What is Bitcoin?

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By: Yash, Zeneca

Bitcoin is a digital or virtual currency, also known as a cryptocurrency, which allows you to send and receive money online without using traditional banks or payment systems. It was created in 2009 by an unknown person or group using the pseudonym “Satoshi Nakamoto” to be a “peer-to-peer electronic cash system.” (Bitcoin Whitepaper)

Before we cover what Bitcoin is, let’s talk about what money is overall.

What is money?

Most people think of money as the bill you hand in at the local store. However, that’s far from the whole picture. Money has developed four main uses:

  1. Collectibles (e.g., shells, rare gems) 
  2. Store of value (e.g., gold) 
  3. Medium of exchange (e.g., commodities) 
  4. Unit of account (e.g., Dollars, Euro)

Although Bitcoin is primarily used as a store of value like digital gold, it has many other benefits and opportunities because it is an accessible and versatile currency. It only takes a few minutes to transfer bitcoin to another user and it can be used to purchase goods and services where accepted. 

How Bitcoin is different

You can think of Bitcoin as a digital public infrastructure for money; similar to how the internet is digital public infrastructure for information.

Satoshi published the Bitcoin Whitepaper in 2008. The whitepaper highlighted how Bitcoin is unique. You’ll remember these terms from Day 2 (what is a blockchain). Bitcoin is:

  1. Decentralized: Bitcoin provides a solution to a centuries-old problem in Computer Science – the Byzantine Generals’ problem. Basically – how can two unknown parties trust each other, without relying on a 3rd party? 
  2. Open: Bitcoin is an open source project, meaning anyone can contribute to develop the code. It is also transparent, offering a public ledger with transaction records. 
  3. Immutable: Bitcoin’s rules are encoded on the blockchain, meaning one party cannot arbitrarily alter the network. One important rule is that there can only ever be 21 million bitcoin; meaning there is a hard cap to the total supply, and it can’t be manipulated by any individual or organization. 
  4. Scarce: The rate at which Bitcoin is released to miners is dictated by a predefined algorithm and halves every four years. This means that there is a hard cap on the supply (there will only ever be approximately 21,000,000 Bitcoin in circulation. Price volatility is generally lower if an asset is finite in supply and can’t be manipulated.

You can buy Bitcoin in fractions (e.g., 0.0000001 bitcoin), which are known as satoshis.

Bitcoin is the first cryptocurrency and is considered by most to be the most secure (as it is the longest running blockchain without any security issues), the most decentralized, and the best “store of value” of any of the cryptocurrencies (again due to being the oldest, with a capped supply – it is often referred to as “digital gold” and can be considered as such).

In our next section, we’ll cover: “What is Ethereum?”

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