Satoshi Nakamoto wanted to create a new form of decentralized currency. He released bitcoin at the end of 2008, at a time when the US Government had decided to bail out banks. Bitcoin was a reactionary movement against inflation, centrally-controlled currency, trickle-down economics and the state controlling people’s finances overall. He created a currency with a new set of rules, that he considered were more advantageous for ordinary people.

The ideology behind bitcoin

When the economy tanked in 2008 it became obvious that fiat money is not backed by gold anymore. Governments and central banks (controlled by a small number of people) can print money whenever they decide to do so. By printing money at their own will, they create constant inflation, therefore the savings of people simply decrease overtime, at the whim of a hand-full of people.

Bitcoin is deflationary. There is a firm cap of 21 million bitcoins that can be generated in total. This means the value of bitcoin increases organically, according to the simple law of offer and demand. The entire bitcoin network is supervised by a decentralized computer protocol. In order to change the protocol, the network needs a consensus, which resembles a democratic vote from users.

Bitcoin has an open-source protocol. This means that it is public. Anyone can look under the hood and see what the code looks like, if it does what it promises and if it works properly. This is a guarantee for users, who can find out for themselves that Bitcoin does not have odd clauses or hidden intents. People expect an open-source protocol in most cryptocurrencies. It means the code does what it says it does and that it keeps a fair registry of transactions, without being tempered with.

The technology

Bitcoin is nothing more than a registry of transactions. Just like a bank, this registry keeps a tab on how much coins move from one place to another. What is special about the Bitcoin registry (called a blockchain) is that it’s decentralized. This means that not one person, company or institution holds the registry. It resides on multiple computer across the world, called nodes. Anyone who wants to download and keep the registry updated can do so. Since many people across the world keep the registry, the blockchain doesn’t have a single point of failure, but many anonymous computers across the world.

Bitcoins are generated through a process called mining. Users can have dedicated equipment that is connected to the bitcoin network via the Internet. This equipment has to solve a simple mathematical algorithm in order to generate new blocks. It’s a process that is at the heart of securing the network. In short, miners are motivated to mine for bitcoins, because they have value on the market. In this process, they employ their processing power to put transactions that occurred in the past 10 minutes into a block of data and time-stamp it. They chain multiple blocks of data, in chronological order, so that nobody can tamper with the network. This chain of blocks is validated by nodes, computers across the world who maintain the entire registry.

The main rule Satoshi had set in place was that of a decentralized economy. His currency is not under the control of the banks and governments, but under the control of the users. It is not generated discretionary by central banks. In turn, bitcoin is venerated under firm and predictable rules set by the protocol, by people who are interested to take part into this experiment.

One thought on “What is Bitcoin?

  • May 29, 2017 at 1:12 pm
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