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What is Bitcoin? History, Benefits and Disadvantages

It all started with the nine-page white paper called Bitcoin: A Peer-to-Peer Electronic Cash System. The white paper was published in October 2008, and it was Satoshi Nakamoto who wrote it. Nakamoto, according to the legend, started working on the Bitcoin concept in 2007.

So, the question is:

Who exactly is Satoshi Nakamoto?

Apparently, Satoshi Nakamoto is Japanese, and was born on April 5, 1975. Several possible individuals are suspected of being mysterious creator of this digital currency. Some of these people include Nick Szabo, David Kleiman, Hal Finney… Despite all speculations, to this day, it is still unknown whether Nakamoto is male or female, a single person or a group of individuals.

What we know for sure is that on January 3 2009, Nakamoto generated first block of transactions, called the Genesis Block, and finally, on January 12, 2009, the first currency transaction took place in block 170, between Nakamoto and programmer Hal Finney.

On May 22nd, 2010, the first reported exchange of bitcoin for a consumer product took place. On that day, Laszlo Hanyecz paid 10,000 Bitcoins for two delivered Papa John’s pizzas. At that time they were worth around $41. Nine months after Laszlo bought the pizza, Bitcoin reached parity with the U.S. dollar, making the two pizzas worth $10,000 and in 2015 the two pizzas were valued at $2.4 million. Today, the 22nd May is marked as Bitcoin Pizza Day.

After that, Bitcoin’s value started to increase, Jeb McCaleb established a Bitcoin currency exchange market, and Slush’s pool mined its first block.

Now, let’s answer the main question.

What is Bitcoin?

Bitcoin is a decentralized digital currency, which can be sent from user to user on the peer-to-peer network with no intermediaries such as banks or governments. It is irreversible, pseudonymous, global and secure, and is recorded in a public distributed ledger called a blockchain.

In his famous white paper, Satoshi Nakamoto wrote:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”

So, how is this digital currency different from traditional currencies? Let’s take a look at its main benefits over traditional currencies:

Bitcoin doesn’t have borders or limits.

No government can interfere or manipulate bitcoin transactions whereas traditional currencies require permission from banks, financial institutions, and governments to be used. On the other side, Bitcoin doesn’t require permission to be used, as well as being free and globally accessible. 

You’re your own bank.

Since this digital currency is decentralized, you don’t have to rely on third-parties. Decentralization means that Bitcoin is not stored at any central bank or company, which makes you and only you in charge of it. No one can confiscate your Bitcoin or block and censor your transactions.

With Bitcoin, you can send and receive payments fast and cheap.

International Bitcoin transactions do not differ from its transactions that stay in-country. Since it is also a digital peer-to-peer currency, transactions are fast and low-cost, especially when compared with centralized payment networks such as PayPal, Mastercard or Visa. Plus, all this comes without exchange rates or extra charges.

Bitcoin keeps your anonymity safe.

Centralized payment networks are vulnerable to attacks. In December 2017, PayPal revealed a security breach during which an attacker appears to have accessed servers that stored information for 1.6 million customers. On the other hand, when using Bitcoin, you don’t have to provide your name, email address, or social security number. When transferring Bitcoin, only your wallet address is visible, but not your personal information.

But, you shouldn’t think that Bitcoin is perfect. It’s a new technology, that is still a long way from an everyday currency. Let’s take a look at some disadvantages it has:

Bitcoin’s price is highly volatile.

You have to remeber that the price of bitcoin is constantly changing, and the market is rippling back and forth. For example, on December 17, 2017, the price of bitcoin topped $20,000. Days later, on the 24th, buyers could not sell their investment for more than $14,626. The fact is that its volatility remains one of its main barriers to mass adoption as a form of payment.

Hacking can happen.

Yes, and it happens at least once a week. In November, 2018 hackers managed to hack Target’s Twitter account and use it as bitcoin scam. Also this isn’t an isolated incident. For example, Elon Musk and Ethereum founder Vitalik Buterin have both been targeted for imposters.

Scams are the norms.

When it comes to Bitcoin scams, they are everywhere and you really should keep a  vigilant eye to protect yourself. Here is the list of the four most typical Bitcoin scams:

  • Wallet Scams: scammers can make your wallet address to lead to them, rather than you.
  • Ponzi Scams: they allure you with higher interest than the prevailing market rate, and then they simply redirect your money to the scammer’s wallet.
  • Exchange Scams: The exchange scams usually hook you with better exchange rates or with features not offered by the typical bitcoin wallets.
  • Mining Scams: In this case, mining company can offer you to mine incredible amounts of bitcoin for you, and of course you have to pay them for this service. Also, when you do pay it is probably the last time you’ll see your money.

Conclusion:

Bitcoin has come a long way from being a little known digital currency worth roughly six cents to what Roger Ver called „the most important invention in the history of the world since the Internet.“ Today with Bitcoin you can buy or pay anything from flights tickets, legal services, university tuition to a goat, and a trip to outer space. It’s not a surprise that users call Bitcoin “Money 2.0” or that Bill Gates called it “a technological tour de force.”


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Tamara Jones