History of Bitcoin | Part 3

With the current financial system, governments can print unlimited amounts of money, which devalues currency. Centralized authorities like banks can block transactions, experience service interruptions, and limit what you can do with your own assets. 

To offer an alternative to the current financial system, Bitcoin was invented in 2009 by an anonymous person who goes by the name Satoshi Nakomoto. Bitcoin is a decentralized digital currency that governments or institutions can’t control. Since its invention, to this date, Bitcoin has never been hacked, duplicated, or counterfeited. 

In November 2008, Satoshi posted the paper “Bitcoin: A Peer-to-Peer Electronic Cash System” on an online cryptography site that described how Bitcoin would work. While he developed the source code himself, he handed the project over to the open source community and it is now maintained under the project Bitcoin Core. 

Satoshi Nakomoto chose to remain anonymous. In 2011, he sent one final verified email and vanished. He still owns a million Bitcoins that have never moved from his wallet. 

These are the key features of Bitcoin: 

  • People can send money to each other no matter where they are in the world
  • There is no centralized authority or institution to operate the system like a bank or government
  • There’s a finite supply of Bitcoin and there will only ever be 21 million Bitcoin that exists. As long as demand grows, the price per Bitcoin will go up over time. 
  • The system runs on a blockchain, a newer type of database that keeps a single history of all Bitcoin transactions.
  • Blockchain is operated and maintained by members in the peer-to-peer network.

Copies of the blockchain are distributed in the network around the world and when a transaction is made, every computer updates their records. If one record is fraudulent and doesn’t agree with the rest of the network, it gets rejected. The decentralized network keeps itself in check. 

The data in the blocks are secured by using a consensus mechanism called proof of work to determine which transactions are valid to be added to a ledger. Proof of work is used to generate new blocks, which creates new Bitcoin, and this is also known as mining. Proof of Work keeps everyone in the network in sync and prevents double spending, meaning preventing spending money people they don’t have. 

Miners keep the network running by solving complex problems on their computers. They mine bitcoin in blocks that have recent transactions and they receive payment in Bitcoin and transaction fees. Blocks are like a page in a recordkeeping book and a new block is created every 10 minutes. 

Why is it worth so much?

The price has been increasing because a growing number of people around the world see value in holding Bitcoin. It is a perceived value. But this can be said like any other asset like a worn down house on an expensive piece of land, a $2,000 handbag, or $500,000 car. They also have perceived worth. If people don’t see value in these assets, they won’t be worth anything.

Satoshi Nakomoto’s paper started a movement that has changed the course of financial history. Now more people, organizations and institutions are adopting cryptocurrency.  PayPal, Mastercard, and Apply Pay are now integrating Bitcoin. Large financial institutions including JP Morgan Chase and Goldman Sachs are accepting exposure to Bitcoin. 

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