Demystifying Bitcoin and Blockchain
Bitcoin is a hot topic in recent years at the intersection of technology and finance that has captured people’s attention in a way that has not been seen since the introduction of the internet. Bitcoin and its underlying technology, Blockchain, have incited a modern-day gold rush leaving people intrigued, confused, skeptical… and some very rich!
Both Bitcoin and Blockchain are revolutionary innovations that many believe will change how business is executed within finance, education, health, medicine, supply chain, real estate, and many more industries. It is believed that they will alter how we organize governments and economies.
Let us start by demystifying Blockchain and Bitcoin.
- Blockchain is a secure ledger that stores value.
- It is maintained by a decentralized network of computers called miners and nodes, unlike the internet, where data can be altered, copied, and stolen.
- The concept of blockchain is a decentralized ledger technology (DLT). The DLT concept gives organizations and individuals the ability to work without depending on a centralized entity or government where once information is on the blockchain, this information is immutable.
- Blockchain and the internet use cryptography to secure sensitive data over the web, such as credit card purchases. Similar cryptographic technology is used by Bitcoin hence the term cryptocurrency.
- Bitcoin is one of several types of cryptocurrency. It is a decentralized, digital asset kept in check and secured through the process of miners and nodes.
- Bitcoin operates completely outside of the traditional banking system and is not controlled by any one person or government.
No one knows who created Bitcoin. It was first registered anonymously in August 2008 under the bitcoin.org domain name. In October 2008, a coder going by the name of Satoshi Nakamoto published a white paper describing bitcoin’s workings. Satoshi Nakamoto is believed to be a fictional name created to maintain the identity of the inventor. There are a few theories on who may have created Bitcoin, but none have been validated.
The Crypto Ecosystem is broken down into three sub-categories: Cryptocurrencies, Crypto Protocols, and Crypto Enterprises.
- Cryptocurrencies like bitcoin and others are a fully transparent platform for storing and moving digital value.
- Crypto protocols are the foundation for data communication. An example is the Hypertext Transfer Protocol (“HTTP”). There are crypto protocols like COSMOS that allow the movement of value or information from one blockchain to another. So, if JP Morgan needs to transfer a billion dollars to Goldman Sachs, each firm will have its own blockchain, and COSMOS will connect the blockchain and act as a toll bridge, earning a fee for each transfer.
- Crypto Enterprises are businesses created on blockchain technology. Individuals and organizations are on a level playing field due to the decentralization network and the immutability of value and information. For example, the DeFi (decentralized Finance Market) is exploding. The DeFi market is moving the entire banking system on blockchain. Sites like BlockFi.com allow the consumer to deposit money in the form of crypto, earn a high return rate of 8%, and even borrow against their bitcoin without selling it, hence not creating a tax issue. These sites are close to issuing credit cards and are paying rewards back to the consumer in Bitcoin. The movement of money, whether to and from an institution or individual anywhere in the world, will take seconds instead of days.
So, what is the appeal of Bitcoin? First, there is a set amount of Bitcoin available, distinguishing it from fiat currency. Because Bitcoin has no central authority, it is protected from inflation and negative interest rates. Therefore, it is designed to become more valuable over time because of its limited supply.
Here is a practical example: In the first quarter of 2020, Bitcoin’s value ranged between $3800 to $7500. In February 2021, Bitcoin’s value went as high as $58,367. However, 7 days into March and it is at $52,000. Because of its volatile price, Bitcoin is not as widely used as a peer-to-peer exchange.
As a result, Bitcoin is starting to be seen as a store-of-value, such as gold.
For example, if you own gold, you do not use it to buy groceries. Nevertheless, Bitcoin is widely used in many countries where access to banks or the banking system is impossible. Kiosks are even showing up at filling stations and Walmart, where you can purchase crypto increments.
PayPal account holders are currently allowed to purchase Bitcoin, and some stores accept it as payment. In the U.S., Goldman Sachs may pursue a Bitcoin ETF, while Canada is about to launch its third ETF for Bitcoin. There is also an Ethereum ETF is in the pipeline to be approved.
As mentioned earlier, Bitcoin is only one of many types of cryptocurrencies, each holding its own value and purpose. Examples of cryptocurrencies include Ethereum, COSMOS, Polygon, Ripple, Frontier, Quantum Resistance Ledger, Stablecoin, and many more. Some are more established than others, with several new ones springing up to support other blockchain innovations, which will be explained in future blogs.
- In our upcoming articles, I will be discussing:
- Blockchain – A deeper dive into the mechanics (miners, nodes, algorithms, hash time/value, building blocks)
- Ethereum – Smart contracts blockchain – (types of enterprise and protocol blockchains)
- Quantum Resistance Ledger – Security for Digital Assets in preparation for Quantum Computer Threats
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