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Bitcoin

What is this "bitcoin"?

What is this "bitcoin"?

Bitcoin is a decentralized (i.e. not controlled by any single entity) cryptocurrency (a digital currency that uses cryptography or ‘math’ to control its rate of issuance and to secure transactions) designed to be exchanged peer to peer at low cost and high speed over the internet.

The open source (code is publicly available) bitcoin protocol was originally developed by an anonymous individual or group known as “Satoshi Nakamoto” and released in 2009. The bitcoin software has subsequently been improved and maintained by a decentralized community of engineers. Anyone running the bitcoin software on their computer is considered a participant of the network or node.

Anyone dedicating computing power to solve the cryptographic problems required to create bitcoin and validate bitcoin transactions is known as a miner. The bitcoin software was designed to be a deflationary currency, with a limit of 21 million that can ever be created through mining. It is estimated that in the year 2145 this limit will be reached. Although 21 million doesn’t seem like much, bitcoin can be divisible to 0.00000001.

All bitcoin transactions are secured by miners and this transaction data is stored in 1MB blocks. Newly created blocks (bundles of transactions) are added to a chain of blocks, known as the blockchain, which serves as an immutable (un-editable) distributed public ledger (spreadsheet) of all bitcoin transactions since the beginning of the protocol’s release.

Bitcoin became popular as an online method of payment between 2010 – 2013, particularly on the dark web and ecommerce sites, due to its pseudo-anonymous attributes and global fungibility.

Bitcoin began trading on exchanges in 2010, and became popular as a secure store of value or “digital gold” in 2013. This trend has continued and mainstream legitimization of bitcoin as an alternative asset is gaining momentum.

Unfortunately, ideological differences in the bitcoin community have stunted the technology’s ability to scale due to debates about the “correct” way of enabling the network to store and process faster and cheaper transactions. While this scaling debate has raged on for almost two years, the cost and time taken to send a bitcoin transaction continues to rise, making the cryptocurrency uncompetitive and expensive as a payments system (it’s original purpose).

A solution to the scaling debate is set to take place in 2017, however this may result in a “hard fork” or split in the bitcoin network that would produce two separate cryptocurrencies that run different versions of the bitcoin software. This means that there would be two versions of bitcoin that could be traded on exchanges.