What REALLY is Bitcoin?

The idea of cryptocurrency was born long before Bitcoin. However, earlier cryptocurrencies all failed owing to certain fundamental and technical flaws. Bitcoin was the first cryptocurrency to get it right, and it has since enjoyed unprecedented success against all odds. As such, it is not a wonder that many other cryptocurrencies look up to it – some even claim to be Bitcoin.

There are about five other major cryptocurrencies that claim to be Bitcoin: Bitcoin Cash, Gold, Diamond, Private, and Dark. Many other emerging cryptocurrencies are claiming to be Bitcoin. To understand what sets them apart, we first have to understand what makes Bitcoin, Bitcoin.

In a broader sense, Bitcoin can be anything the market wants it to be – just like money can be anything you deem fit to be a store of value and medium of exchange. However, the real Bitcoin has certain features and characteristics that have ensured its success.

Bitcoin Basics – An Overview

Bitcoin is the top-ranking cryptocurrency in the market. It is the first modern cryptocurrency. The white paper published by its founder describes it as a peer-to-peer version of electronic cash. It was first created in 2008 by Satoshi Nakamoto, and its founder still remains anonymous; many believe he was a pseudonym for a group of individuals. Comments made by the founder on the first block ever mined seem to suggest that Bitcoin was created as an alternative to government-controlled fiat currencies that are easily manipulated by banks.

Initially, Bitcoin was virtually valueless, but its worth has risen steadily over the years and hit highs of about $20,000 (and more) per unit.

Bitcoin’s supply is limited to 21 million units – so far about 17 million units have been mined. Its overall market capitalization stands a little shy of $90 billion.

Features and Characteristics of Bitcoin

Bitcoin got right what other cryptocurrencies before it got wrong. It has certain rigid features that not only define it but also define what an ideal cryptocurrency should be. They include:

  • Decentralization

Decentralization is the most important aspect of Bitcoin – and all other cryptocurrencies. Bitcoin’s creator, Satoshi Nakamoto, was motivated by the need to escape the governments’ and banks’ control.

Traditional currency is issued and regulated by governments and financial institutions. Bitcoin, on the other hand, is not issued or regulated by anyone – it works according to the forces of the free market. Bitcoin is mined by a collective network of independent miners, and no single miner can manipulate the network. Its price is regulated by the free forces of the market. As such, Bitcoin users are free of the government’s and banks’ control.

  • Value

There are numerous worthless cryptocurrencies in the market today. The reason why Bitcoin has become so successful is that it can replace traditional currency both as a measure of value and a medium of exchange.

There are millions of Bitcoin transactions on any given day. People are now using Bitcoin to buy a wide variety of goods and services ranging from fast food to property. There are also many businesses adding Bitcoin to the list of acceptable currencies. Bitcoin is also one of the most lucrative investment vehicles. Basically, Bitcoin is just as good (or even better) as traditional currency.

  • Privacy

Most people have been attracted to Bitcoin by the guarantee of privacy and anonymity. Unlike banks that can tie you to your accounts and know all your intentions, Bitcoin accounts are private. They are basically addresses comprising of about 30 characters that are random. Bitcoin is sent to and from these addresses without your name or any other personal details attached. As such, you can go about your business without worrying about prying eyes.

However, privacy is not always guaranteed with Bitcoin. Anonymity has raised fears of abuse in ways such as money laundering and facilitating crime. To this end, the authorities have passed laws requiring Bitcoin exchanges and businesses to determine the identity of their clients. However, some wallets have gone the extra mile to ensure anonymity for those who feel that they absolutely need it.

  • Transparency

While Bitcoin ensures privacy, Bitcoin transactions are transparent and open for everyone to see. Each and every transaction is recorded and stored in a vast ledger on a blockchain. Each transaction shows the amount of Bitcoin exchanged between which parties.

Transparency does not compromise anonymity as the senders and receivers are only represented by their public addresses.

  • Limited Supply

The government can print as much money as it wants to balance or manipulate the economy. This is dangerous to you as it often leads to a devaluation of money – for instance, if the government prints and releases more money the money you already have will lose some of its purchasing power and suddenly your savings will not amount to much. This is not the case with Bitcoin.

Satoshi Nakamoto established a protocol that guides Bitcoin miners to date. The amount of Bitcoin available for mining is halved after a certain period. The allocations go on reducing until at one point there will be no more Bitcoin left to mine. This guarantees that Bitcoin will always retain its value and also that its value will increase over time owing to an increase in demand and limitation in supplies. It also protects Bitcoin holders from manipulation.

Albeit Bitcoin’s supply is limited, it is nevertheless enough for everyone. This is because Bitcoin is highly divisible and equitable to fiat currency – albeit one unit of Bitcoin is worth thousands of dollars, it is possible to buy $1 worth of Bitcoin or even less.

  • Universal

Fiat currencies are associated with nations and in most cases can only be used in the nation that issues them (with the exception of the U.S. Dollar which is widely used internationally). In comparison, Bitcoin is a universal currency that can be used anywhere across the world.

Bitcoin miners are spread out all over the world and, as mentioned earlier, there is no single issuance authority. Once mined, the Bitcoin is issued and distributed digitally – this means that anyone with an internet-enabled device can acquire and use Bitcoin. Indeed, Bitcoin and other cryptocurrencies are used everywhere in the world today, including in countries that have adopted laws and regulations to ban them. In fact, Bitcoin has been taunted as the solution to the financial problems plaguing the underdeveloped regions across the world and countries struggling with a financial crisis – for instance, Venezuelans have ditched the national currency for Bitcoin and other cryptocurrencies.

In addition to being universal, Bitcoin is also easy, quick, and cheap to transact. Transactions take mere minutes to process and the lack of intermediaries such as banks eliminate transaction costs that eat away at fiat currency transactions.

Any Cryptocurrency can be Bitcoin

It is these characteristics that define Bitcoin. To this end, any other cryptocurrency that adopts these features and characteristics qualify to be Bitcoin.

Indeed, there are some cryptocurrencies that are fashioned after Bitcoin in almost every aspect. However, some cryptocurrencies are quite different. Some are centralized and backed by organizations and governments. Others are limited in usage. At the end of the day, the type of cryptocurrency you pick should depend on its features and how well they suit your needs and preferences. Nevertheless, the OG Bitcoin still remains the best cryptocurrency to be used in a transaction as well as for investment purposes.