There has been a lot of buzz going around the famous digital currency of the internet, Bitcoin. It is a decentralized currency that no government, bank or institute has control over and is transferred instantly from person to person. No president, no king, nobody can stop a Bitcoin transaction, which is one of the few reasons people put so much faith into it.
Don’t forget to read our article of 8 interesting Bitcoin facts by clicking here.
A lot of people would argue that it isn’t real money, while Bitcoin users can say the same for the dollar as well. Also, a lot of people have become stinking rich by investing into Bitcoin. So if you want to discover the short history of Bitcoin and how it works, stick with us in this article, where we look through everything you should know about this digital currency.
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What is Bitcoin?
So what exactly is Bitcoin? Why does it matter and why should you care? Bitcoin is the first truly digital money, a cryptocurrency. So far, it might be the best form of money the world has ever seen.
Take a short break and check out why cryptocurrencies are so safe and useful. Read this Wikipedia article.
It is digital money for the digital age. It is currently the scarcest currency which makes it more and more valuable as time passes. It is also the most recognizable, most verifiable, most divisible and most transportable money in the history of mankind.
It solves many of the disadvantages that come with other money. It is the first scarce digital currency to ever exist. By its design, it will never allow more than 21 million Bitcoins to exist. We currently have 16 million Bitcoins in existence and we’ll reach 21 million in 2140. (Check the current amount of mined Bitcoins real time at Blockchain.info).
A highly reliable system
To make it easier to use for everybody, Bitcoin was made divisible and a single Bitcoin can be broken down to 8 digits. So the minimal amount of Bitcoin you can pay is 0.00000001.
This digital currency is global just like the internet. It is completely decentralized and cannot be controlled by anyone or any country in the world. There isn’t a single owner of bitcoin, but we all own it. So if you own a single bitcoin or a fraction of it, you own a part of the Bitcoin bank.
We actually published an article on how this system is shared and why is it so valuable that you can also read by clicking here.
Bitcoin has no friction and you can send it through email, text messaging or even paper for free and it will be transferred instantly. Thanks to its unique cryptography it is verifiable and cannot be faked and every bit of bitcoin is tracked through the Bitcoin network. It is also completely anonymous, so you can never know who is behind any Bitcoin transaction. The money just moves from one place to another.
A transaction happens when a heavily encrypted code is passed across a computer network. It’s a clever and highly reliable method and you can read more about it here by visiting the Bitcoin Wiki.
The entire network monitors and verifies this transaction. Every user in the network will have a record of the transaction that took place. This process makes sure that no two bitcoins will ever exist in the same place simultaneously.
Bitcoin mining is easy
Each coin is generated through a process called mining. It is a kind of lottery where all the connected computers compete in trying to solve a specific mathematical problem. Once the problem is successfully solved, a new block is created. The value of a block is 25 BTC, which will be sent out every time the problem is solved.
This happens around every 10 minutes. The more powerful your system is the more likely it is that you’ll get your share out of those 25 bitcoins. This is a reason for people to join pools of miners, to share computing power and profits.
The Bitcoin system is designed in such a way that the difficulty of the math problems every miner has to solve depends on how many miners are in the system.
So, the more miners there are, the more difficult the problem is. This difficulty can be increased or decreased so that it can regulate the output of the currency and keep it much more consistent (10 minutes for each block).
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How Bitcoin Evolved?
Bitcoin hasn’t been around for a lot of time and it sure went through a fast development, which continues even until today. Let us show you some notes of the most important development points of this currency.
The idea of this kind of digital currency has been around much longer than Bitcoin. The concept of anonymous digital money based on asymmetric cryptosystem has been around since 1977. The concept of Bitcoin was proposed in a white sheet of paper by a group or a person called Satoshi Nakamoto in 2008. But no one actually knows who that person is.
You can read more about Satoshi Nakamoto in this related Wikipedia article.
A 64-year-old Japanese man who lives in California is supposed to be the founder of Bitcoin. But the man stated during an interview that he has absolutely nothing to do with this currency. This is completely reasonable since it would probably be dangerous for the founder to reveal him or herself. So he remains anonymous as the rest of Bitcoin users.
And then it all started
The Bitcoin project got registered on November 9, 2008, and the Bitcoin network was launched on January 3, 2009. During its first year, Bitcoin had no quantifiable value in other currencies.
It took about a year for the first exchange rates to be negotiated inside the “bitcoin talk” forums. The first significant Bitcoin transfer took place in May 2010 when a man bought two pizzas for 10 000 Bitcoins. A truly humble beginning for a currency that is booming right now.
In 2011, the cryptocurrency was exposed to be just as vulnerable as the regular currency, because a number of bitcoin accounts have been hacked and a lot of coins got stolen. But this didn’t stop Bitcoins development for a second.
Betabeat wrote about this hacking event back in the day. However, the site doesn’t exist anymore but you can read the article here thanks to Archive.org.
After a price surge in 2013, the collective value of Bitcoins has come to pass a billion dollars. Some people say that this sudden rise was due to the economic crisis that took place in the European Union, which made a currency beyond government control very tempting.
The use of the currency grew during the following years and became the primary payment method for black markets on the Internet. One of which was the famous Silk Road, which is a marketplace for all kinds of illegal goods. You could buy drugs, weaponry, prostitutes and even hitmen.
Bitcoin evolved into a widely used currency
Regardless, many enterprising groups began devising ways to legitimize Bitcoins and integrate it into the market as best as they could. Today, you can see a lot of stores with a sticker saying “Bitcoin is accepted”.
In July 2013 The Winklevoss twins filed a proposal with securities regulators that would make it possible for any investor to trade Bitcoins just as they would with regular currency and stocks. During this time, the world’s biggest Bitcoin trading exchange, Mt.Gox filed with the Treasury Department, asking to register itself as a money services business that complies with money-laundering laws.
Soon enough, during September of the same year, SeconMarket, a company which allows investors to buy shares of private companies has started to raise money for an investment fund that only held bitcoins.
In October 2013 the world’s first Bitcoin ATM was installed inside a trendy coffee shop in Vancouver. This A.T.M. let users scan their hand for confirming their identity then move funds from or to a virtual wallet on their smartphone.
WeTrust made a great list of companies that accept Bitcoin, you can read more by clicking here.
It basically lets users exchange real money for bitcoins or vice versa on the spot. These transactions were limited to $1000 in order to stop money laundering and other types of frauds. Bitcoin continues to bloom and grow, developing from day to day and getting more expensive in the process.
Subway also accepts Bitcoins in some of their restaurants, which definitely
shows how popular Bitcoin is currently.
Satoshi Nakamoto
As far as anyone knows, the identity or the identities of Satoshi Nakamoto is completely unknown. No one has ever met him, or her or them. Only a few people have communicated with Satoshi electronically through email and online forms.
Satoshi said to have started working on bitcoin in 2007 and it took him a lot of time to convince himself that he could actually create a system that would work. That would solve the problem of creating a type of money, in which there is no single bank, government or institution in control of it.
He started writing posts on a cryptography mailing list, where he would describe in detail, how the system would work and he soon started to get feedback as well. It was very well written, clear and convinced a lot of professionals that it could indeed work. Soon after that, he released an academic paper on bitcoin. After that, he started up Bitcoin and released the code for the system.
The way Bitcoin works is pretty simple on the surface level. You have a piece of information (a code) that has value and as long as nobody else has that information, it’s yours.
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Satoshi Nakamoto’s genius hides in the key problem he managed to solve, which is the double spending problem.
The money you would spend on the internet is actually a copy of a digital file, right? So what’s stopping you from sending copies of that digital file to multiple people?
Up until now, we used systems such as Paypal, Payoneer and other, which are systems that keep track of all the transactions that users make within their system. But this actually stops the money from being independent, since it has a third party involved in the transaction.
Satoshi Created a brilliant system for this. In Bitcoin’s system, if you try to send the same money twice, the entire system will be notified and one or the other transaction will be canceled. Creating this solution was the key to making Bitcoin possible.
The incentive was brilliantly designed and Satoshi made sure that you didn’t have to pay anyone to keep track of the transactions. The people (bitcoin miners) who work on creating new bitcoins are the same people who make sure double spends don’t happen.
Another problem was ingeniously solved as well. Could you get a huge number of people who don’t trust each other agree on a single thing and so precisely that you could use it to transfer value by sending digital messages? The Bitcoin’s system takes care of this with ease.
Satoshi Nakamoto’s identity is yet to be revealed and by the looks of it, he has disappeared in the fog for good, which was a pretty smart and reasonable move on he’s part.
Conclusion
Bitcoins continue to attract more people for its decentralized nature, anonymity and the zero transaction costs. A lot of people have political motivations behind choosing to invest into this currency, while others just want to make money. Either way, it works out well for everyone.
If you want to know more about Bitcoin mining, don’t forget to check out our related articles we already mentioned in this article: