What Is Bitcoin?
By Moon Hodler
What is Bitcoin? If you aren’t still asking yourself this, it was probably not long ago that you were. We’ve all been there- all of us who “hodl” Bitcoin and identify as Bitcoiners. The purpose of this article is to make the reader comfortable with some of the basic qualities of Bitcoin and to prepare and interest you for more detailed discussions on what Bitcoin is and why everyone should have Bitcoin. The author encourages the reader to make a list of questions you have as you read. This article will begin to answer only a couple of questions about the basics of Bitcoin and why it is appealing, but please remember: Bitcoin is a deep rabbit hole, or series of rabbit holes. One article will not be enough to fully answer all of your questions. You will be left with more questions than when you started. Subsequent articles will answer them for you. This is simply the beginning of your journey into the Bitcoin ecosystem.
But what is Bitcoin? Bitcoin is a form of cash, right? Digital internet money? Does it really exist, though? And if it is cash, what gives it value? These are all important questions to answer.
Bitcoin was designed by Satoshi Nakamoto and released on January 09, 2009. Bitcoin is peer-to-peer cash system available for anyone to use. Satoshi Nakamoto released the source code for Bitcoin, called Bitcoin Core, in the wake of the 2008 financial crisis as the US Dollar was being devalued like never before. Over the next four years, the Federal Reserve would print three times the amount of cash that was previously in existence, causing inflation to accelerate.
One of the problems solved by Satoshi Nakamoto with the release of Bitcoin Core was that it prevented any government, entity, or person from creating (aka printing) more than 21 million Bitcoin. Embedded in the source code of Bitcoin is a hard cap, or limit, on the number of Bitcoin that can be “mined,” which is the method by which new Bitcoin are created. The last of the 21 million Bitcoin will be mined into existence sometime around 2140. This is predictable because Bitcoin is mined on a predetermined schedule. Every 10 minutes, as per the protocol, a Miner validates a new block, or group, of transactions (discussed later) and is rewarded with a prescribed number of Bitcoins. In 2009, the reward for mining a new block of transactions was 50 Bitcoin. Every 210,000 blocks, or approximately every four years, the reward is cut in half. This is called a halving, and the most recent halving occurred in 2020, when the reward for mining a block of transactions was diminished to 6.25 Bitcoin. The next halving is scheduled for 2024.
Another major problem solved by Bitcoin is ‘double-spending.’ Double-spending is when a digital coin, in our case a Bitcoin, is used in two separate transactions. The problem created by this is that one of the transactions is by nature invalid. Because a dollar is a physical form of cash, it can only be spent in one place at one time. With debit cards and online purchases, corporations such as Visa, Mastercard, and American Express are responsible for ensuring a person doesn’t spend the same dollars in more than one transaction. The issue of trusting a third party (the credit card companies) to supervise the honesty and integrity of transactions is solved by Bitcoin through the implementation of its blockchain. The Blockchain is a distributed ledger, or record of transactions, that anyone can download and keep up-to-date on a ‘full node,’ and is literally an un-corruptable record of every Bitcoin transaction ever made since the first Bitcoin was mined in 2009. Think of the blockchain as a long bank statement, or the balance sheet at the back of your grandmother’s checkbook. It is a 100% accurate ledger of debits and credits to every Bitcoin account, and anyone can access it.
The blockchain, a string of blocks containing groups of transactions , is decentralized and stored on nodes which are set up and maintained by average people all over the world. As more individuals run nodes and keep copies of the blockchain, the more secure the Bitcoin system becomes, which is a desirable thing for everyone involved. (See the Node page of our website to view the public address and links to statistics about the node maintained by The Bitcoin Tutor.)
Because Bitcoin is native to the internet, it has no physical properties and exists solely on the blockchain. It is superior to gold and other precious metals because unlike precious metals, Bitcoin requires no logistics, security, or time to transport across space. Bitcoin can be sent instantly from one person to another anywhere on the planet for a relatively small transaction fee. And unlike precious metals, Bitcoin is impossible to seize if properly stored! In an emergency, by simply memorizing your seed phrase (12 or 24 word pass-code to access your Bitcoin), you can cross any border without fear that your asset will be confiscated.
Over the course of its first decade, people have found a wide application of uses for Bitcoin. Some people simply buy Bitcoin and hold onto it as savings, and future articles will explain why Bitcoin is superior to the US Dollar as a store of value. Many people also use Bitcoin as a way to send money home to family in other countries; the fees associated with a Bitcoin transaction are fractional compared to Western Union or any other remittance service, meaning more of a person’s hard-earned money is received by their family back home. Still, others are working to see Bitcoin used as a medium of exchange for everyday transactions. Many people are confident that a new ‘layer’ built on the blockchain, called the Lightning Network, will allow for wide-scale adoption of Bitcoin to be used for simple transactions, such as buying an ice cream cone or a sandwich. Already, people are using the Lightning Network to send each other any amount of money, from fractions of a penny to millions of dollars, to anywhere in the world, instantly. This change in the way retailers receive payment could significantly lower the fees paid by producers and consumers alike.
Bitcoin can mean many different things to different people, and as more people are exposed to Bitcoin, new ways of using it are discovered, which is something to be excited about. Bitcoin already has many desirable qualities, and has been studied, attacked, and tested by the best computer scientists in the world. It has not only survived, but has become stronger and is called anti-fragile by those who understand its history.
In future articles, all of the topics discussed above, as well as many additional topics, will be explored in more detail. Reference the Glossary page when necessary. Thank you very much for subscribing!