An Introduction to Bitcoin (part 1)
It’s weird how “Bitcoin” and “blockchain” have somehow become known in the public eye with so few people actually knowing what it is and how it works. I guess this isn’t anything new as words like “artificial intelligence” and “big data” have also become buzzwords known by the general public, but with Bitcoin it’s different. Bitcoin has financial implications for those who choose to be an “early” participant in the technology and so much faith is put on a system that’s so widely misunderstood.
I’m no expert myself but compared to the population at large I’d say I know a lot. So much so that I decided to write this post describing what Bitcoin is, first generally, then going into more specifics. It’s not meant for the particularly technical individual so don’t worry if you don’t know how to code or anything like that.
I’ll start by answering the questions that Wikipedia says are “considered basic in information gathering or problem solving” — the “Five Ws”. For those who don’t know what the Five Ws are (and for those that can’t remember), the Five Ws are “Who”, “What”, “When”, “Where”, “Why”, and the silent unofficial member of the group “How”.
Who
For this section I’ll give a brief blurb about the mysterious creator of Bitcoin and why there’s so much interest around them. As for who made Bitcoin, we don’t know. Well we do know “an” identity of the creator of Bitcoin, it’s just not the identity that the creator touts around in real life. We know a pseudonym of the person who created Bitcoin — that pseudonym being the name “Satoshi Nakamoto”. Is it crazy that the person who created a digital monetary system supporting over 900 billion US dollars in value is unknown? A little, but you get used to it over time.
Is there any risk to there being an anonymous creator of Bitcoin? Kind of. Satoshi is believed to be the largest owner of Bitcoin which means that if he/she ever decided to become active with their funds, they could distribute Bitcoin in a way that could depreciate the price of Bitcoin and incur an inflationary effect. Based on what we know of Satoshi from their online presence, this seems unlikely as that would be counterproductive to the whole project.
What
Bitcoin is the word we use to describe both the computer protocol and the currency itself. As a currency Bitcoin is like the US dollar or the Mexican peso except instead of being represented as dollars it’s represented as data on computers (think files on a computer or information in a database). This Bitcoin database is maintained by volunteers who decide to run the program (aka the ‘Bitcoin Node’ application) on their own computers.
When
Bitcoin was created over 10 years ago and distributed online for mass consumption as early as January 3rd 2009. For those who believe this is a new thing, it’s not, it’s just now getting popularized to an unprecedented extent.
Where
This question is a hard one to interpret so I’ll use this section to explain where the data is stored. The data for Bitcoin is stored on computers all around the world and a copy of it can even be downloaded by you. This makes it what we call “decentralized” because there’s no one person or organization that controls the data. Anyone can see anyone else’s data pseudonymized by something called an “address” which is one of the things that makes Bitcoin special.
Why
Bitcoin was created to create a more equitable monetary system. A monetary system where the rules are well-defined and unconditionally enforced. To make this happen a system was devised to make all transactions viewable by anyone from anywhere.
Making the Bitcoin system equitable means to make it accessible to everyone. It also means the power to change the rules at any time should not be governed by one individual or organization. Governance should instead be lead by the community of bitcoin users around the world. The information era of computers and the internet makes all of this possible by allowing anyone with an internet connection to participate in this new monetary system. With the growing diversity of Bitcoin’s user base, and without a particular nation’s government dictating the ordinance of the Bitcoin program’s development, it has truly become the currency of the community who believe in it.
How
This section is going to be the largest because the ‘How’ in ‘How Bitcoin works’ is what makes the technology so radically different from any financial system existing before it. I’d like to address each ‘How’ in their own section, but for the sake of brevity I’ll probably answer the ‘How’ questions in a follow-up blog post. Keep an eye out for part 2!
