What is Bitcoin?

Article Written and Submitted by : Billy Leibundgut

When talking to someone completely new to cryptocurrencies, their first response is typically, “I don’t understand it”. Anyone who has put the time in to actually understand bitcoin knows that there is a lot of information to learn to fully understand bitcoin, and very few people do fully understand it. When introducing someone who has no prior knowledge of bitcoin or the cryptocurrency space, it is easiest to first examine why we need cryptocurrencies in the first place.

Currently, most people transact for goods and services with fiat currencies. The average lifespan for these fiat currencies is around 30 years. This may not be so obvious to people who are reading this because in many developed areas, currencies can last far longer. Lets look into areas that don’t have such a stable currency system. Zimbabwe. I myself am a proud owner of a 100 trillion dollar bank note from the Reserve Bank of Zimbabwe. When my friends see this bank note, they think it must be worth something significant. Actually, even though it is 100 trillion dollars, this converts to somewhere less than a penny in USD terms. It is actually difficult to find an exchange rate on this item because no one could keep up with how fast money had been printed. It isn’t just Zimbabwe that has had this problem. For a time period in Germany after World War 2, it was actually cheaper to burn bank notes then to use them to buy wood. This is a major problem that countries all around the world are still facing today.

So how does this happen? When we allow small-centralized groups of people to control our money supply, they are responsible for deciding how much money is in circulation. In some counties, if they want to go and print off more money, they can go print more money. When they do this, the money that is currently in circulation becomes worth less. This happens all over the world no matter where you live. Even in the Unites States, the dollar has decreased in value 96% in the past 100 years.

Okay so it’s clear that centralized systems controlling our money supply is bad, now lets look at where we are storing our money. A typical person in a developed county stores their funds in a bank account.  These banks store a ledger of data that allows them to keep track of who can spend what money at what time. This data is all stored on the banks centralized servers. What happens if the servers get hacked? Your funds could be immediately at risk. Although the bank is insured to replace any of these missing funds, the hacker now has access to lots of personal information on you and everyone else involved. Nick Szabo, a lead developer behind the bitcoin project, recognized these problems of trusted third parties. In a piece he wrote in 2001 titled “Trusted Third Parties Are Security Holes”, he realized that trusting a third party with your personal information leads to problems with fraud, inaccurate reporting, and identity theft. Although these problems do exist, until they affect massive amounts of people, Szabo knew people would consider this system good enough. These centralized banking systems are now in control of whom we are allowed to send payment to and how long the payments will take to process.

Luckily for all of us, this new system of accounting came along on January 3rd 2009 when the genesis block was mined, and the first bitcoin was created. This new system is far superior because it has a clear distribution process along with no centralized party that controls it. This works by allowing newly created coins to be distributed to the people who support the network at a current rate of 12.5 bitcoin every 10 minutes. Anyone can support the bitcoin network by running the bitcoin code on his or her computer. In exchange for donating your electricity, you get rewarded bitcoin. The more computing power you contribute to the bitcoin network, the more bitcoin you will receive. To ensure the bitcoin code is not malicious, the developers released it as open source so any developer can analyze it and make sure it is safe before running it on their device. The computing power that you lend out to the bitcoin network is used to verify transactions. These transactions are all stored on a public ledger so at any point, anyone can verify that there are the correct number of bitcoin in circulation.

Bitcoin was designed to act as a global currency. This means that anyone using bitcoin can send funds across the world without the need of approval from any centralized group. It also only costs less than a dollar (right now) to send bitcoin anywhere in the world, no matter how large the transaction is. Now that sounds like a great alternative to systems like western union that will require large amounts of personal information and charge a hefty fee of up to 15%! To add to that, your bitcoin will arrive in around 10 minutes so you will no longer need to wait a week to make global transactions.

In order to participate in the bitcoin network, one must first start by downloading a wallet. When doing this, you will not need to input any personal information; there are no age requirements or prior judgment that can be used against you. Once you download a wallet and load it with some bitcoin, you can now easily transact with anyone in the world.