What is bitcoin? For one thing, it is the fastest asset in history to reach a value of over a trillion dollars. To accomplish this feat, it must be something very special. In fact, bitcoin and other crypto technologies derived from it, are a tremendous advancement for humanity, marking the dawn of an advanced digital age.

Bitcoin is a type of digital asset, the original cryptocurrency. Bitcoin is also the type of software which is used to make and manage this digital asset.  

Why is bitcoin so special?

Bitcoin is decentralized, meaning it is not controlled by a central individual, group or organization. If you own bitcoin, it is your personal property. It is permissionless, meaning that, for its use and possession, no permission is required from a central authority. It belongs to you, the individual.

In recent history, there has been an erosion of property rights, and of retaining the full value of one’s hard earned wealth. For years, high levels of inflation have been steadily weakening purchasing power. Examples of this are abundant, notably the cost of real estate and rentals. For millions, across the planet, access to completely normal possessions, for example a home that one owns, has become increasingly challenging. With such social and economic developments, it should come as no surprise that there is a widespread desire for improved property rights, ways to shelter one’s wealth, and protection from entities that might wipe out personal assets, or block opportunities for economic freedom.

A centralized system is economically riskier, because a relatively small group may theoretically implement inflationary policies, confiscate property, or block transactions. From a technological perspective, a centralized system, with fewer computers in its network, is vulnerable to hacking and other failures. Bitcoin offers solutions to these problems, because it is decentralized.

This is not an attempt to change anyone’s political, social or economic beliefs. There may be good arguments in favor of both centralized and decentralized systems. At the same time, it is useful to understand some of the factors which have contributed to bitcoin’s spectacular rise in popularity.

Bitcoin is so decentralized, or spread out, that it is extremely difficult to confiscate or stop, because this act would require simultaneously stopping or overriding many computers located across the globe. Bitcoin is resistant to inflation, because there is a limit to how many BTC can be created, 21 million to be precise. Thus bitcoin is often viewed as a way for individuals to protect their access to wealth.

Bitcoin is trustless, meaning that there is no need to trust a person one does not know, or a particular organization, regarding transactions and ownership of assets. All BTC transactions are stored on the blockchain (a software system processing and storing blocks of data, that are chained or linked together), and can be verified by anyone with a normal computer and internet connection.

Abbreviated BTC, bitcoin was launched in January 2009, by Satoshi Nakamoto. Since no individual with that name has appeared in public with reliable evidence of being bitcoin’s creator, BTC is often considered as the creation of an anonymous developer or group of developers. 

(By the way, here’s a bit of trivia: according to the Oxford Dictionary, the word “bitcoin” can be spelled with a capital or small “b”!)

Bitcoin is based on blockchain technology, which is a network of computers, combined with special network and database software, used to confirm and record transactions, as well as create new bitcoin. This network of computers is decentralized, meaning that the system is spread out among a large group of computers, as opposed to a more centralized system employing a single computer, or a relatively small group of servers. The greater the number of computers supporting the network, the greater the decentralization. At this time, the Bitcoin Network is the largest and most decentralized crypto network. It is a robust system, which has been battle tested for over a decade, with continuous reliable performance.

The network utilizes recent advances in computer science, such as sophisticated cryptography, for data identification, verification and recording. It is extremely resistant to hacking or falsification of transactions. Because of the blockchain’s powerful security features, and because of BTC having a maximum supply of only 21 million bitcoins, BTC has been viewed as a reliable unit of financial transactions, and an inflation-free alternative to traditional forms of money, many of which have been losing value for years. Another way of looking at bitcoin is as a store of value, much like traditional methods for preserving or expanding wealth, such as gold and real estate. Since, at the time of writing, BTC is not generally used for purchases of everyday goods or services, it is currently more of a store of value than a monetary unit.

As mentioned earlier, bitcoin is based upon a decentralized network of computers, which validate and record network transactions. The work of supporting the network is tied to the production of new bitcoin, a process referred to as “mining”. The owners of these network devices, called “miners” are rewarded with bitcoin, to incentivize their participation, and the performance of required network tasks.

Another quality of BTC is that it is immutable, meaning that its transaction records cannot be changed. To change a particular BTC transaction would require huge amounts of computing power, as one would need to get control of the majority of computers on the network, in order to alter  a BTC transaction. On top of that, changing a single transaction would not be enough. Because of the way that BTC software is designed, a record of any transaction becomes linked to records of previous and succeeding transactions. Therefore, if you alter even a single transaction, you also need to change every transaction which occurred after it, an impossible, or nearly impossible task, at least with today’s technology. One might be able to temporarily stop the system, and get a majority of computers in the network to agree upon new sets of transaction data, but this is a highly unlikely scenario. 

Though it is not generally used as a monetary unit, BTC, as software, is transactional. Until recently, it had few uses other than transactions of units. However, with the rise of ordinals this had changed. Basically, ordinals are recordings of non-transactional data stored on the blockchain. This stored data may be any of a range of digital items that the network is able to store, for example an image or a piece of software code. 

Despite the use of BTC data storage facilities for ordinals, BTC is primarily a system for storing units of transactions. In this sense, it might be called an automated accounting system. These transactions are signed, or approved by those who own or control some amount of bitcoin, together with a special number or code, used in cryptography, that controls the spending of the asset. This special code, comparable to a password, is called a “private key”, and is used to digitally sign and approve the changing of BTC ownership, by transferring the BTC to another network account. Network accounts are also numbers, called “public keys”. These public and private keys are made with techniques of cryptography (from which the words “crypto” and “cryptocurrency” are derived). A crypto account is a pair of numbers, called a public-private key pair. The private key is controlled by a piece of software called a wallet, which uses the private key to approve the transfer of BTC to other accounts. The wallet also has the public key (the account number), and is available to receive BTC.

One might say that “crypto” is the most general word for the application of this decentralized technology, while the word “cryptocurrency” emphasizes the use of this technology as digital currency or money. 

Regardless of how you choose to view bitcoin, as a form or money or as a store of value, it is controlled by means of a public-private key pair, interacting with a software wallet. An individual account has a particular digital address, the public key, which is a unique number in the system, capable of receiving cryptocurrency, and associated with a particular amount of crypto . The software wallet is the interface that communicates with the blockchain, for this control of funds, and exchange of relevant data.

To recap and summarize: When crypto is transferred, it becomes associated with a new address (account number), and pair of public-private keys. When a wallet sends or spends crypto, it actually sends data to approve the transaction, by transferring it on the blockchain. The network of computers has a record of how much a particular account may spend, as well as its prior transactions.

For example a wallet with zero BTC available receives 2 BTC. It can then spend those 2 BTC units, by transferring them  on the blockchain in such a manner that these 2 units are now associated (on the blockchain) with another wallet which has a different digital address. 

Because of the manner in which blockchain utilizes cryptography, the public key can be shown publicly without any security risk. The private key, as the name implies, should be kept private, as anyone possessing the private key has the ability to spend the asset, for example by sending it to their own wallet!

While BTC is a highly valuable asset, and a monumental achievement in economic history, it not the only type of cryptocurrency on the market. Many crypto investors own a variety of cryptocurrencies, including Bitcoin as well as its alternatives, called “altcoins”. For more information on these alternatives to BTC, please see the Altcoins page of this website.

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