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What is Bitcoin?



By Tom Alford ​

Bitcoin Summary

  • Bitcoin is the original and most well known cryptocurrency. As a result, Bitcoin is usually the go to crypto for new investors.
  • New Bitcoins are created by computers solving problems in a process called a mining.
  • Limited supply: Only 21 million Bitcoins will ever be created. This means as demand increases the price of bitcoin will increase as well.
  • Divisibility: Each Bitcoin can be broken down into 100 million units called satoshis. This means you don’t have to buy one whole bitcoin.
  • Bitcoin uses: Currency.
  • Bitcoins characteristics such as portability, divisibility and limited supply have led many investors to view it as digital gold.
  • Famous people involved in Bitcoin include; The Winklevoss twins, Floyd Mayweather, Paris Hilton, Katy Perry and many more.
  • Cyber security pioneer John McAfee has boldly predicted that a single Bitcoin will be worth $1M by 2020. ​

What is Bitcoin?

Bitcoin rose out of the ashes from the financial crash of 2008 and was created by a developer under the alias Satoshi Nakamoto. The concept was to create a simple means of exchange that was independent from any central authority (e.g. banks) and could be transferred securely and in a verifiable way through cryptography. Put simply, Bitcoin acts as a store and transfer of value. It’s because of these characteristics that many commentators refer to Bitcoin as digital gold. Even today, no one knows the true identity of Satoshi Nakamoto.


What makes Bitcoin different from fiat currencies like the USD? ​

1). Limited Supply

It is a somewhat worrying fact that every single fiat currency ever created eventually fails! The main problem causing fiat currency failure is the government increasing the currency supply over time and therefore destroying it’s purchasing power. Fiat currencies are not backed by anything; a dollar is only worth something because enough people believe it has value. In times of hyper inflation, currencies tend to collapse as all faith in that currency is eventually lost.

Even if we look back to the Romans, the silver denarius introduced by Emperor Augustus comprised of 95% silver. 57 years later the silver denarius contained just 0.5% silver and the rapid debasement of the currency led to hyperinflation and a loss of faith in the currency.

In more modern times the Zimbabwean dollar was initially more valuable than a USD in 1980 but after excessive money printing by 2008 it took 250 trillion Zimbabwean dollars to buy just 1 USD! For years we have heard of the FED, European Central Bank, Bank of England and Bank of Japan implementing quantitative easing which has pumped trillions of dollars of “funny money” into the world economy. Do you really feel wealthier than you were in 2007? ​

2). Divisibility

We are familiar with dollars and cents as being units of currency. The smallest unit of Bitcoin is the satoshi and one Bitcoin is made up of one hundred million satoshi’s. So bitcoin could be used for micro transactions so small that fiat currency simply are unable to. Bitcoins divisibility means that you do not have to buy one whole Bitcoin to invest in this asset. ​

3). Decentralisation

Bitcoin is decentralized therefore no single institution has control over the network. The network is maintained by an army of volunteers located all over the world. With traditional banking, the double spend problem for digital assets (where money in your bank account can be duplicated or counterfeited) is solved by banks and this gives them immense power in the current system. With Bitcoin, the integrity of transactions are maintained and distributed through a system owned and controlled by no one person or institution.

This decentralisation means that a bitcoin user is essentially their own bank and is not subject to risks such as capital controls or government confiscation of funds. In 2016 the Greek government seized 500,000 bank accounts and “liberated” €1.6bn from its own citizens to try and repay national debt obligations. Bitcoin’s decentralisation means that it can offer individuals an escape from government seizures. ​

4). Semi-anonymity

In the traditional system, senders of electronic payments are usually identified as there is a centralised validator to process the payment. With Bitcoin there is no central validator in the middle of the transaction and users have no need to identify themselves to the other Bitcoin user. When a transaction request is made, the protocol checks all the past transactions from the sending bitcoin wallet on the publicly accessible Bitcoin ledger. This ensures there is enough Bitcoin to process the transaction and that the necessary permission has been given.

In reality, a bitcoin wallet can be seen a similar to an online avatar or alias and transactions can be tracked with a lot of effort. It should be noted that exchanges usually require ID checks to enable you to trade or purchase cryptocurrency, so Bitcoin usage can be tracked and the transactor identified. ​

5). Transactions cannot be reversed

Unlike traditional payment methods, Bitcoin transactions cannot be be reversed. The reason is that there is no middle man in the transaction chain to ask to reverse the transaction. If a transaction is recorded on the ledger, then it cannot be modified. This means there cannot be any tampering and protects the integrity of transactions. ​

What could Bitcoin be worth?

Only 21 million bitcoins can ever be mined, so as bitcoin is further adopted it is actually deflationary and it’s purchasing power cannot be eroded by a central authority.If we look at the laws of demand and supply, a fixed maximum supply means that as the demand rises for Bitcoin, its price will increase. As bitcoins gain value, more cannot be created to dilute it (and your profit).

According to our friends at the CIA, the total amount of money in the world today (excluding futures, derivatives and other stores of value) is in excess of $80 trillion. If all the world’s fiat money supplies were replaced with Bitcoin:

$80 Trillion (Money supply in USD) / 21 Million (Bitcoin supply) = $3.81 Million per Bitcoin! ​

So 1 Bitcoin would be priced at nearly 4 million USD and that’s not factoring the estimated 4 million Bitcoins that have been lost forever! ​

The average life expectancy of a fiat currency is just 27 years and we are currently in year 47 of the current monetary experiment… History is not on the side of the current financial system, if and when it fails what will the world turn to? Maybe it will be Bitcoin.

Should you invest in Bitcoin?

Recently critics have argued that Bitcoin is a poor value transfer due to slow transactions and high transfer fees. However, the implementation of Segwit and the lightning network should solve these transfer issues and enable bitcoin to scale. Some argue that Bitcoin has no value whatsoever and will say Bitcoin is in a bubble. You have to ask yourself what makes a dollar worth anything? It currently costs around $1,000 in electricity to mine a single bitcoin, but how much does that $100 bill cost to actually make? The Bitcoin network is global, connects millions of people around the world and Bitcoin is being adopted by more people everyday. Maybe Bitcoin is worthless or maybe the establishment has a vested interest in maintaining the status quo?

If you agree with some of the following questions then maybe investing in Bitcoin is not a bad idea… Don’t fully trust your government and the banks? Think that more people will adopt Bitcoin in the future? Do you think the central bank printing presses will eventually lead to currency failure? Are we on the brink of global change?


Article written by Tom Alford,

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This article was originally published on

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