I have received the question What is Bitcoin many times. Given it is the world’s largest Cryptocurrency, by Market capitalization (and many other metrics), it is appropriate to dedicate an entire guide to fully explain this asset that is catching the world’s attention.
What is Bitcoin - Cryptocurrency
If you are new to Bitcoin, there are probably several unfamiliar concepts in the description above. For those looking for a more detailed explanation we break it down into each aspect below. Bitcoin (BTC) encompasses all of the following four aspects:
- Digital currency;
- Decentralization; and
- Distributed ledger using Blockchain technology.
At it’s highest level, Bitcoin (BTC) is a Digital currency which has the following characteristics:
a balance or a record stored in a distributed database on the Internet, in an electronic computer database, within digital files or within a stored-value card. Examples of digital currencies include Cryptocurrencies, virtual currencies, central bank digital currencies (CBDC) and e-Cash.
Digital currencies exhibit properties similar to other currencies, but do not have a physical form of banknotes and coins.
Source: Wikipedia – Digital currency
Like any traditional government issued currency (Fiat money / currency) that we are all used to using in our everyday life, such as US dollars, Australian dollars, Euro, Yen, etc, digital currency can be accepted as a form of payment by a business, can be saved to accumulate greater wealth, used as an investment and can be used to pay for goods or services at any business that accepts bitcoin as a form of payment.
Just as not every retailer accepts all forms of fiat currency (eg in the United States you wouldn’t generally expect to buy a coffee and pay with Australian dollars or Japanese Yen… instead you would need US dollars to pay for your coffee), not every business currently accepts Bitcoin. However, the numbers are growing and significantly, Bitcoin is not a currency attached to any one country.
Cryptocurrencies are one form of Digital currency. Cryptocurrency (also called “crypto”) has no physical form such as banknotes or physical coins do, but instead exists only in digital form on a network and uses encryption techniques to verify the transfer of funds. Once transactions are verified it is stored on a public ledger called a Blockchain.
Bitcoin is the best-known and worlds largest Cryptocurrency by market capitalization. It can be used to buy goods & services, to speculate on it’s price (purchasing power) or held as a store of value. However, where it really differs is that it uses a Distributed ledger with strong cryptography to secure online transactions, rather than being a centrally issued and controlled currency by governments (such as USD, EUR, JPY, etc).
Bitcoin is a Digital asset built on a Blockchain (see further explanation below) that cannot be altered by any one entity (country, organization or individual person) and is therefore classed as being Decentralized. This is a key difference to the more traditional currency (Fiat money) that we are all used to that is issued and controlled by one country or government (such as AUD, EUR, JPY, KRW, USD, etc).
Distributed ledger using Blockchain technology
Without getting into the specifics, MIT Technology Review have summed up the benefit of using Blockchain technology succinctly as:
The whole point of using a blockchain is to let people — in particular, people who don’t trust one another — share valuable data in a secure, tamper-proof way. Source: MIT Technology Review
Essentially a Blockchain is Distributed ledger technology using cryptography and predefined software rules that make it extremely difficult for attackers to manipulate, and records the provenance of a digital asset, such as Bitcoin (BTC).
Blockchain is also commonly referred to as a decentralized Distributed ledger. Distributed ledger technology or simply DLT for short and is the underlying technology that Bitcoin uses.
Bringing these four aspects of Bitcoin together
To sum-up this section, and explain how these four technologies come together in the case of Bitcoin, we can say the following:
Phew, there we go. I hope this helps to clarify what Bitcoin actually is, how it works and the technology behind it.
Read on below for further information about the worlds largest Cryptocurrency, it’s current price and view BTC price charts and much more. Feel free to leave a comment below if this was helpful or if there is any additional explanation required and I will update this article as required to make this the most complete resource on the internet to explain what is Bitcoin.
When was Bitcoin first developed?
Bitcoin, was built and released by a pseudonymous developer/s by the name of Satoshi Nakamoto. However, to date, the true identity of this person or group of developers has never been revealed or confirmed.
Although there is no formal confirmation, it is believed that Satoshi Nakamoto began working on the Bitcoin concept in 2007, once the Global Financial Crisis (Financial crisis of 2007–2008) had started.
On the 3rd of January 2009, the Bitcoin network was set live with Satoshi Nakamoto mining the genesis block (first block on the blockchain or block number 0 as it’s often referred to) of Bitcoin.
Embedded in the coinbase of this block, which can contain any arbitrary data, was the text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
The text refers to a headline published on the 3rd January 2009 in The Times, and is considered both a timestamp of the genesis date and a “dig” at the financial system instability at that time caused by Fractional-reserve banking.