In order to understand Bitcoin, it is best put in words that anyone can understand, which is what I am going to do because so many people get too caught up in the technical jargon when it comes to this digital currency. There is actual two components that make up Bitcoin as a whole, and these components are, the the token which represents a fragment of code which acts as digital concept of ownership, like a virtual IOU. Secondly, you have the protocol, which is a distributed network that maintains a public ledger of transactions, but both are referred to as Bitcoin. This idea was first conceptualised by a pseudonymous software developer by the name of Satoshi Nakamoto who proposed the idea for an electronic payment system based on mathematical proof. The concept was to conduct exchanges that are independent of any central authority like a bank for instance.
Perhaps bitcoin’s most elaborate and important feature is that it is decentralised. This means that no single institution of authority has control over the network, but rather it is maintained solely by the network itself, and run by an open network of dedicated computer that are spread across the world. The fact that the infrastructure and network are solely maintained by the network itself has attracted a lot of attention, especially those who are uncomfortable with the control that banking institutions and governments have over their money. Bitcoin was a way of combating the huge breakdown in trust that helped lead to the 2008 financial crisis. By allowing people to regain control over their money, it was supposed that it would instill a sense of trust between individuals rather than corporations and governments.
Bitcoin solves something called the double spending problem of electronic currencies, which means that digital assets can easily be duplicated and reused. The problem was rectified with the use of a combination of cryptography and and monetary incentives. Bitcoin requires all transactions be included within the public ledger, known as blockchain. This system ensures that the individual sending the bitcoins really does own them, and prevents double-counting as well as other types of fraud. The transactions that are added to the blockchain go through a verification process, which involves an immense amount of computing power, this means it would take a tremendous amount of energy to duplicate or corrupt the blockchain.
Bitcoin has a number of unique features that make it independent from traditional fiat currencies. Such features include, but aren’t limited to:
- Irreversible Transactions: Once an individual sends bitcoin to another address and it is confirmed by the network, the transaction CANNOT be reversed. It has been written into the blockchain and it can’t be altered by anyone.
- Pseudonymous: Your transactions are anonymous to an extent, because rather than using an identity you are using a bitcoin address to send and receive bitcoins. An address is a random string of approximately 30 characters.
- Secure: Bitcoins are stored in a public key cryptography system, which only the owner of the private key can send the cryptocurrency. A combination of cryptography and large strings of numbers makes it increasingly difficult to break
So many people have turned to cryptocurrencies like bitcoin because they are in control of their supply. The best thing about bitcoin is the decentralisation, which frees it from government interference and manipulation, as well as being transparent so YOU know what is happening with your money. Setting up a bitcoin address is easier than opening a bank account, because you simply obtain a bitcoin address and purchase or mine bitcoins and you’re good to go. But with a bank account, you have to prove that you are who you say you are, not to mention the fees that can sometimes be included. Overall bitcoin will force the banking industry to change, and hopefully for the better by trusting a mathematical framework that is separate from politics and other legislation.