The Reason For All The Hype Around Bitcoin
Citizens of countries all around the world are ditching their domestic currencies in favor of bitcoin. Bitcoin is the path to our future global monetary system. Currently, it is unclear which cryptocurrency will rule them all and claim the iron throne of the global economy, but bitcoin remains a household name that shows a lot of promise. In times of corruption and inflation Bitcoin has become the savior for many people in developing countries. The functionality of bitcoin should be universally understood regardless of it’s success, the reason being that it’s successors will use Bitcoin as a frame of reference when developing new and improved solutions. There is only one major problem, bitcoin can be very confusing to understand. By the time you are done reading this article you will have a better understanding of cryptocurrencies than 95% of people in the world. One’s ignorance of bitcoin does not imply incompetence or stupidity, but rather perpetuation of misguided information. Now that you have a basic understanding of what Blockchain is and how it works. In this article I will break down the intended use of Bitcoin and why it has become so popular (besides being a means to get rich quick).
Bitcoin Background:
The year was 2009, unemployment was at an all time high. Many people had lost their homes and life savings due to the housing crisis and the 2008 market crash. At this point the United States government had failed its citizens. The financial crisis was a time when banks and government had shown the people how corruption and self-interest can belittle a superpower economy into financial ruin. Banks were exposed as being too powerful and the average individual suffered at the hands of those big banks. The people witnessed failure in the monetary system that they had placed their faith in for so long. In such uncertainty a revolution was born, Bitcoin a single unregulated and decentralized currency for the world. Imagine a single currency that every country could use where exchange rates and inflation no longer existed, bringing simplicity to the unnecessarily confusing world of finance. Bitcoin challenged the world with a simplified upgrade to our monetary system, a world where no banks needed to exist because each person was in control of their own digital money. The power was given back to the people. From then on government and big banks have been struggling to keep up with the changing times.
Unfortunately things didn’t quite turn out as hoped, but Bitcoin definitely made it’s mark on the world.
A common misnomer is that you can own ‘“shares” of Bitcoin, rather than paying the price of a full coin. The architectural design of this cryptocurrency involved a predetermined limit of 21 million coins. No more, and no less. However, each coin is infinitely divisible, or fractionable. For example, you can own .0000001 of a bitcoin if you so please. Additionally, a beautiful result is that the currency cannot be affected by inflation because there is a finite set of coins that will ever exist. Bitcoin gained its popularity due to silk road, a black market on the dark web where people used this unregulated decentralized digital cash to purchase drugs and weapons that could not be traced back to them. Currently, most exchanges that are used to buy and sell bitcoin like Coinbase, Kraken, and Gemini (just to name a few) require social security numbers and picture ID so the coins are technically no longer 100% “untraceable” if bought through them.
The inner workings of Bitcoin and the Blockchain:
A bitcoin is just code, essentially a set of digital numbers that have value because people have faith in it. It’s no different than the US dollar. The dollar isn’t backed by anything except faith, a dollar is just a piece of green paper. In addition, if everyone decided the dollar no longer had value than it would be worthless. Unlike the dollar, Bitcoin makes use of arguably the most revolutionary technology of our time, the blockchain. Bitcoin uses the blockchain in order to send bitcoins to other people in exchange for goods or services. Similar to the dollar, bitcoins need a wallet in order to store money (coins). A digital wallet is simply just an application you can download on your phone and/or computer that is used as storage for coins and allows you to send or receive Bitcoins from others using your wallet address. In addition, there are many ways in which you can store your bitcoins. Below I will explain each wallet option.
Desktop wallet: Is basically just a wallet on your desktop that stores your coins. A desktop wallet downloads the entire blockchain. Having the full blockchain lets you verify incoming coins all the way back to when they were mined.
Mobile wallet: Is a wallet on your smartphone. it allows for you to make payments on the go. The negative side of a desktop wallet is that it isn’t useful when you are in a store or restaurant and need to pay for something like a mobile wallet is. The main difference between mobile wallets and desktop wallets is that mobile wallets don’t download the entire blockchain. This is referred to as a light wallet. With a light wallet you are essentially just trusting that the transaction is verified by all the other nodes (computers) in the blockchain instead of looking back to verify.
Paper wallet: Is a type of storage in which your bitcoins are stored offline and onto a physical piece of paper. It’s just a piece of paper that has two QR codes and both your public and private keys (public and private keys are explained in detail below). The negative side of paper wallets comes when they are lost, stolen or damaged. If they are lost or damaged by water or fire you cannot retrieve them. In addition, if the ink on the paper fades you will no longer have access to your bitcoin.
Hardware wallets: Are a form of cold storage just like paper wallets. Cold storage just means that they are stored offline. A hardware wallet is basically just like keeping your bitcoins in a USB drive. Hardware wallets like Keepkey and ledger nano s are plugged into your computer where you can transfer your bitcoin or other cryptocurrencies onto it so they are kept safe from cyber attacks.
Online wallets: An example of online wallet is just a wallet on Coinbase or any other web based service that offers a place for you to store your bitcoins. Here your private key is stored online and are in the hands of someone else who can prohibit you from transferring your coins. They essentially become a bank of your coins where they have the power to prohibit access to your funds. The one nice thing about online wallets is that they can be linked to multiple devices and can be accessed from anywhere.
How bitcoins are sent from one person to another:
Mike wants to send Jessica 1 Bitcoin for her birthday. In order for this to occur
- Mike opens up his wallet app and types in Jessica’s bitcoin wallet address much like writing an address on an envelope so the mailman knows where to deliver the letter.
- A message is broadcast over the blockchain stating that Mike wants to send Jessica 1 bitcoin. Now every computer or node will pass the message on to each other so every computer will have an account of the transaction about to take place.
- In order for this transaction to take place a digital signature is required to make sure the correct person is sending the coin. A digital signature is a random set of numbers and letters that verifies the authenticity of the transaction. It’s just like how a regular signature is used when you purchase something with a credit card. The only difference here is that the digital signature constantly changes for each transaction. A digital signature works by using both Private and public keys.
What are Private and public keys?
A public key is a random set of numbers and letters that are shared and open to everyone (the public). The public key is a fancy word for your wallet address. When you send someone your public key all you are doing is sending them your bitcoin address. A private key is the other half of the public key, when put together the bitcoin can be sent via the blockchain because your private key lets the blockchain know that you are the actual owner of the coins. Your private key is like your password for your bitcoins, it’s a code that acts as a key to open up the vault that contain your coins. If someone gets a hold of your private key you are in danger of having your coins stolen. All of that takes place on the blockchain where the computers connected to the blockchain use their graphics cards (miners) to solve complex mathematical equations in order to finish the transaction so Jessica can receive her Bitcoin.
Illustrated example:
Mike sends 1 bitcoin from his wallet using Jessica’s public key as the address. It goes through the blockchain where Mikes private key is used to authenticate the transaction tying Mikes public key to his private key to make sure he is the rightful owner. Next, the miners solve the equation that claims Jessica as the new owner of the coin as she receives her bitcoin.

