What makes bitcoin so unique?

The Times 03/Jan/2009 Chancellor on brink of second bailout of banks
Cover page of The Times (The Times, January 3, 2009)

These words are embedded in the bitcoin genesis block by mysterious Satoshi Nakamoto. The creation of the first digital currency was largely influenced by both the financial crisis and the digital revolution.

More than 9 years have passed and we find ourselves trying to understand the innovation bitcoin brought. Most of us are still unaware that Satoshi created the first of its kind open consensus system by combining several technologies in a distinct way.

Bitcoin started as an experiment of a computer scientist. Regardless of countless attempts to replicate, it remains foremost the largest and most important cryptocurrency to date.

WHY?

Adoption

The adoption of bitcoin is increasing. During its lifetime bitcoin attracted masses of dedicated users, creating a network effect enforced by a positive feedback loop. Some people even manage to live using only bitcoin for payment. More than 12 000 offline merchants accept bitcoin and the number is constantly increasing. The number of online merchants is even larger. With the current development of lightning apps bitcoin is becoming faster as well as more user friendly, hence easily integrated in business operations. Lightning apps and the underlying lightning network are the latest network improvements. They were developed by early bitcoin backers, experienced software developers, who constantly improve the network and will continue to do so. Growing business integrations and network improvements is going to encourage bitcoin adoption in the future.

Utility

Bitcoin has inherent utility. The first and the most important bitcoin utility is security. The currency‘s network is already large enough to protect itself from any external effects (great video about bitcoin security). Bitcoin provides financial freedom from banks. The coins are not stored in any bank account, it is digital cash stored in a wallet that only you have access to. Some of the main bank functions, like payment processing, are inherent in the money itself. One can pay and accept bitcoin without having to deal with a bank. Bitcoin is also programmable. It can be put behind any doge meme or inserted in the middle of any cat video. Bitcoin transactions are almost free. Transaction fees rocketed in December, yet currently fees are down to their 2016 levels of 0.12 USD. Bitcoin has native utility which is distinct among other forms of money.

Open source

Bitcoin is an open source protocol. Bitcoin network is comprised of 5 different members: software developers, miners, exchanges, wallets and merchants. Consequently, bitcoin has no governing body — it is governed by the protocol rules which all members agree upon. Bitcoin is the first successful attempt to control the network where no one is in charge by introducing a consensus mechanism. The proof-of-work consensus (more on PoW here) is reached by miners who prove that they have spent time and resources to ensure transactions are genuine. Anyone is welcome to join and contribute. There are no barriers to entry.

Something has value if people believe that it has value. Much like other things that stored value, like shells, huge stones, gold or US dollars, people’s perception of bitcoin as a store of value is gradually increasing. People are starting to understand that they are able to exchange bitcoin for digital goods and services both now and in the future. And they are right!

A brief history of money (The Atlantic, March 15, 2011)

Special thanks to Andreas M. Antonopoulos (website, YouTube) for helping me understand the innovation behind bitcoin.

Notice: This article is by no means an investment advise. You should advise with your financial adviser before making any investment decisions.