What is Bitcoin?
The simplest definition of Bitcoin is that it is a digital currency. Although digital currencies have existed in the past as fiat and centralised currencies (currency controlled and validated by a central institution or organisation), Bitcoin is a cryptographic, de-centralised currency that started as philosophy and a theory of money and ended up being represented in digital code in a working, real-world system.
Bitcoin was created January 3, 2009 under the apparent pseudonym of ‘Satoshi Nakamoto’. In the last quarter of 2018, ‘Nakamoto’ had released a paper called ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, now known as the Bitcoin white paper. Since 2009, Bitcoin had remained under the radar of most people until 2017 where it earned its current status as a house-hold name.
But how does it work?
Bitcoin is described as a cryptocurrency, a digital currency that uses cryptography to verify transactions. Transactions made with Bitcoin are held on an immutable, digital ledger, known as Blockchain . This blockchain technology has a full record of all of the transactions that have occurred with the digital tokens.
Bitcoin has advantages over traditional currency transactions. Traditional banking maintains centralised control, where they can (and do!) change the supply of money and also control which participants can actually access the financial system.
Bitcoin was designed as a trust-less and decentralised transactional system. This means that the transaction does not depend on authority or reputation to be fulfilled and the supply of Bitcoin is not just limited, but in practise it slowly decreases over time. However, Bitcoin is also divisible to a hundred millionth of a bitcoin (0.00000001) of a bitcoin, meaning that it can be used for micro-transactions, even if the price goes to $100,000 USD a coin.
One of the most significant features of this digital currency is that, like physical cash, the identification of the person is not necessary to transact with them. And, this has created concerns for governance and regulation of bitcoin as its relevance continues to grow in the greater financial system.
Since inception of bitcoin and the validation of blockchain technology, other cryptocurrencies have been created to fulfil other roles in the digital transactional economy. These include, Bitcoin Cash BCH, Litecoin LTC, Ethereum ETH and Ripple XRP.