Is it just another investment? Is it a currency? Is it a payment network? Is it a ponzi scheme? These are some of the few questions that people seem to ask me at first when they want to know about Bitcoin and all these are understandable questions.
For starters, yes, it is an investment for many. But it doesn't stop there, it's the tip of the iceberg. Many people have bought it and traded it as a speculative investment and made money off of it, quite a lot of new people that tried to time the intense volatility and the ups and downs lost quite a lot of money as a result of it too.
On 18 August 2008, the domain name bitcoin.org was registered. Soon after that the whitepaper authored by a person under the pseudonym Satoshi Nakamoto was released.
Bitcoin: A Peer-to-Peer Electronic Cash System
This was the title of the paper and you can find the full paper here. It's not known who Satoshi Nakamoto is, whether he is alive or if it even is a single person. On 3 January 2009, the genesis block (the first block in the blockchain) was mined by Satoshi Nakamoto and with that the bitcoin network came into existence.
Bitcoin’s genesis block, contains the embedded message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,” a reference to the newspaper headline on that day. The reference proves the genesis block was made after that moment, but more importantly also comments on the problem of financial institutions imposing a great cost on the people they were supposed to serve. It highlights the need for a new system, a system not governed by a few people but everyone.
Over the years adoption for Bitcoin has increased and with time so has the narratives for Bitcoin. Originally set out to be an E-cash system it evolved into a low cost payments network and eventually digital equivalent of gold. Maybe the narratives will change again but one thing that has always stayed consistent is that Bitcoin is a cryptocurrency. A new form of currency that is digital, decentralized without a central bank or any central authority and can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
Bitcoin is censorship resistant
Owing to the very nature of not having to rely on a central authority makes bitcoin censorship resistant. It is a peer-to-peer protocol, much like torrents. There is no 'bank' running bitcoin. One popular and power example is that of the WikiLeaks financial blockade. Donations to WikiLeaks were blocked by Bank of America, VISA, MasterCard, PayPal and Western Union on December 7th, 2010, just days after a major leak.
The only way around this was with a global payment method immune to political pressure and monetary censorship — Bitcoin. WikiLeaks soon started accepting donations in Bitcoin and still survives to this day.
Bitcoin is volatile
Bitcoin is highly volatile nature. It has experienced sharp price fluctuations, even up to 30% weekly moves in either direction. This is due to the fact that the market for bitcoin, as well as that for all digital currencies, is relatively small when compared to markets for more traditional assets such as stocks, bonds and fiat currencies. You can take a look at this info-graphic from 2017 to get an idea. As of writing the Bitcoin market cap is roughly 180 billion dollars and the entire cryptocurrency market cap stands at 260 billion dollars. For comparison the market cap of gold is 8 trillion dollars.
Bitcoin is not completely anonymous
Bitcoin is not anonymous. Some effort is required to protect your privacy with Bitcoin. All Bitcoin transactions are stored publicly and permanently on the network, which means anyone can see the balance and transactions of any Bitcoin address. However, the identity of the user behind an address remains unknown until information is revealed during a purchase or in other circumstances. This is one reason why Bitcoin addresses should only be used once.
You are your own bank
Since Bitcoin is decentralized, as long as you have access to your private key, you have access to your coins. No one can prevent you from sending those coins to anywhere in the world. When you sign a transaction and broadcast it to the network it eventually gets confirmed if it's valid. Each confirmation takes between a few minutes, with 10 minutes being the average.
If the transaction pays too low a fee then getting the first confirmation can take much longer, even multiple hours. It is also important to note that a Bitcoin transaction cannot be reversed, it can only be refunded by the person receiving the funds.
Bitcoin is not a ponzi scheme
Similar to a pyramid scheme, a Ponzi scheme generates returns for older investors by acquiring new investors, who are promised a large profit at little to no risk. This is simply not the case with Bitcoin. No one owns Bitcoin. Bitcoin is simply money. It is a decentralized digital currency that is secured by mathematical algorithms and cryptography, one that can be used to buy goods and services very much like regular fiat money.
Key points:
- Transactions are irreversible.
- Not hundred percent anonymous.
- Decentralized.
- Censorship resistant.
- Border less
These are powerful points for an alternative currency system for the 21st century, a promising one, one that is not tied to archaic systems of the past. But it is important to note that it is only 11 years old at this point and still considered an experiment by many.
