Bitcoin, developed in 2008, is the world’s first cryptocurrency, and as such it has revolutionized how people see and use money. As a cryptocurrency, the coin is mined and traded using complex calculations by computers with specialized mining software connected to the internet. Bitcoin transactions are posted on a public ledger known as a “blockchain.” With transactions confirmed repeatedly by computers at different locations, bitcoin transactions gain trust and become permanent. The person who developed this novel software is known pseudonymously as “Satoshi Nakamoto.” He participated in early discussions about bitcoin online, but has since disappeared, causing speculation as to who this mysterious figure is.
Unlike traditional paper money — known as “fiat” money, as it’s regulated by governments and central banks — bitcoin is decentralized and unregulated. It can be traded anywhere in the world by a person with an internet connection and the means to purchase it. Unlike traditional bank accounts, bitcoin wallets don’t require a name or identity. Due to its anonymity — though with limits, as transactions are posted publicly — it has been used by black market vendors selling illegal goods and services. There are also concerns about the currency’s misuse for other forms of crime, such as money laundering. However, though there is potential misuse of bitcoin for these activities, it also has the potential to facilitate transactions generally and thus benefit humanity.
Bitcoin’s status as the first cryptocurrency has been very advantageous for it, making it a brandable coin with global recognition. Of the hundreds of cryptocurrencies that exist, bitcoin has the highest market share and greatest daily transaction volume (though this may change in the future). Bitcoin is accepted by over 100,000 merchants, and there are even ATMs issuing bitcoins in some cities.
With a theoretical limit of 21 million coins, bitcoin cannot be devalued like fiat currencies by a sudden massive production of new units or coins. This has made bitcoin an attractive alternative to those who worry about massive money printing by central banks. Some investors, including libertarians who are skeptical of central banks, view bitcoin as complementary to a gold investment.
Given the limit of bitcoins that can be made and the high valuation of the currency due to its popularity, it can be broken down into units making it easier to transact. For example, a milli-bitcoin, or mBTC, is .001 or one-thousandth of a bitcoin, and a micro-bitcoin, or μBTC, is .000001 or one-millionth of a bitcoin. A satoshi is .00000001 or one-one-hundred-millionth of a bitcoin.
The Future of Bitcoin
As the original cryptocurrency, bitcoin has a significant lead over competing cryptocurrencies in terms of adoption and familiarity, but the shifting technological landscape means bitcoin’s status as most popular cryptocurrency will constantly be under threat. Given that the currency is decentralized, there is disagreement between miners and users on making fundamental changes to the software to speed up transactions and reduce transaction fees due to network congestion as a result of its popularity, allowing competing cryptocurrencies to gain market share. Concerns about a potential “hard-fork,” which would split the currency into two versions to address scaling concerns, have kept the price of bitcoin somewhat subdued. Additionally, as bitcoin poses a threat to fiat currencies, there is the possibility of governments and central banks colluding to establish laws and regulations to make widespread adoption of the digital currency problematic.
However, some technologists believe the genie is out of the bottle, and that bitcoin and similar technologies can no longer be stopped due to their ability to facilitate trade. So whether or not governments and central banks become hostile to it is irrelevant, as more people use the technology out of convenience and necessity. Given the inevitability of digital currencies becoming mainstream, governments and central banks are likely to eventually embrace them, albeit initially with reluctance and skepticism.