Essays
April 23, 2020

The Rise Of Bitcoin

Location: New York City, United States
Reading Time: 4 Minutes

The Origin Of Bitcoin

In October 2008, in the eyes of many, Bitcoin was introduced to the world. Bitcoin's whitepaper was the first glimpse that many people got into the inner workings of this technology. The whitepaper describes Bitcoin as a form of peer-to-peer digital money which is capped at supply to 21 million Bitcoins and allows for peer-to-peer online payments (no intermediary). The first peer-to-peer transaction in the Bitcoin network was processed soon after its whitepaper went public, in January 2009. The mysterious founder of Bitcoin sent the late computer scientist Hal Finney ten Bitcoin's.

As the adoption of Bitcoin started to grow, so did the market cap. In November 2010, for the first time, Bitcoin's market cap exceeded $1 Million. Bitcoin's market cap continued to incline meteorically, increasing from $1.2 Billion in 2013 to $238 Billion in 2017. That's an astonishing increase of 19,733%~. The incline didn't last for much longer. In 2018, Bitcoin came crashing down, eclipsing the percentage loss investors experienced in the dot-com bubble. It was only In 2019 when Bitcoin regained momentum, surpassing a market-capitalisation of $100 Billion.

As Bitcoin continued to rise in popularity, the alleged founder (Satoshi Nakamoto) became more distant. To this day, there hasn't been any official confirmation as to the identity of the founder. Although, there has been a flurry of alleged founders. We may never know who the real founder of Bitcoin is, as Satoshi Nakamoto faded away from the community in 2011. Though, by design, knowing who the founder is would make no difference to workings of this technology. Since the departure of Nakamoto, Bitcoin continues to be supported by a group of talented developers.

How Does Bitcoin Work?

Miners are powerful computing equipment designed to solve the complex mathematical equations of a block or a chunk of transactions. The network is so powerful that it exceeds that of Google, Amazon, and Microsoft combined. Once miners have solved a block that gets added to the blockchain, they get awarded Bitcoins. The block reward started at 50 Bitcoins upon launch and has been halving every four years since. Without miners, there wouldn't be an ecosystem as we see today. They are responsible for processing transactions and minting new Bitcoins.

Exchanges offer individuals a convenient way to buy, sell and hold Bitcoin. This convenience comes at a price. Exchanges often charge fees for every transaction, with fees varying for each exchange. Also, exchanges usually double up as Bitcoin wallets. For example; Coinbase and Binance. Bitcoin wallets offer an entry point for individuals to get involved with Bitcoin. You can look upon Bitcoin wallets as bank accounts. It's best if you only use reputable exchanges to avoid any altercations, such as hacks. Unfortunately, hacks have cost users enormous amounts over the years.

Users are those who buy, sell or hold Bitcoin. Naturally, that covers a broad spectrum of users, such as; Bitcoin traders, merchants accepting Bitcoin as a form of payment, freelancers getting paid in Bitcoin, hoarders of Bitcoin and more. Without each party playing its role, however small that role may seem, the Bitcoin ecosystem wouldn't function as frictionlessly as it does today. To put this into context, consider the scenario where Bitcoin miners created all the Bitcoin's, but nobody purchased them from an exchange. In such a case, Bitcoin would be deemed utterly worthless to us.

What Is The Blockchain?

Blockchain technology confuses many people. In the case of Bitcoin, it's merely a public ledger of all the transactions that have ever taken place. It adheres to the Proof-of-Work consensus algorithm. Meaning changes to the data once written, are practically infeasible. The blockchain is an ever-growing ledger, with new blocks added to the Bitcoin blockchain approximately every ten minutes by a decentralised network of miners. William Mougayar's metaphor helps people to understand blockchain technology, something which is often abstract to many:

"The traditional way of sharing documents with collaboration is to send a Microsoft Word Document to various recipients, asking them to make revisions to it. The problem with that scenario is that you need to wait until you've received the final copy before you can make any other changes. Alternatively, with Google Docs, various parties have access to the same document at the same time. The single version of that document is always visible to all of them. This scenario is similar to a shared ledger, but it's a shared document."

What Are The Characteristics Of Bitcoin?

  • Decentralised: A single entity does not control Bitcoin. A distributed network of developers, miners, exchanges, educators, users and more support Bitcoin.

  • Supply Cap: Unlike traditional currencies, Bitcoin has a supply cap of 21 Million. It's controlled by an algorithm, with new Bitcoins created as blocks are solved.

  • Anonymous: At its core Bitcoin doesn't require users to identify themselves when completing a transaction. However, it is not entirely anonymous as most exchanges require users to complete identity checks (KYC) before using their platform.

  • Immutability: As there's no central body, it's not possible to reverse transactions. While this may seem scary, it does stop activity on the Bitcoin network from being tampered.

  • Divisibility: You can break Bitcoin down in much the same way you can with traditional currencies. With Bitcoin, you can break it down to Satoshis, the smallest denomination of a Bitcoin being one-hundredth million of a Bitcoin (0.00000001).

What Is The Legal Standing Of Bitcoin?

Bitcoin is legal in most countries, though it has faced much criticism. For example, In 2018, the finance minister of India stated that the government would do everything in its power to discontinue the use of Bitcoin for criminal purposes. Statements such as these can influence Bitcoin's price. Often it's not the legality of Bitcoin which catches many people off guard; it's more so the taxation. In many countries, Bitcoin gets treated as property.

What's Next For Bitcoin?

It's impossible to say how widespread the usage of Bitcoin is. But, according to data provided by Blockchain, we can see an upward trend in wallet creation. Though, that's not evidence of Bitcoin gaining more users, as a single user can have multiple wallets. But, when combined with corresponding data, it continues to point us towards an upward trajectory on the usage of Bitcoin. Bitcoin continues to be supported by some of the best developers in the world, allowing the ecosystem of miners, exchanges, and users to keep flourishing. Yet, no one knows how Bitcoin will evolve. We will have to continue watching this experiment play out.