamoto.”

In early 2009, open-source software was released for developing Bitcoin. It is a permissionless network; hence, anyone can join the software and participate in its development. The first-ever transaction took place in January 2009 between Nakamoto and one early adopter of Bitcoin. 

The main purpose behind creating Bitcoin is to enable a peer-to-peer or person-to-person global payment without depending on any third-party institution like banks and brokerages. 

According to the original white paper, Bitcoin is a way to send money from one party to another without going through a financial institution. When it was first introduced, the value of Bitcoin was $0 in 2009. The price of Bitcoin has increased tremendously after a decade of its inception. 

Based on the source code used to create Bitcoin, it has a finite or limited supply. The total supply of Bitcoin has a limit of 21 million coins. The supply is expected to reach its limit by the year 2140. 

Unique features of Bitcoin

Bitcoin - the world’s largest cryptocurrency by market cap - encompasses unique features within its architecture. 

Easy to set up

Suppose you want to create a bank account, credit checks, and dealer records. In that case, you need to go through a lengthy procedure like filling the application form, verification of details, inquiries, etc. 

In the case of Bitcoin, anyone can join its network. All you have to do is download and run a Bitcoin client which connects to other nodes. 

Decentralized

The primary aim of Bitcoin’s founder, Satoshi Nakamoto, is to eliminate intermediate financial institutions like banks and brokerages to make a transaction. 

Bitcoin is a decentralized digital currency that maintains a distributed public ledger to record and store transactions. Any central authority like the government has no control over the Bitcoin network. 

Transparency

The Bitcoin network is transparent. You may not know how many Bitcoins a person owns, but you can view details of the transaction information like sender, receiver, and the amount under the respective public address. 

The transactions are transparent and can be viewed by any member of the Bitcoin public blockchain network. 

Anonymous

Banks know every detail of their users like name, address, phone number, legal papers, history of transactions, etc. They have access to information including date, time, amount, and the receiver of a transaction. 

In the Bitcoin network, your identity remains completely anonymous. It is possible to identify the wallet address behind transactions, but you cannot link the identity of the address to the user. 

Going a step further, Bitcoin is a decentralized network. However, centralized exchanges offering the services to buy and sell digital currencies need to comply with regulatory rules such as KYC and AML. Legal compliance adds a security layer against bad actors. 

Speed

Bitcoin transactions are near-instant and take a few minutes to complete irrespective of geographical location and time. 

Irreversibility 

Bitcoin transactions are irreversible. In other words, once you have sent a Bitcoin to someone, it is impossible to reverse the transaction. 

This lesson covered the basics of what Bitcoin is. In our upcoming lessons, we decode this cryptocurrency into further detail.