On January 3, 2009, Bitcoin was launched.
At the time, very few people could see how this new technology would change the world, and many dismissed it as a fad for years.
Once Bitcoin’s price reached an all-time high of around $69,000, it became much more difficult to ignore the cryptocurrency.
Over the last several years, Bitcoin has become a mainstream topic covered by news media and financial experts. However, very few people truly understand what Bitcoin is or how it works.
What is Bitcoin?
At its core, Bitcoin is simply digital money.
Humans have used various things as money over the centuries – seashells, precious metals, coins, and these days, paper dollars.
Money, in any shape, serves as both a store of value and a medium of exchange.
Put simply, money is a belief system. With fiat currency (paper dollars), two people agree that a dollar has the same value and use that dollar to transact with each other.
Bitcoin works exactly the same way, except in a digital form.
How does Bitcoin Work?
Some people think that Bitcoin works like payment services like PayPal or Cash App. However, this couldn’t be further from the truth.
Payment services like PayPal can hold your funds, prevent you from spending them, or ban you from their platform altogether. With Bitcoin, no third party or central entity can prevent you from using or accessing your funds.
Bitcoin operates without the need for any third-party intermediary, like a bank or central server. Instead, Bitcoin is completely ‘peer-to-peer’, meaning transactions take place directly between the sender and recipient.
A global network of computers, or ‘miners’, validate the transactions on the Bitcoin network to prevent fraud. Anyone is able to mine Bitcoin – even you if you’d like.
Unlike bank records, transactions on the Bitcoin ledger are completely transparent. Anyone can view every wallet and transaction that has taken place on the network. They can see the balance of your wallet, who you’ve sent bitcoin, and who you’ve received bitcoin from.
What can Bitcoin be Used for?
In addition to paving the way for new cryptocurrencies, there are many use cases for Bitcoin.
Nakamoto’s original vision was for people to use Bitcoin as a digital currency. The creator intended for the cryptocurrency to one day become legal tender (which it has today, in some places).
Bitcoin is a fast, cost-efficient way to transact with individuals across the street or across the globe. Using Bitcoin eliminates the need for currency conversions or relying on a third party like PayPal or Western Union.
Bitcoin has been one of the best-performing financial assets over the last decade. It has turned regular people into multi-millionaires faster than they could’ve ever imagined.
Some people look at Bitcoin as a speculative investment and hold it for a long period of time, hoping the price increases.
Others prefer to trade Bitcoin’s volatile price movements in hopes of making a return, like trading stocks on an exchange.
Hedge against Inflation
As annual inflation eats away the purchasing power of the dollar, many people are looking for ways to protect their savings long-term. Some turn to precious metals like gold and silver, while others have begun to move into cryptocurrencies like Bitcoin.
Some experts believe Bitcoin’s fixed supply and economic factors will make it an inflation-hedge asset.
When you deposit a dollar into a bank account, that money is no longer yours.
Banks quickly loan out the money you’ve deposited to other customers in order to earn interest on the cash. Then, they pay you back a small percentage of this interest on the balance in your account.
During various bank runs, consumers have been unable to withdraw their own cash from banking institutions.
For this reason, some people turn to Bitcoin to self-custody their own wealth. By holding the private keys to your bitcoin, you are in full control of your funds. Unless someone gains access to your private keys, no person, bank, or government can take your bitcoin away or prevent you from using the network.
Who created Bitcoin?
Bitcoin was created by a person or group under the pseudonym Satoshi Nakamoto. Very little information is available about the identity of the cryptocurrency’s creator. After publishing the Bitcoin whitepaper, Satoshi would answer some questions on forums before vanishing for good.
There has been much debate about the true identity of the Bitcoin developer, though nobody can say they know for sure. Despite the efforts of many researchers and enthusiasts, Satoshi remains anonymous to this day.
Today, Satoshi’s bitcoin wallet address remains untouched, still containing a massive amount of bitcoin.