Bitcoin: An Accident Seven Years In The Making
We’re sure you’ve seen the social media statuses, posts all over the web, and articles galore. Cryptocurrency is the latest financial trend to pop up on the scene. However, there’s nothing new about it.
Cryptocurrency has been in existence since late 2008. Invented by Satoshi Nakamoto, it was an accident destined to happen. But let’s pause here.
What is cryptocurrency?
Cryptocurrency is a cashless currency. It’s a medium of exchange, created and stored electronically in a blockchain⎯an essential component of the exchange process. A blockchain is a digital ledger of economic transactions programmed to record everything of value. It is through the blockchain where transactions are confirmed and become part of a database which make it no longer forgeable.
Bitcoin is the product of Nakamoto’s “accident” in creating a peer-to-peer electronic cash system. Its purpose was to eliminate double spending. In turn, Satoshi decentralized the digital cash system that has banks, government agencies, economists, and geeks alike monitoring its movements.
Digital Cash without a central entity
This isn’t the first time digital cash has been on the table. In the nineties, many tried and failed by incorporating a third-party central entity. Digicash, among others, was one of the first attempts but never made it past the late 90s. Satoshi’s goal was to create a non-trust based system that mimicked a peer-to-peer file sharing format. Think: Dropbox.
To realize digital cash without a central entity, there needed to be a way to not only monitor transactions, but also keep a consensus to prevent double spending. Although this is usually done with a centralized network, Satoshi found the missing piece by creating the blockchain—a vital component in the cryptocurrency system.
Miners mine your cash
The network of peers who monitor cryptocurrencies are called miners. Anyone can be a miner; however, they must show proof of work by finding a cryptographic function called a hash. It is the miners who keep records of transaction history which include the balance on every account. Check out the infographic on how it works.
Essentially, their goal is to solve cryptographic puzzles which create Bitcoins. Since cryptocurrencies are dependent on confirmation, miners are the only ones who can confirm the transactions. This creates the checks and balances needed to ensure the digital cash system doesn’t corrupt.
Revolutionizing the transaction
Erik Voorhees, cryptocurrency entrepreneur, states:
“It is that narrative of human development under which we now have other fights to fight, and I would say in the realm of Bitcoin it is mainly the separation of money and state.”
What’s revolutionary about cryptocurrency is that it operates on cryptography: digital signatures and keys. This alone, removes the security from people or a trust and places it in the hands of math. In addition to this, there are few distinctions it has from standard money:
Fast and global
Overall, the Bitcoin is a strike against the control of banks and the government over the monetary transactions of citizens. Persons can’t be hindered from using Bitcoin. They can’t be refused or prohibited from accepting payment and transactions can’t be undone.
As a currency with a limited, controlled supply unchangeable by the government, bank, or other centralized institutions, cryptocurrency attacks the scope of our monetary policy. It takes away deflation or inflation by manipulating the monetary supply.
Within two years, cryptocurrency is expected to become a standard currency in modern business transactions, while it completely disrupts the banking system as we know it. A sheer accident in innovation, sparked a global trend which created sovereignty in how the world uses money.
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