Exploring Bitcoin: Basic and Technically Inaccurate

Ask 10 people to explain Bitcoin and expect 25 descriptions in return. Traditional answers include digital cash or digital gold; some denounce Bitcoin as a bubble, scam or ponzi scheme. It may be all those things or none, that’s for you to decide. Explaining to friends, and understanding myself for that matter, tends to be a long process. Ergo, I’ve decided to write some stories about Bitcoin and the cryptoverse as I understand them. Fair warning — I know little about finance, but enough about technology to be intrigued by the concept.

Bitcoin is a decentralized peer-to-peer electronic cash system. Okay cool, but what does that mean? Basically, it’s a network designed to relay value from one person to another without a central figure, such as a business, bank, or government. When an exchange takes place, it is broadcast onto a public ledger for other computers to verify. Once verified, the transaction is bundled with recent others (collectively a block) and permanently recorded, adding to all previous transactions (a blockchain) on the Bitcoin network.

In short, it’s a digital asset with monetary properties that’s designed to replicate currency. This is known as a cryptocurrency Bitcoin is the oldest, arguably the most secure, and the has highest valuation of all cryptocurrencies. There are several features that contribute to its value as a medium of exchange.

· Security — transactions secured by encryption and confirmed across the network
· Scarcity — only 21 million bitcoins will ever exist, and the amount created halves every 4 years
· Divisible — 1 BTC = 100 Million satoshis. Large amounts easily convert to smaller denominations
· Borderless — domestic and international transactions settle in the same amount of time
· Irrepressible — no individual or entity can reverse, stop, or pause a blockchain transaction
· Decentralized — lack of central authority creates a permissionless system.
· Pseudonymous — users are identifiable via sending and receiving addresses, no ID required

Bitcoins are created by people participating the verification process. Individuals and organizations contribute computational power to the network and are rewarded with a portion of transaction fees. Specialized software and devices find occurring transactions, post them to the ledger, and receive rewards proportional to their power. This process is known as mining and has created an emerging industry.

In its inception, the fees were small and a primary reason Bitcoin had intrinsic value. There has been an ongoing debate about the best way to decrease fees, recently resulting in a branch of the Bitcoin code. However, discussion is healthy and has allowed the original Bitcoin to proceed with improvements agreed upon by the majority. This branch is one of many other digital currencies or tokens, referred to as altcoins.

Numbering in the thousands, altcoins are the product of other developers attempts to bring the benefits of blockchain technology in other applications. Competing against and complementing Bitcoin, they have created an evolving economy of digital goods and services. Whereas Bitcoin publishes monetary transactions, another token may publish real estate or medical data. It’s important to note that many of these alts have little to no actual value, though some will rise in utility and aide blockchain adoption.

Hopefully this gave you a better understanding of what Bitcoin is and how it functions. This article lacks commentary on history or current price action because it is irrelevant to the technology itself. Whether it collapses to 0 or climbs to 1M is predicated on the usefulness of the underlying blockchain tech. Understanding that will better inform your valuation and potential investment decisions.

Author’s Note: The opinions expressed herein are my own and do not reflect the views of my employer. I own BTC and altcoins, this is not an endorsement of any specific investment. Exercise due diligence and never speculate with more than you can afford to lose. If this has entertained or educated you at all, please consider clapping below.

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