What is Bitcoin?

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

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:

• 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?

1. 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.
2. 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 cannot be “inflated” by a central bank. 

 

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, the most decentralized, and the best “store of value” of any of the cryptocurrencies.

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

 

Learn more:

• What is Bitcoin? (Odyssey)
• Bitcoin whitepaper
• Bitcoin is a schelling point (Balaji)
• Byzantine Generals  
• Bullish case for bitcoin (Vijay Boyapati)