In this article a deep-dive into the facts about bitcoin, a revolutionary technology that can have a big impact on the future of finance.
At the end of the second decade of the 21 century, we may have witnessed the rise of a technology that could have a big impact on the next years to come. For centuries, money was a property owned by central governments which gave them power and control in return. A very famous quote about money and control comes from James A. Garfield(The 20th president of the USA):
He who controls the money supply of the nation controls the nationJames A. Garfield
But suddenly there was Bitcoin, a form of digital money which has no central authority and resides within the internet. What makes Bitcoin so special and is it really a form of money. To makes things more clear about this revolutionary technology, I have listed some interesting facts about this digital currency.
1. The founder of Bitcoin
First, there is this mysterious founder called Satoshi Nakamoto. So far, this person or group of people has never been identified and there is much secrecy about its real identity.
On October 31, 2008, a then-unknown Satoshi Nakamoto published a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System on the website for cryptography fans called Metzdowd.
Although the bitcoin.org domain had already been registered earlier on August 18, 2008, the first bitcoin transaction would happen only the following year, on January 12, 2009 – three days after the first block of data was mined on January 9 – the date the paper was released is regarded as the day when Bitcoin made its first appearance in the world.
In the first period, Nakamoto was actively present in the bitcoin community, also replying to emails(firstname.lastname@example.org) and commenting on socials.
For instance, there is evidence of an exchange of emails with Hal Finney, the second person ever to have made use of the software running bitcoin, filing bug reports and suggesting improvements.
However, in December 2010, Nakamoto handed the reins of Bitcoin to Gavin Andersen, disappearing from the scenes in 2011 when s/he stated the desire to “move on to other things”, the last message before the new appearance on P2P.
2. Bitcoin price volatility
Blockchain technology with Bitcoin included can be considered as a revolutionary technology that is still in its infancy. Being in this early stage of the adoption cycle and high Bitcoin volatility compared with USD should be normal then one could say. Still, this is the cryptocurrency market and although this market is relatively young it already experienced 4! Bitcoin Boom-Bust cycles.
Bitcoin volatility and Boom Bust cycles
Another important fact about Bitcoin is that it has crashed four times and the most recent fall that began in December 2017 is also a crash.
- First boom ATH was 2011-06-08 and bust -93%
- Second boom ATH was 2013-04-09 and bust -71%
- Third boom ATH was 2013-12-04 and bust -85%
- Forth boom ATH was 2017-12-16 and bust -84%
Below a historical image of what can be considered as a classic boom-bust cycle.
3. Online Digital Currency
Just like fiat currency, Bitcoin does not have a physical backing. It’s a total digital solution. As a matter of fact, Bitcoin is backed by computer code and miners or nodes. The Bitcoin White paper describes it as online digital cash. To be honest, paying online or in stores with Bitcoin will result in very high transaction fees and high waiting times. As a result, using Bitcoin as digital cash is a little far-fetched nowadays. The Bitcoin community knows about these scaling issues and is working hard to build a second layer on Bitcoin Blockchain, called the Lightning network.
A second interesting fact about Bitcoin is the cryptography being used on every crypto transaction. This very difficult cryptographic puzzle makes the protocol extremely difficult to hack and very secure. If you compare cryptocurrency vs fiat currency one can say that cryptocurrency is much more secure and far more cost-efficient. As a result of being efficient, the transaction fees for transportation value across borders is very low. In this digital age, where 90% of global transactions are digital this easy-to-transfer property gives cryptocurrency value for sure!
|Good to Know|
|If you are really interested in the way Bitcoin & Blockchain technology works: Below some very famous books about this topic.|
|Mastering Bitcoin : Programming the open Blockchain|
|Mastering Ethereum : Building Smart Contracts and Dapps|
|The Bitcoin Standard|
4. Decentralized payment network
Bitcoin is a form of digital money that resides within a global network of running computer nodes. In addition, these nodes are online 24 hours a day. Furthermore, this distributed network of computers is called a Blockchain which handles all transactions on the network. Also, this Blockchain can be described as a database with a history off all the transactions that happened on the network. Every single node on the network has an exact local copy of it stored on their hard-drive. This makes the total network so powerful because if millions of copies exist it will impossible to DDOS-attack or hack the network. In other words, no central authority takes care of security and control but all data is stored and secured in a decentralized way.
5. Proof of Work(Mining)
Another interesting fact about Bitcoin is the mining factor. In the chapter above, I explained something about decentralization and running Bitcoin nodes. As a result, there is another interesting component which is called mining. In general, nodes on the network have two functions which are validating transactions and mining new Bitcoins. Furthermore, the total amount of available Bitcoins is limited to 21 million coins. In addition, not all Bitcoins have been found yet and currently, 17 million Bitcoins are mined. To do this, very powerful computers are needed which uses a lot of electricity to mine the newly created coins. To mine Bitcoins, a method called Proof of Work is being used.
What is Proof of Work
Proof-of-Work, or PoW, is the original consensus algorithm in a Blockchain network.
In Blockchain, this algorithm is used to confirm transactions and produce new blocks to the chain. Also, with PoW, miners compete against each other to complete transactions on the network and get rewarded.
In a network, users send each other digital tokens. A decentralized ledger gathers all the transactions into blocks. However, care should be taken to confirm the transactions and arrange the blocks.
6. Bitcoin is an Asset with haters
Over the past years, Bitcoin has gained a lot of popularity and the community of fanatics has risen fast. However, it isn’t all beds and roses for this very young asset. Firstly, it is created as an alternative to the traditional financial system. Currently, the financial system is controlled by governments and big corporations and this was the case for centuries. Recently, the government of India has banned crypto and also Iran wasn’t a big fanboy of this cryptocurrency.
Not only corporations and governments are a big fan of this new technology, but there are also appearing haters from a side which you shouldn’t expect it. For example, gold bugs a group of people who aren’t a fan of the traditional financial system. As a matter of fact, these gold bugs see Bitcoin as a threat being a haven and are claiming that Bitcoin has no intrinsic value and only exists in cyberspace. A good example is Peter Schiff who has undergone many twitter fights with Bitcoin fanatics.
7. Bitcoin governance
One of the unique properties of Bitcoin is the decentralized nature of the coin. In other words: No central authority controls or regulates the entire network. This is a good thing if you want to prevent fraud and corruption, but what if there’s a flaw in the system which needs to be fixed?
If one wants to change something in the network it only can be arranged by consensus. This is a very interesting fact which means that the majority(51%) of nodes and miners should run the latest updates of the code. In the past, changes to the protocol(code) happened in two ways:
A hard fork is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa). This requires all nodes or users to upgrade to the latest version of the protocol software. Put differently, a hard fork is a permanent divergence from the previous version of the Blockchain, and nodes running previous versions will no longer be accepted by the newest version.
This essentially creates a fork in the Blockchain: one path follows the new, upgraded Blockchain, and the other path continues along the old path.
A soft fork (or sometimes softfork) is a change to the software protocol where only previously valid blocks/transactions are made invalid. Besides, since old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. This kind of fork requires only a majority of the miners upgrading to enforce the new rules, as opposed to a hard fork that requires all nodes to upgrade and agree on the new version.
8. Traceable and transparent system
Bitcoin and Blockchain technology are using a distributed network of nodes that validate transactions but also keep a copy of the entire transaction history on a local hard disk. Every participant who uses the network can track and trace every transaction that happened in the past.
As a result of this open functionality fraud or cheating is banned out of the system. Shadow accounting, for example, a very popular method by global companies cannot happen in this system. Not only the financial world and accounting would benefit from this, but also supply chain management systems. Alternatively, every good added to the system can be tracked and traced from producer to consumer.
9. Anonymous and secure technology
If all transactions on the Blockchain can be tracked and traced, what happens to privacy then? This is a very legit question to ask. As a matter of fact, Bitcoin transactions are open and transparent, but also linked to anonymous public addresses. In other words, Bitcoin transactions can be moved with private keys and send to public keys. These keys or addresses are hashed functions and are looking similar to this: 17ykeWjeAV78Lm9KpehyG2nfmSnQ2dK7UX
What is a Private Key
A Bitcoin private key is just a secret alphanumeric number. Anyone having this secret number is entitled to spend those bitcoins, and that’s why a Bitcoin private key needs to be safeguarded very carefully.
Usually, this key resides in a Bitcoin wallet file and you are the only one responsible for storing your Bitcoin safe. This is very different than saving and securing your money at a bank.
10. Borderless digital money
The last remaining fact about Bitcoin is the easy way it can be used on a global scale. Not many people, especially in the western world realize this, but this is a truly revolutionary property! In the first place, let me explain this with an example with fiat currency.
Nowadays the majority of people in the world are using fiat currency to send money to other accounts. Furthermore, all this fiat currency is created and controlled by central banks. Besides, if we want to send money abroad we have to use their payment network. Currently, to do this is a very costly and slow operation. Also, if your bank doesn’t like the transaction you make or it exceeds a certain limit it could block your account within 24 hours with no questions asked. This could give you a lot of trouble and is also very strange because it’s your money we’re talking about.
With the introduction of Bitcoin and other cryptocurrencies, you are for the first time in history in full control of your own money. Furthermore, Bitcoin can be used on a global scale and in an instant way which makes it far more superior.Follow my blog with Bloglovin
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