What Is bitcoin?
Bitcoin is a digital currency.
This means that no physical “Bitcoins” actually exist. Bitcoin only exist in computer code, and is distributed, spent and earned digitally. Imagine if cash no longer existed, and the only way we kept track of our money was through internet banking. It’s a bit like that.
Bitcoin is a peer-to-peer currency.
This means it is sent and received without any intermediaries.
Currently, if you were to pay money to your friend Frank, you would go to your bank, say ASB for example, and deposit your money into an ASB bank account.
Then you will tell ASB to send that money to Frank’s bank account at Westpac, either online or via a bank branch.
When Westpac receives the money, they will notify Frank that they have received his money.
Then Frank will go to the bank to withdraw it.
This is what it looks like:
You —> ASB —> Westpac —> Frank
Bitcoin aims to circumvent third parties from money, meaning you can send money directly from person to person (hence the term “peer to peer”).
For example, if you pay Frank, you simply send the money directly from your Bitcoin account on your computer, to Frank’s Bitcoin account on his computer.
This is what it looks like:
You —> Frank
Bitcoin is a decentralised currency.
This means that it is not supplied or controlled by any one entity.
For example, in New Zealand, the money supply is controlled by the Reserve Bank. In America the money supply is controlled by the Federal Reserve. These institutions can print money or reduce the money supply at their discretion.
With Bitcoin, the "ledger" is kept on many thousands, maybe millions of computers around the world. These computers running the Bitcoin client are known as miners or nodes. Anybody with a computer, even you or I, is able to be a miner.
Therefore, no single entity can increase or decrease the supply of Bitcoin, like a central bank does with money. No single entity can charge fees to your Bitcoin account without permission, like Westpac or Kiwibank can. Any changes made to anything on the Bitcoin chain must be done by consensus of all nodes on the network. This is decentralisation.
This is the aim of Bitcoin: To create a democratised form of money and value, controlled and governed by the people who use it, rather than a central authority.
The bitcoin Team
The interesting thing about Bitcoin is it is completely decentralised and open source, probably the only coin that can claim this as of now.
The whitepaper was written by a person (or persons, still unknown) named Satoshi Nakomoto. Nobody knows if this person is a man, a woman, a company, a group of people, or cybergroup, some spheres even believe there’s even a slim possibility it was a robot/AI.
Since the Bitcoin whitepaper was released, Bitcoin has been worked on by thousands of developers all over the globe, many of whom are die-hard loyalists that have dedicated their lives to Bitcoin.
Of course, some developers have a greater influence than others, one example being the company Blockstream, who contributes a large percentage of the code.
While there are key figures in Bitcoin development, the reality is anybody (yes anybody) can contribute to Bitcoin.
Developers can propose changes to the core client, and this gets peer reviewed in the Bitcoin community. If enough people think the proposed improvements have merit, the community will agree to merge the code into the Bitcoin core client. So while anybody can contribute ideas, for your idea to actually be accepted by the community you need to convince a lot of people that your idea has merit.
As you might guess, this means Bitcoin development is largely based on reputation. Someone who has contributed many years of commits to the Bitcoin code will have great clout than someone who is submitting their first idea. This makes sense in most cases but has also led to some political infighting in the past.
You can see the large number of developers and commits on the Bitcoin Github.
The bitcoin Product
Bitcoin runs on a proof-of-work (PoW) consensus mechanism. Anyone who wants to participate in validating the Bitcoin network can set up the Bitcoin client on their computer, and start “mining”.
Mining is the process of solving a complicated mathematical equation using your computer power.
Every ten minutes, this equation is solved, and a new block of data is added to the chain. The lucky miner who solved the algorithm is rewarded with some Bitcoin.
All of these miners, by running the Bitcoin client, also act as nodes that secure the network.
This is the proof-of-work protocol in a nutshell – miners validate the chain via mathematics, and coins are distributed to the miners.
For Bitcoin to be shut down, you would need to shut down every single computer mining Bitcoin. If even one computer remains online, Bitcoin remains online. This is decentralisation at work, and leads most people to believe that shutting down Bitcoin will be impossible for any authority.
Bitcoin represents the simplest and most obvious use of a blockchain – storage and transfer of value. Proof-of-work makes Bitcoins scarce, open mining makes it decentralised and Bitcoins represent a divisible unit that can be sent between persons.
For a more thorough explanation of how Bitcoin works, check out my guide here.
Token (Utility and Metrics)
The intended utility of Bitcoin is nothing more than a unit of exchange, such as a dollar or a euro, that can be sent peer to peer.
You can send Bitcoin peer-to-peer by obtaining the recipient's public address and submitting a transaction to the Bitcoin network.
A Bitcoin is divisible into one hundred million units, known as “satoshis”.
The fixed hard cap of Bitcoin is 21 million Bitcoins.
Once all Bitcoins have been mined, miners will only be incentivised by transaction fees as Bitcoin mining rewards will no longer exist.
The 21 million coin cap is hardwired into the Bitcoin platform to ensure scarcity, increasing the probability that the value will continue to increase over the long term.
In reality, the true supply of Bitcoin is probably far less than 21 million, as many private keys have been lost over time. This mostly occurred during the early years when Bitcoins were only worth a few cents each, and wallets were not as advanced.
Bitcoin undoubtedly has the biggest and most active community in the cryptocurrency world.
Many of the key characters that helped cultivate Bitcoin’s success are still around today, including the Winklevoss twins, Roger Ver, Eric Voorhees, Charlie Shrem, Tim Draper, Gavin Andreesen, Andreas Antonopolous and many more.
An excellent book that explains the roots of the community and why it has grown into such a driving force is Digital Gold. If you are having a hard time understanding the philosophy and community behind Bitcoin, this book is a great place to start.
Because Bitcoin never had an official team or an ICO, they are truly decentralised and development is a global community effort. This alone offers it a unique advantage over other coins as regulatory pressure looms on centralised teams and communities who received investor funds.
B Money Verdict:
In my opinion Bitcoin is still the safest bet in the cryptocurrency space and has very strong upside.
While it is becoming more centralised as time goes on as bigger companies invest in advanced mining hardware and therefore control larger stakes of the network, I think risk of a single entity gaining 51% control is unlikely.
Even if that does happen, that entity will likely hold and be earning Bitcoin in large amounts, and therefore it is most likely they will aim to conserve and stabilise the chain rather than sabotage it. I don't see many scenarios where one party will invest millions to gain 51% of the mining power just to shut Bitcoin down (especially since the other 49% can just fork off anyway and continue business as usual).
The other risk is that Bitcoin is superseded by a superior coin. The truth is there are already many superior coins tech-wise (faster coins, cheaper coins, more private coins) but first mover advantage is valuable. This longevity proves Bitcoin is the most stable chain as it has been running the longest without being compromised. Other coins may bring superior tech but without heavy decentralisation and proof of stability, it is proving hard for them to win loyalty from Bitcoin. Whether that loyalty translates into the future is unknown.
The other concern about Bitcoin is its real world usability. The truth is Bitcoin is slow and expensive to use. Block times are 10 minutes (compared to say, Litecoin which is 2.5 minutes, and something like Stellar which is a few seconds). Fees are also comparatively high to most other currency coins.
Overall I still believe Bitcoin is here to stay and upside is strong. It has possibly the most versatile and accomplished developers in cryptocurrency, ever, and heavy decentralisation almost guarantees its staying power.
The Good Stuff
- First mover advantage.
- The most well known cryptocurrency and therefore most likely to reach mass adoption.
- Development team is excellent (so far).
- Operating stably since 2008 with no compromises or hacks.
- Biggest community by far.
The Bad Stuff
- Slow to use.
- Expensive to use.
- Always forking, meaning community splits.
- No leader since Satoshi disappeared. Sometimes lacks guidance.
Bitcoin developers are considered best in the space, but no leadership. Can get political.
Slow block times and high fees, but stability and longevity of project lifts this score.
Difficult to score. Only intended utility re whitepaper is to be peer-to-peer currency, and it does that perfectly. So limited utility but hard to fault.
Most devoted community in crypto.
How To Buy bitcoin In New Zealand
In New Zealand, the cheapest option to buy Bitcoin is Independent Reserve. To purchase Bitcoin using Independent Reserve, simply sign up for a free account at their homepage here: www.independentreserve.com.
To buy instantly with New Zealand dollars, we recommend using EasyCrypto. Rates are more expensive than Independent Reserve but still fair, and the process is much easier. You can sign up for a free EasyCrypto account here.
- Digital Gold (book)
- The Internet Of Money (book)
- Mastering Bitcoin (book)
- Satoshi Nakomoto Wikipedia: https://en.wikipedia.org/wiki/Satoshi_Nakamoto
- Bitcoin Wikipedia: https://en.wikipedia.org/wiki/Bitcoin
- Fact or FUD: Blockstream: https://medium.com/@whalecalls/fud-or-fact-blockstream-inc-is-the-main-force-behind-bitcoin-and-taken-over-160aed93c003