In the midst of the 2008 financial crisis, trust in banks and the Federal Reserve was at an all-time low. There were accusations of manipulation and shady dealings being thrown around. Many people blamed central financial authorities for the deception of clients, misuse of their funds, the rigging of financial systems and high fee charges. Then, in October 2008, an anonymous paper was published which seemed to hold the answer. This paper promised a new digital currency that no longer needed a central authority for exchange, and it was named Bitcoin.
WHAT IS BITCOIN?
Bitcoin is the first medium of exchange that functions without a central authorizer. The security and trust of this exchange comes from running on a peer-to-peer network. This is a network that allows two parties to interact without having to surrender their personal information to any middlemen.
This is entirely dependent on blockchain technology. A blockchain is basically a ledger of transactions that are distributed to every participant of the network. Therefore, the entire network is responsible for recording and processing each transaction that occurs on the ledger instead of one central authority.
Imagine you want to make a trade with me. I decided to give you 10 Bitcoin in exchange for a Lambo. Once we agree to terms, we no longer need a bank or central authorizer to allow this transaction to occur. I can just send you the 10 Bitcoin, and you can hold me accountable for it since the transaction occurs publicly. Anyone can verify that I actually sent you the funds.
Bitcoin represents the birth of a transformational technology. There have been key moments in the history of humanity where the way we trade things between each other has drastically changed. You can track the evolution of money all the way back to the barter system, then came the introduction of gold coins, then promissory notes backed by gold, and finally what we have now; fiat currency which is backed by a nation, but not any physical commodity.
Bitcoin is the next step in the evolution of money. It’s a drastic improvement in our current medium of exchange. The way a Bitcoin transaction occurs is through a distributed network where every participant is required to verify a transaction before it’s processed. This makes it:
- Incredibly robust against counterfeit
- Decentralized, meaning there are no central entities you have to trust with your personal information
- Completely anonymous because it uses cryptographic techniques to hide personal information.
- Transparent, since all transactions are searchable on a blockchain explorer
- Incredibly fast. Sending money across the world only takes a few minutes on the Bitcoin blockchain ledger.
- Non-repudiable, so if someone has committed to paying you a certain amount on the blockchain, the transaction will be processed even if they decide to walk back on their promise.
The word Bitcoin has certainly garnered a lot of fame and recognition in recent years, and rightfully so. The transformational promises that this technology continues to carry with it are only going to become more prominent in coming years.
However, it’s important to realize that Bitcoin is only the first of its kind; a pioneer. The truly revolutionary aspect is the underlying data structuring system known as the blockchain ledger. This is the most revolutionary aspect of Bitcoin, which gives it the characteristics of money without any of the hurdles.