The question of the decade, What is Bitcoin? We know it as a form of cryptocurrency but little did the common man understand its power. Bitcoin also dubbed as the currency of the future, is making waves across continents, yet many speculate it as a Ponzi scheme or something equivalent to the Tulip mania of 1936.
Putting the doubts and uncertainty to rest, I have created a simple, easy-to-understand post explaining what is Bitcoin and cryptocurrency, how it can be a powerful tool in strengthening the current financial system and talking about its adoption in the future. Let’s jump right in –
Table of Contents
What is Bitcoin?
Bitcoin is a digital currency that can only be traded on the internet. Just like you have a soft copy and a printout version of a document. Similarly, Bitcoin is the soft copy of the paper currency with better features.
History of Bitcoin:
It was back in 2008 amid the financial crisis when a white paper was published by man named “Satoshi Nakamoto” who made some news about creating a cryptocurrency named Bitcoin based on the system he termed as blockchain which is run on DLT i.e Distributed Ledger Technology. Confused right?
Let me explain, 2008 was the actual birth of Bitcoin who was fathered by Satoshi Nakamoto. Only a handful of people in 2008 took this seriously since it is something very difficult to pull off especially when you’re developing something which can outsmart the US dollar printed by Federal Reserve.
Long story short, the first Bitcoin transaction took place in the year 2009 and it started gaining momentum in 2012 when Coinbase opened it for trading publically.
How Bitcoin work? For Beginners
Before understanding how Bitcoin works. Let us understand or review our current system of money circulation. From where the money is generated and how do you transfer your money in the current financial system?
Understanding Paper Money:
Paper money was invented as a legal tender by financial institutions i.e central banks like RBI – Reserve Bank of India, USA it’s Federal Reserve etc. After the abolishment of the Bretton wood system, technically paper currency has no value but what we think of. It is as strong as we believe it to be.
Having said that the central banks are the only financial institutions that can generate this paper currency legally and control its circulation in the system. Therefore, making it a centralized system. Wherever you wish to perform peer-to-peer transactions, the involvement of a bank is necessary.
You may say, cash transaction does not require the involvement of a bank but let me ask you, From where you get the cash? The answer is again from the bank’s ATM. Hence your bank maintains a ledger of your transactions that can be easily tracked to settle financial statements. The system is stable until bank itself turns into a con man and run bad practices.
Bitcoin eliminates the need for a Bank
Understanding Digital currency:
The digital currency in question is Bitcoin. After understanding the working of paper currency, it’s clear that the current banking system is the core of the financial system that runs the economy by supplying money. Realizing banks being the powerhouse of everything, and historically learning from instances of major bank frauds like the Great Depression of the 1930s, Mortgage crisis of 2007. It is clear that an alternate and better system is required which eliminates the factor of human greed. Hence comes Bitcoin to the rescue in the form of a digital currency.
Unlike Paper money, Bitcoin is decentralized which means no one can control it. Bitcoin has the power to work independently without the need for third-party institutes or banks. It works on Distributed ledger technology which is capable enough to keep the record of all the transactions in its network in the form of a block hence called a blockchain network.
An online ledger is created in the system whenever a transaction on the network takes place. The transaction is publicly shared without revealing the details of the parties involved in the transaction. The privacy of the users is maintained and the strength of the network makes it impossible to hack.
Bitcoin is decentralized and no one can own it
Watch the video to understand what is Bitcoin and how it works –
Cryptocurrency and the Financial System:
From the information shared above, it is clear, cryptocurrency is the better form of economic governance when compared with the paper money in circulation. The adoption is already started by leading nations like Canada, USA. Bitcoin in India is still hanging in limbo but things will get clear with time. In my next post, I will compare Bank vs Bitcoin in India and explain the difference between both in detail.
Monero XMR is the closest competitor of Bitcoin BTC
Should you invest in Bitcoin?
Short answer, Yes. Given the rise in awareness, an increase in its adoption rate by global companies like Tesla, Starbucks, etc, and the use of bitcoin in India and worldwide. It does seem like a fair investment, however, please do remember bitcoin is a highly volatile digital currency, it has the power to boost or wipe out your savings. So, remember to think strategically before investing. Do not get swayed by the crowd mentality, do your research and check your financial condition before taking the leap. Although, there are other great blockchain projects that I will discuss in my forthcoming posts. Bitcoin is here to stay.
Checkout Hedera Hashgraph, an alternative to blockchain technology
I hope you have got the knowledge you’re looking for. Remember to check out the difference between Bitcoin vs Ethereum and learn, What is Ethereum. Educate yourself on Crypto Terminology and be upskilled.
Paras is a blockchain writer & video creator at Katoch Tubes. In his free time, he loves watching space exploration documentaries & Hollywood movies.