There is a vast majority of people who wish to enter the crypto world and don’t know what bitcoin or a cryptocurrency is; not to mention a blockchain.
Because these words tend to sound like fusion-jazz for an uninstructed ear let’s dive a bit into the creation of the first cryptocurrency.
When you think about money, there are a few feelings that come and take hold of you. For instance, the sudden happiness when you realize that today is payday and the POS won’t reject your credit card.
Speaking of credit cards, remember a few years ago when they first appeared? Everybody compared it to dark sorcery, at least I know I have. The creation of the first digital currency is no different than any other invention in history.
The question surrounding the people outside the industry is, if bitcoin is a currency and if it’s reliable. While the issue remains open for discussion, there are a few facts to take into consideration.
The Economist wrote in January 2015 that they are “hard to earn, limited in supply and easy to verify.” If we take out the “easy to verify” part, is like describing diamonds.
No, it is only a medium of exchange which gains value depending on its usage. A cryptocurrency.
It all started in 2008 on a cryptography platform with a strange email. While the whole world was kicking and screaming about the worldwide crisis and the collapse of Wall Street’s huge companies, someone came with an idea of removing out of the picture any third party involved in money transactions.
Satoshi Nakamoto, the entity who became a legend since, proposed through a whitepaper his invention, as being A Peer-to-Peer Electronic Cash System.
The Digitalization Of Money
Digital currencies or digital money or electronic money is very different from physical money (such as banknotes and coins). Although it has similar properties to fiat currencies, it allows for instantaneous and real-time transactions and also borderless transactions with transfer-of-ownership.
A digital currency is a money balance recorded electronically on a stored-value card or other electronic device or a claim on a private bank or other financial institution such as bank deposits.
A more comprehensive approach is given in the analysis performed by Committee on Payments and Market Infrastructures from Bank for International Settlements in the following report “Digital Currencies” in November 2015.
These currencies may be used to buy physical goods and services in the market like traditional money, but may also be limited to certain communities such as for use by gamers in online games or by members of a social network. The difference between them lies in the way that they were created and also in their mechanism.
The European Banking Authority defined virtual currencies as “a digital representation of value that is neither issued by a central bank or a public authority, not necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically.”
So, what is bitcoin? By definition, Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.
Cryptocurrencies are classified as a subset of digital currencies, of alternative currencies, and of virtual currencies. Digital money can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources. In our case, Bitcoin and all the other cryptocurrencies are decentralized.
Peer-to-Peer Is Tech Barter
Now imagine a few centuries ago when barter was a common thing between people when no institution was controlling how many chickens could “Bob the Builder” receive for refurbishing his neighbor’s house.
Bitcoin is in some way mimicking the old-fashioned barter but with numbers in exchange for numbers on a platform called the blockchain.
On the Blockchain, anyone can publish information and allow others to access it anywhere in the world; that person must have a private, cryptographically created key to access only the blocks he “owns”. And also a public key that plays the role of the address through which a person can make transfers.
By giving a public key which he owns to someone else, that person efficiently transfers the value of the info stored in that section of the blockchain.
How Safe is Bitcoin?
Now a huge question arises. If anyone has access to the blockchain, what stops the not so well intended individuals to access the information. This is not a Facebook or Twitter account, so your info is safe as long as you keep it safe.
No one can edit a blockchain without having the corresponding keys and as a self-verification measure, and the movements which cannot be verified by those keys are always rejected and pulled out of the respective blockchain.
This function of identity check is done by a blockchain more quickly and accurately and replaces the significant functions performed by traditional and internet banks to prevent fraud and then recording legitimate transactions.
Computers Mine Bitcoin
A few years ago I was listening some podcast. The thing that ringed in my year and remained with me ever since was that the more you spend, the more your debt grows. I know, is not neuroscience. But this was applied to the whole planet.
The more money a state creates, the more debts it has. With the apparition of bitcoin, also the solution for debt. In its core bitcoin has this little gift. Every time a bitcoin is spent, the process of creation of another bitcoin starts. It’s called mining.
The mines have the sole purpose of cracking the codes behind every transaction and registering them like a virtual accountant. With every code cracked, when a new block is solved, a new coin is created. That’s why nowadays you won’t see miners wearing helmets and a dark smile on their faces; they are just wearing high-tech gadgets and probably some comfortable pajamas.
The blocks are cracked by solving mathematical problems, and the idea behind it is that with every block solved the difficulty increases until the block is unsolvable. If it can not be solved the difficulty goes down until it can be solved, and so on.
The first version of Bitcoin appeared in January 2009 and so the first open source Bitcoin client. Satoshi Nakamoto mined the first block ever, the Genesis block.
In return, he received a reward of 50 bitcoins. It is presumed that he has mined over 1 million bitcoins and disappeared.
Back then the value of a bitcoin was practically next to nothing. Being possible to buy only two pizzas with 10.000 BTC. After his disappearance Bitcoin started to grow and grow and it is today the first cryptocurrency in the chart, trading at incredible heights. It’s more expensive than gold.