While Bitcoin was “officially” launched in 2008 with the publication of the project’s whitepaper, it wasn’t humanity’s first attempt at cryptocurrency. Before that, there were various attempts like Bit Gold and B-Money at creating a decentralized currency. Bitcoin was simply the first successful attempt. The coin also drew on tech protocols that had been developed by various individuals.
After the initial proposals failed in practice and during the first decade of the millennium, “Satoshi Nakamoto” was silently working on launching a digital currency that worked – in all aspects. On August 18, 2008, the domain name Bitcoin.org was registered. In October, a paper called “Bitcoin: A Peer to Peer Electronic System” was published, ostensibly by someone named Satoshi Nakamoto. The network came online on January 3, 2009, with Nakamoto mining the “genesis block” of the Bitcoin blockchain, an effort paid with 50 BTC.
The Satoshi Nakamoto Mystery
The true identity of “Satoshi Nakamoto” has become a crypto-legend in its own time. Although it now doesn’t really matter who started the currency revolution, such is the entrenchment and overall success of Bitcoin, attempts to correctly identify the creator persist and frequently fuel sparks of interest. It is widely accepted that the name is a pseudonym, and some users have laid claim to origination of the digital currency.
The Australian Craig Steven Wright, for one, has claimed to be Nakamoto. While he does have a computer science and cryptographic background, most repudiate his claims as unbelievable due to a lack of compelling evidence. Other names posited as the “true Nakamoto” have been Dorian Nakamoto and Nick Szabo.
Gauging things from today’s perspective, where blockchain technology (the tech underlying Bitcoin) is not just known, but also a burgeoning employment category, it seems unlikely that one person created Bitcoin. Many people suspect that it was a project team that built the first successful digital currency.
The Bitcoin Nutshell
Coders write code, which equals software, which equals apps. These are all the same thing for the purposes of explaining Bitcoin. Blockchain technology is also coders’ software, and it builds a decentralized accounting or transaction ledger. Bitcoin is a “decentralized currency” that relies on no national authorities, reserve banks or other financial authorities to exist. A decentralized ledger is used and validated by the fellow millions of users all over the world.
The creators designed Bitcoin to be a type of “digital cash” that facilitates online and real-world financial transactions. Crypto coins eliminate the middleman of bank or national authority as encountered in fiat currencies. It is a more empowering, democratic way to experience currency. No one takes a “cut” of any transaction, save that the blockchain’s protocol demands small charges for transacting. These charges are the “mining fees” sought by users and paid for their validation of block transactions.
The principal benefits of Bitcoin are an immutable history, the elimination of legacy third parties (payment processors, banks and other money handlers) and anonymity. Personal data is not exposed and transactions were designed to be swift and almost free. Bitcoin builds in blocks on the chain, and once validated a block cannot be undone. Moreover, a block cannot be built with false intel either. The app design is such that only true, validated data can build a block in the Bitcoin blockchain.
A more technical insight would determine that Bitcoin transactions are validated by users employing what is known as the Elliptic Curve Digital Signature Algorithm (ECDA). This is a mathematical signature not able to be forged and the process is highly secure. More secure, in fact, than legacy payment protocols. Although Bitcoin had an incident in 2010 that saw a user able to generate as many bitcoins as they desired through a system flaw, that was quickly patched and the blockchain has been wholly sound ever since.
Bitcoin Algorithm And Mining
Bitcoin’s blockchain employs an algorithm called Proof-of-Work (PoW). What this means is that this is the protocol that constitutes the “mining” of bitcoin. Bitcoin is impossible to hack and it remains almost impossible to falsify transactions on the network.
Users also often encounter the term “hashrate” when looking at Bitcoin’s construct. What this refers to is the rate at which the PoW algorithm is pursued or applied by users seeking to validate others’ transactions, and earn the small BTC rewards thus liberated.
A user’s hash power (essentially computing power) thus “mines” the blockchain employing the PoW algorithm to solve complex equations. Although it sounds very hit-and-miss, the rate and nature of “hashing” solves the equation(s) and builds a confirmed block of the chain. The process typically sees three or four transactions happen per second. The more available computing power, the more a user can confirm, and the greater their rewards for so doing.
What’s Bitcoin’s Downside?
The most debilitating problems with the Bitcoin blockchain have been the cost of transactions and issues of scalability. As the Bitcoin network grew, it became apparent that the system was not coping with the sheer volume of transactions that mass adoption created. While transactions were always validated, it began to take hours and come at great expense.
This was a particular niggle for Bitcoin as it was billed as an overall “improvement” on fiat currency. Although consumer distaste for bank charges and those of payment processors such as PayPal has been a constant gripe, at one point fees on the Bitcoin network proved far higher. This issue of costly transacting is still largely unresolved, although scalability on the network has improved.
Transaction fees depend on the size of the transaction, but the main issue is that users are seldom sure of exactly what a transaction will cost. Exchange fees also vary depending on country, exchange facilities employed and the volume of BTC moved. There is currently no uniform fee structure when transacting on the Bitcoin blockchain. In comparison to Visa – capable of processing 55,000 transactions per second – and Payoneer or PayPal, transacting on the Bitcoin network takes comparatively much longer. This often proves completely impractical for daily shopping, for example, even if a merchant accepts bitcoin payments.
The principal purpose of Bitcoin and an original stated aim is to perform as a digital currency. This has been badly undermined by the scalability and messaging issues the network encountered as global adoption has grown. It remains to be seen whether Bitcoin will resolve these issues, failing which, it may remain as a digital asset, yet cannot hope to function as a user-friendly currency.
Although the manifest reality of Bitcoin is still sufficient to allow it to be called a better alternative or better way of doing things, some issues demand redress. If the coin truly hopes to become a global “currency” in every sense of the word, existing limitations need to be eliminated. The coin has found wild appeal with investors and has traded at almost $20,000 during December 2017. While it’s currently trading at around $6,700, the fact that it can be seen as a digital asset and a currency tends to confuse an honest overall rating.
Crypto tokens are a new asset class and markets bring their own dynamism to anything traded. As an asset, Bitcoin has fared phenomenally well by legacy standards. Even that, however, is linked to the coin’s ability to function as a true currency and viewing it as a long-term store of value is still considered very risky by investors.