An Introduction to Bitcoin
Bitcoin is a culmination of technologies and idealogies, masterfully woven together by the mysterious creator "Satoshi Nakomoto". Rooted deeply in the Cypherpunk movement of the late 1980's and Libertarian principles, Satoshi had a vision for a true peer-to-peer digital currency that would Revolutionize and disrupt, Global Banking as we once knew it. Bitcoin would be able to bring Banking to those that had no access to Banking services; those in third-world countries with no access to banks, forced to use hyperinflated currencies of their Government would be able to Bank using a stable, global currency using nothing more than a cheap smartphone. Likewise, the Western World could be free from the market manipulation of the Wall Streets of the world, the Banks, and the Governments. A fair, equal, distributed Internet of Money.
In January 2009, Satoshi recruited Software Engineer and Mathmatician Hal Finney to assist him in making this dream a reality. The very 50 Bitcoins were created, marking the beginning of the Blockchain. For the next few years, Satoshi and Hal brought more individuals into the fold, securing vunerabilities in the code, and monitoring anomoloies in the Bitcoin Network. The system was working.
By 2011, the public had begun to listen. Following the recent Financial Crash of 2008, the the Banking Industry was less favorable than ever, and the demand for a Financial Revolution was massive. Select online retailes began accepting Bitcoin as a recognized payment option, and the Cryptocurrency movement began. During 2011 and 2012, countless Bitcoin knock-offs, and other Blockchain-based Cryptocurrencies began surfacing. A few were highly innovative usecases for Blockchain technology, others featured minor tweaks and improvements to the scalability and security of Bitcoin. Most were knock-off Bitcoin clones, created to cash-in on the movement. Regardless, the iconic name and cult behind Bitcoin remained at the forefront of the movement. A number of exchanges worldwide set up business trading Bitcoin for USD, and other currency pairs.
Between 2012 and 2015, Bitcoin faced many expected hurdles. Due to the anonymity of Bitcoin, the coin quickly became the de-facto currency of the Dark Net. Online black-market platofrms such as Silk Road, Agora and Evolution began to use a combination of Bitcoin and TOR to mask themselves from Government control, creating completely anonymous, hidden markets for drugs, weapons and other highly illegal services. The Governing force behind the war on drugs now turned it's regulatory sight to Bitcoin. To make matters worse, Mt Gox, the largest Bitcoin exchange at the time, suffered the theft of approximately 850,000 Bitcoins at the hands of it's to the value of $460 million at the time. Things had never looked worse for Bitcoin, and the valuation reflected it.
Bitcoin perserved, and slowly Governments worldwide began imposing regulations permitting the use of Cryptocurrencies as a recognised form of payment, large enterprises were seeing the efficiency that a programmable money on a Blockchain-based Financial Network could bring, and more and more online retailers began accepting Bitcoin and other Cryptocurrencies as payment methods, due to the low-cost and ease of use. The Bitcoin story is not over yet, but in 2018 at the time of writing, the Cryptocurrency market cap has surged by orders of magnitude month over month. The way we do Banking is on the verge of a revolution...but how do we do really do Banking now?
The general concept of Banking has remained largely unchanged for hundreds of years now. Once established to store and protect our personal value, Banks also served a critical function. They kept a record of our value. See, the idea of Banking makes complete sense; A trusted party will maintain a Ledger to record each indiviual's balance. When a transaction is made, this party will validate that there is sufficient funds for the said transaction, move the balance in accordance with the transaction, and then update the Ledger entries for sender and recipient with their new balances. From notes on paper to numbers in databases, Banks sole purpose has always been to maintain and protect this ledger.
In the early days, you may choose to store the bulk of your wealth in a Bank for security, and hold a balance under your own care for transactional purposes, but the digital age brought countless innovations in the FinTech space to bring us faster, easier, more secure Banking functions. We have now reached the point where many of us in the Western World choose to trust the Banks to hold all of our value, and to make transactions directly from that balance. From chequebooks, to wire transfers, to swift and easy card payments, we no longer carry our money on our person, but make transactions directly from our Bank Account.
Unfortunately this tried and true design has a single point of failure; the Ledger. What happens if this Ledger is leaked? Well your financial privacy becomes obsolete. What happens if this Ledger is unlawfully modified? We run the risk of fake transactions, and rogue accounts with false balances. What happens is this Ledger is destroyed? All money is lost, Banking stops, chaos ensues. It may come as no surprise to you that Servers can get hacked, destroyed, corrupted. There are precautions and best-practises to adhere to, but all of the IT and Network security professionals in the world cannot stem the constant flow of innvovative exploits that skilled hackers find almost every day. Every day the Banking industry faces the risk that a new exploit or bug will be uncovered within their Network, or a critical password leaked, or some critical hardware decides to fail. In fact, we are one Quantum Computing breakthrough away from all digital servers being rendered helplessly vunerable. All digital services now face this risk, if they have a CENTRALIZED point of failure.
The beauty of Bitcoin is that it has no central point of failure, thanks to Blockchain. Blockchain is a trustless Distributed Ledger architecture that decentralizes the authoritive control over this Ledger by distributing it to everybody in the Bitcoin Network. Any Server can join the Bitcoin Network and receive a complete copy of this Ledger, and with it they gain the power to validate transactions on the Network, and update the Ledger accordingly.
"Wait, so everybody can see my balance?"
No, Bitcoin is pseudoanonymous, and uses strings of random letters and numbers to identify users.
"Wait, so anybody can make fake payments to themself?"
No, every Bitcoin has a unique identifier and transaction history. In order to spend that Bitcoin, the Ledger must show that it was sent to you in the first place.
"Wait, I have to validate other people's transactions?"
No, you don't need to run a node to use the Bitcoin Network, but you get paid in Bitcoin if you do.
"Wait, so who controls and looks after the Network?"
Nobody does, and everybody does. Bitcoin is a TRUSTLESS architecture, and there is no single point of control. We will go into the technicals in the next section.
"And are my Bitcoins safe?"
Your Bitcoins are as safe as you make them. There is no authoritive call centre to dial if you lose your money, you are empowered and trusted to safeguard the key to your funds. With Bitcoin, you become responibile for securing your own wealth once again.
Blockchain Technology is about taking a central database, and decentralising it. By distributing the database to as many nodes as possible, you ensure there will always be a valid copy available. Bitcoin uses this architecture to secure a Ledger, but the potentials for Blockchain are boundless. Distributed Social Media platforms, distributed file sharing, distributed Password Managers, and many, many more usecases yet to be thought of. Running a coded application in a decentralized manner opens the possibility for load-sharing processing power and storage worldwide, improving our computing effiency enough to enable computing breakthoughs in almost every industry to date.