Here at Genesis the question we get asked most is “What is Bitcoin?”
This sounds like an easy enough question for Google to answer… But the problem is the definition is full of jargon that creates more questions than answers:
"Bitcoin (₿) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain." (Wikipedia)
This Wikipedia definition of Bitcoin doesn’t help at all… What does decentralized mean? Aren’t all currencies digital now? What does an administrator have to do with currency? If I don’t even know what Bitcoin is, how am I supposed to know what the Bitcoin network is?
Don’t worry, today we’ll give you a high-level overview of what Bitcoin is.
A New Kind of Currency
Bitcoin was first launched in 2009 and follows the principles set out in white paper by the pseudonymous Satoshi Nakamoto.
We’ll get to these principles as we continue explaining what Bitcoin is. Satoshi also created the software code that controls the supply of Bitcoin. And as bitcoin is essentially a software code, there are no physical bitcoins. It is a purely digital currency.
Satoshi set a maximum supply of Bitcoin to be 21 million. Each bitcoin is divisible to the eighth decimal place… Making it easy to transact in small/precise amounts. Each hundred-millionth of a bitcoin, the smallest amount, is known as a “satoshi.”
And the creation of new bitcoins is set in the code as well. About every 10 minutes a new block of bitcoin is “mined.” And as of right now each block consists of 12.5 new bitcoins.
Those bitcoins go to the first computer in the bitcoin network that solves a cryptographic equation. It’s this cryptography that secures the bitcoin network (we’ll get back to that in a bit). They call this “mining” bitcoin.
And with each block, the winner also gets to keep the “gas” fees. Gas is the price people transacting in bitcoin pay to have the transaction verified.
Gas is important as it allows those with more important transactions to pay more to get those transactions completed. And it prevents scallywags from clogging up the network with small, worthless transactions.
The network of miners compete against each other to mine these blocks to claim the rewards. As they are competitors most do not know who the other miners are. This creates a decentralized network.
Decentralization is an important concept to bitcoin.
Since the invention of currency, money has been controlled by a centralized entity. Whether it was a government or a bank, one authority had the rights to print and distribute currency.
But that meant people had to trust that central authority to properly administer the currency. In terms of currency, the proper administration consists of holding the value of the currency stable… Which is something not many have been able to do. Those behind the printing presses find it too tempting to change the rules and print more currency.
I can’t think of a single currency that hasn’t devalued itself through time…
Bitcoin can’t be controlled by a few to our detriment… It can’t be devalued by central banks or fall victim to political maneuvering.
We have thousands and thousands of miners controlling the rules of bitcoin.
For the bitcoin network to succeed, each of these miners needs to uphold the integrity of it. So it’s in each miner’s best interest to ensure transactions go through as entered. This allows us to trust the network, without trusting any one individual.
This “trustless” infrastructure is a huge part of the future of bitcoin, cryptocurrencies, and the web 3.0 buildout.
As a whole, this group is reluctant to change the rules of bitcoin. In fact, some think bitcoin is already the perfect money and there will never be any reason to change it at all.
We think it is unlikely we’ll see any detrimental changes to the bitcoin code.
An Open Database
Bitcoin is also an open database. Anyone can go and see every transaction ever made on the bitcoin blockchain.
Blockchain technology is the building block of bitcoin. We have a more comprehensive article on what the blockchain is here [link to future article]. But a blockchain is essentially a bunch of blocks of data created one after another that are put together like a chain to create a comprehensive database.
This chaining of data makes it impossible to hack the bitcoin network. [link to future article] This makes it the most secure database in the world.
But just because all transactions are publicly available doesn’t mean you can’t enjoy some anonymity.
All transactions are tied to a wallet address. Like real money, cryptocurrencies are kept in a wallet. And to receive bitcoin you give your wallet address to a friend who will then send it to that wallet.
To keep anonymity many people set several different wallets.
Wallets are kept secured through cryptography as well. To send money out of a wallet, you will need to know your private key. A private key uses the same Advanced Encryption Standard (AES) that the NSA uses. It’s unhackable… The only way a bitcoin wallet gets hacked is if someone exposes their private keys. Never give anyone your private keys!
Bitcoin is a digital currency.
New bitcoins are mined by bitcoin miners. These miners race to try to solve a cryptographic equation as quickly as possible. The first one to solve, mines that block of bitcoin.
Bitcoin is decentralized - no single entity or organization controls it. It is free from government interference or political maneuvering.
Bitcoin is built on blockchain technology which is a new form of a database.
Bitcoin (and other cryptocurrencies) are the future of money.
We’ve already seen cryptocurrencies surge thousands of percent higher. But don’t think it’s too late. If you haven’t bought bitcoin yet, you still can. We are still in the first inning of the crypto revolution.