What is Bitcoin and why should you care
Explaining the hyped technology Bitcoin and why it matters to you and humanity's future
Bitcoin is a cryptocurrency invented by "Satoshi Nakamoto" (a pseudonym). While the USA was in recession back in 2009, this mysterious entity published a whitepaper about a technology of peer to peer transfer of value called Bitcoin, this attract the attention of developers and the work began on it.
Bitcoin's core technology is the Blockchain, some of the properties of blockchain are:
- Blockchain is decentralized - It is design so that no centralized authority can stop you from transacting, nor you need any approval from one entity
- Blockchain is also called distributed ledger, as it contains all the transactions from the very beginning
- This ledger is kept in full copy accross multiple computers called full nodes, across the world, so it's not vulnerable to single point of failure
- These full nodes are running the same software version or softwares that are following the same protocol
- Blockchain is immutable - It is and no one can cancel or alter your transaction, this means that no central authority can save you when someone has stolen your Bitcoin
- To update the ledger, a puzzle must be solved (called proof of work) first in order to prove that you are acting in good cause and not just attacking the network.
- This puzzle solved by groups of computers (commonly referred to as miners), whoever solves the puzzle first, gets to update the ledger.
- The difficulty of this puzzle changes to match the # of miners in the network, and is updated around every 10 minutes
- The more miner the more secure the network is
- When a miner solves the puzzle, they create a new (single) block, they update their copy of the ledger
- this update propagates it accross the network of full nodes and other miners
- this also awards the winning miner, a fixed amount bitcoins, called the block reward.
- this block reward is cut in half about every 4 years
- Bitcoin is not duplicable, the main purpose of the proof of work is so no one can double spend their Bitcoin
- For example I buy a car with Bitcoin then my accomplice on another location buys another one using the same Bitcoin, after driving off with the car, one of the seller would realize that they are scammed because one of the transaction will be invalidated.
Why does this matter to you?
This technology has the potential to be a global currency and can disrupt the world economy. It could be the biggest wealth transfer in history. Bitcoin has been traded for years and has it's price rose from under a dollar to thousand of dollars recently. This price is based on the demand, the price that buyers are willing to buy at. This attracts a lot of speculative investors most of which is uneducated and lose money due to emotion, panic selling when the price goes down, causing snowball effect.
This frequent price change, called volatility of the market, is the number problem for it to be used as currency, it cannot be used as currency if it's too volatile. The idea is that when the price stabilizes in the future due to mass adoption, then it can be used as currency, but for now the only utility for Bitcoin is store of value and speculation. It is also useful for countries with hyperinflation like Argentina.