Bitcoin is “a peer-to-peer electronic cash system”, according to its creator’s original research paper. It is a digital form of cash that works over the internet, available to anyone in the world with an internet connection.
Bitcoin is a global, near-instant electronic payments network. It does not require third-party banks, card companies, storage, or clearing houses to function. Users can spend, receive and manage their own balances on local devices, without requiring accounts.
Bitcoin Is Completely Independent of Government and Corporations
Bitcoin’s goal is to complement or even replace existing monetary and value-transfer systems. It is not subject to any government or central bank’s monetary policy, and has a universal value worldwide. It is available to anyone of any age, nationality or occupation equally.
As well as spending money, bitcoin also functions as a transferable digital asset and an investment or speculative instrument. Its value has fluctuated historically, making it popular with FX traders.
All bitcoin transactions are recorded publicly and permanently on its ledger, called the “blockchain”. Every bitcoin miner and full network node has an up-to-date copy of this ledger, meaning it can’t be hacked or altered by any bad actor.
Some claim that bitcoin is not money at all, but an entirely new class of asset with use cases that haven’t been discovered yet. In the meantime, however, “digital money” is a convenient metaphor.
Cryptocurrency and Digital Cash: a Decades-Long Goal
The idea of a money like Bitcoin is not new. Around the same time the internet was grabbing everyone’s attention, forward-thinking technologists realized its users would need to transmit value as well as information. The internet needed its own money.
That was easier said than done. When you send information online, that data is essentially copied onto another machine. The sender still has it. Copying money like that would create a disaster — so how do you transmit something digitally, while making sure only one person owned it?
Cryptographers and “cypherpunks” realized digital cryptography could theoretically solve this problem. But although they tried, no-one could build a system that worked, and users trusted. There were a few attempts along the way, like Wei Dai’s “b-money”, Nick Szabo’s “Bit Gold” and Adam Back’s “Hashcash” (the latter was designed as an email micropayment system to combat spam).
There were also a few attempts at gold-backed, non-cryptographic digital currencies like e-gold and Liberty Dollars. Both hit legal hurdles. It was clear that if a true online currency were to exist, it’d have to be decentralized, open-source, not controlled by a company or government, and unbreakable.
Then in 2008, an unknown programmer named Satoshi Nakamoto released a whitepaper for “Bitcoin”, using a cryptographic proof-of-work algorithm similar to Hashcash. Others scoffed at this latest attempt, but the late cryptographer Hal Finney took up the cause and helped Nakamoto test the system once it went live in 2009. The rest, as the cliche goes, is history.
Bitcoin is different things to different people. What is it to you? We’d like to hear.
Now that you known what Bitcoin is, you may have even more questions, such as:
Images via CryptoPop, Akemi Miyashita