The genius of Bitcoin, a revolutionary currency
Rachel Huang. 04/09/2021
Launched in 2009 from the anonymous Satoshi Nakamoto’s whitepaper, Bitcoin (BTC) was created to be an electronic payment system “based on cryptographic proof instead of trust.” Bitcoin is now the world’s largest cryptocurrency (digital currency) with an astonishing value of over $55,000 for a single coin and is also the first application of blockchain technology, an innovative creation that allows it to be distributed, traded and stored. A blockchain is essentially a collection of “blocks,” files that record all of the transactions that occur, making them transparent and visible to all of the computers that run Bitcoin’s code and store its blockchain. The creation of Bitcoin has united thousands of people around the world over a common goal: obtaining bitcoin and turning a profit.
There are currently 12,000 computers connected to Bitcoin’s blockchain; these computers are called nodes, while the owners of the computers are called miners – the miners control Bitcoin’s release into circulation via a process called Bitcoin mining and are rewarded with coins adding blocks to the blockchain. Bitcoin mining requires the solving of complex computational puzzles in order to discover a new block, and expensive mining rigs (elaborate mining processors and hardware) increase a miner’s ability to earn more rewards. Mining rigs are available for purchase in the form of computer chips like Application-Specific Integrated Circuits (ASIC) and Graphic Processing Units (GPUs). All of these Bitcoin transactions are verified by cryptographic proof, making the system very secure. For example, a person with malicious intent would need to operate 51% of the total computing power that makes up Bitcoin to cheat the system. With miners acting as Bitcoin’s decentralized authority, miners are motivated to add to the growing blockchain because of the prospect of reward, and the blockchain benefits by growing and developing even more.
While David Zeiler, cryptocurrency expert for Money Morning, describes Bitcoin as “the best-known crypto and a secure, decentralized currency that has become a store of value like gold,” there may be more exaggeration than truth in his statement. The long-term security that Zeiler describes only refers to Bitcoin’s official certification and verifiability, not Bitcoin’s prices. Cryptocurrency is a highly speculative investment, with the potential for intense price swings, or as described in the words of CEO of Digital Currency Group Barry Silbert, “It is pretty much the highest-risk, highest-return investment that you can possibly make.” As a safeguard against these risks, it is highly recommended that investors trade on official cryptocurrency exchanges, such as Coin base and Bitfinex. Potential investors and traders are enticed by Bitcoin’s high exchange rate, lower transaction fees and instant payments that are a result of its “peer-to-peer” technology that grants instant rewards. In addition, Bitcoin can also be exchanged for traditional currencies and act as an alternative to national fiat money and traditional commodities like gold. The overall success of Bitcoin has triggered the release of a slew of other cryptocurrencies, amounting to over 5,000 different types released into circulation, collectively referred to as altcoins.
As another facet of its multipurpose nature, Bitcoin can also be used to buy things! Bitcoin can be split into smaller units to make transactions easier – the common unit of Bitcoin used in everyday transactions is called the Satoshi, which is 100 millionths of a Bitcoin, currently worth approximately 0.02 cents. In response to the growing Bitcoin community, many retailers have begun to accept bitcoin with the proper hardware terminal and/or wallet address through QR codes and touch screen apps. Keys are the main form of hardware terminal through which Bitcoin can be transferred: there are public and private keys, both of which are long strings of numbers and letters linked through the mathematical encryption algorithm.
(Coinsource)
A public key’s address is published to the world and others may send bitcoins to it as necessary. On the other hand, private keys are a guarded secret and only used to authorize personal bitcoin transmissions. Keys increase Bitcoin’s liquidity by making Bitcoins less like stocks and more like cash because the private keys needed to authorize spending can be printed out and stored physically. Stores may also accept Bitcoin wallets, a physical or digital device that facilitates the trading of bitcoin and allows users to track ownership of coins with a software program that interacts with the blockchain, allowing users to exchange the currency.
Bitcoin’s appeal has been greatly increasing in recent years, especially because Bitcoin quickly approaches its approvable max of 21 million bitcoin. With a current count of about 18,614,806 in circulation, there are only about 3 million Bitcoins left to be mined. This makes it seem like Bitcoin will run out soon, sending miners and investors into a frenzy. However, this is not the case because rewards are halved for every 210,000 blocks added to Bitcoin’s blockchain; the current reward for each block discovery has become a meager 6.25 bitcoins (of course, if you take into account the value of a single Bitcoin, then the overall value of the reward is greater than ever). If you think about how a store of 3 million Bitcoins gets depleted by withdrawals of 6.25 bitcoins, you will understand how, in reality, Bitcoin will actually “run out” in around 2140.
Bitcoin continues to be the leader and definer of the cryptocurrency value cycle; the prices of bitcoin and Ethereum (another cryptocurrency) are currently riding a FOMO-driven high, going almost vertical. The direction and stability of these high prices are very unpredictable, or, in the words of Clem Chambers, “a week is now a long time in crypto” due to its extreme volatility. Investors can monitor transaction fees as a sign of Bitcoin’s upcoming value – transaction fees are now exorbitant; when transaction fees start to fall it will be a signal that the FOMO is falling, and the prices will drop. For now though, the fees continue to rapidly increase.
(Forbes)
As a child of the 21st century, Bitcoin is, and will no doubt continue to be at the forefront of the digital currency revolution. Versatile and secure, investable and ever-expanding, Satoshi Nakamoto’s application of blockchain technology has blossomed into proportions that must have been unimaginable before its creation. Microsoft, Home Depot, Burger King, Starbucks: all of these major retailers have started the movement of accepting Bitcoin and other forms of cryptocurrency as a form of payment. Who knows? One day, Bitcoin may become the new dollar bill – as liquid as cash, and accepted anywhere and everywhere. Only time will tell how the wonders of Bitcoin and its siblings will transform the world.
Cover Photo: (Coingeek)
