Bitcoin 101: Bitcoin History and Its Current State
Digital gold. Cryptocurrency. Web-based asset. Reinvented money. These are but a few of the terms people use to pertain to Bitcoin. Now if you belong to those who are still new or clueless to the Bitcoin world, then we’re honestly telling you that you’ve got to catch up. Because contrary to the misconceptions, tweets, or memes on Bitcoin, this will eventually concern not only the businessmen and investors, but every single one of us in the near future.
As the business world revolves around money, we can’t help but emphasize the need for us to educate ourselves on the current trend on the digital age of finance. In that light, your friends here at Enterprise Assurance PAC ought to share with you a thing or two on Bitcoin.
How it all started
From trading goods, to precious metal like silver and gold, to coins, to paper bills, to credit cards, and so on, the world of money isn’t an exception to the things that constantly change and evolve. Today, there’s a new form of money that’s created, circulated, and held digitally - Bitcoin. Until now, there’s no certainty as to who really started and created Bitcoin. But what we’re sure of is, it’s developed by some of the brightest minds in the technological world.
On October 31, 2008, a paper authored by an unknown person or group under the pseudonym of Satoshi Nakamoto was posted to a cryptography mailing list. This document was entitled, “Bitcoin: a Peer-to-Peer Electronic Cash System”. This document introduced and detailed various methods on how to use electronic cash from peer-to-peer networks so that they could generate a system for electronic transactions without the need for trusts. Some actually say that Nakamoto basically repurposed Adam Back’s proof-of-work system that was invented in 1997.
The paper also clearly defined how Bitcoin is decentralized and trustless. No government owns it and decides on its value. The participants in the economy are those that preserve its existence. Plus, its accuracy and integrity is guaranteed even without trust.
Moreover, it’s also believed that Bitcoin isn’t really the world’s first digital currency. As a matter of fact, 90% of the world’s current existing money is already digital. Just think about the concept of paying with your credit cards or Paypal account.
Officially, facts state that it was until January 8, 2009 when the first version of Bitcoin was announced, and then Bitcoin mining followed shortly thereafter. And according to a document dated November 23, 2011, the value of the first bitcoin transactions were negotiated by individuals on the bitcoin forum with one notable transaction of 10,000 BTC used to indirectly purchase two pizzas from Papa John's.
Other Things You Need to Know
“A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
Originally developed as the accounting method for the virtual currency Bitcoin, blockchains – which use what's known as distributed ledger technology (DLT) – are appearing in a variety of commercial applications today. Currently, the technology is primarily used to verify transactions, within digital currencies though it is possible to digitize, code and insert practically any document into the blockchain. Doing so creates an indelible record that cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the blockchain instead of a single centralized authority.” [from https://www.investopedia.com/terms/b/blockchain.asp#ixzz5DhQxN8OI]
Basically, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. It is similar to Bitcoin, but also different from it in many ways.
Ethereum is a distributed public blockchain network. Although there are some significant technical differences between the two, the most important distinction to note is that Bitcoin and Ethereum differ substantially in purpose and capability. Bitcoin offers one particular application of blockchain technology, a peer to peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application.
In the Ethereum blockchain, instead of mining for bitcoin, miners work to earn Ether, a type of crypto token that fuels the network. Beyond a tradeable cryptocurrency, Ether is also used by application developers to pay for transaction fees and services on the Ethereum network.
Benefits of Bitcoin
Today, more and more companies have now been accepting Bitcoin as form of payment. Among these are Microsoft, Expedia, and Cheapair. And although of course, it’s really up to the companies if they would accept Bitcoin payments or not, we simply cannot deny the fact that it has many other benefits aside from providing more convenience for the tech-savvy consumers.
Here are some of them:
- Faster Payment: Accepting wire transfers and checks is time consuming, and it can take several days for payment to clear. Bitcoin is faster and can take a matter of minutes, rather than days to process payment.
- Lower Transaction Fees: The cost to accept Bitcoins is lower compared to other payment methods, such as credit cards or Paypal.
- Independent of Governments: Since Bitcoin is decentralized, you own it - no authority has the right to take away your Bitcoin. People with concerns about mainstream banking systems unravelling find this a major benefit.
- Elimination of Chargebacks: Once Bitcoin is sent, that’s it - you can’t chargeback, like you would with a credit card payment, which eliminates ‘chargeback fraud’ often used by criminals and scammers.
- Protection Against Inflation: With a fiat currency, the government can print as much money as it desires - this drastically decreases the value of currency, and may result in inflation. In contrast, Bitcoin has a fixed number - after they have all been ‘mined’, no more Bitcoins will be created. Scarcity is an important aspect of currency which protects it from inflation.
- Ownership of Currency: With Bitcoin, you own your coins. With other forms of digital fiat - such as Paypal - your assets may be held, and your account eventually suspending, locking you out of your earnings. Bitcoin puts you in control.
Bitcoin’s Current State
Despite its many advantages, of course, there still are many hiccups or let’s just say cons when it comes to the Bitcoin world. Here are some the problems Bitcoin currently faces:
Assessing its value. Lots of problems are associated when it comes to placing a real-world currency value on a bitcoin. The coins are just worth what a buyer will pay for them. So basically, its currency relies on the continual use and purchase of bitcoins as payment for goods and services. Moreover, sitting on a large stockpile of bitcoins does not necessarily mean you can then sell them for the market value. You must find a buyer willing to take them, and with the market in such an unstable state there is limited capital being made available for purchases. Part of the recent price hike has been driven by the demand for coins, and flooding the market with readily available coins could cause the price to drop.
Bitcoin bans. Currently, there are companies, industries, and even countries that have already banned the use of Bitcoins and other wallet services. Russia is just one of them. Many are worried about the increasing number of cyber hackers who take advantage of Bitcoin as means to commit fraud and rob people of their precious money. The anonymous nature of Bitcoin allows these criminals not only to exchange money without the risks of traditional currency, but also to buy illegal drugs with lesser fears of getting caught.
A highly speculative market. Many believer that the general public is still not yet ready to use Bitcoin on a daily basis because the market for Bitcoins is heavily speculative. In addition to its value that fluctuates by large amounts every minute. It is better and safe to think of bitcoin as a digital currency for the web. Think: to purchase apps or to pay for games. As globalization demands efficiency and the currency conversion with bitcoins is still not that efficient and accurate, we still can’t make it a gold standard when it comes to money.