Introduction to Bitcoin-What is it and Why was it made?

What is Bitcoin?

Bitcoin in simple language means digital currency which is stored in digital ledgers known as blockchain. It is decentralized, i.e. there is no central authority governing it. You can easily transfer bitcoin from one person to another without any intermediator. Bitcoin uses Cryptography (coded language) to keep its transactions secure. That is why it is called cryptocurrency.

What does Blockchain mean in simple ?

Blockchain is a database which stores the transactions of a cryptocurrency in small units known as blocks. These blocks are interconnected to each other thus forming a chain. The blockchain data is stored in multiple computers called node. Each transaction is duplicated and stored in a node. So imagine if you want to hack Bitcoin, you will have to hack all the nodes. Practically impossible! Thus making it highly secure.

Why was it Created?

To understand this, Lets go back in time to 2009 when Bitcoin was created.

From 2007-2009 was the period of the Great Recession, the Global economy was in a big distress. Business houses were shutting down, People lost their jobs, many even turned homeless!

One of the major causes for this Economic Downfall was because of the housing market in USA. To boom the housing sector, the People in the USA were given home loans at very low rates, without any proper credit verification. In fact the Banks and Financial Institutes even went on to lend to borrowers with poor credit histories (Subprime Mortgages). Banks kept giving loans and the defaulters increased, and ultimately this big bubble burst.

What did the Government do ?

GDP was falling, unemployment was at its all time high. To mitigate the deficit, the government provided many economic packages and reliefs to promote businesses and increase jobs. Obviously you need liquidity for this and this was done by flushing cash into the economy. The Government’s cash printing press was in a full flow. There was no upper limit to it.

What did this Lead to?

Now imagine a scenario where you can unlimitedly print money and spend it ? What would happen ? Yes correct! The first thing that came to your mind was that the value for money will drop. That is what happened, the Government kept printing and the value dropped. Prices of goods and commodities started rising as a result.

So don’t you think there should be a currency which cannot be controlled by a central authority like the government? Yes right! That’s one of the major reasons why Bitcoin was created. Along with it being a decentralized currency, one of the other advantages of Bitcoin is that its upper cap is fixed. The total number of Bitcoins that can ever come into existence is fixed at 21 million. Isn’t that too less ? I mean the total population of the Globe is more than 7 Billion, so not everyone will be able to hold 1 full Bitcoin. This property of Bitcoin makes it deflationary, and thus its value will always increase in the long run.

Who Created Bitcoin ?

The domain bitcoin.org came into existence on 18th August, 2008. Around in late October, a person or a group named “Satoshi Nakamoto” announced on the website that they are creating a new digital payments system and released the bitcoin whitepaper which is called-Bitcoin: A peer to peer Electronic Cash System. The domain is “WhoisGuard Protected,” which means that the identity of the person who created it is unknown. Weird ? Isn’t it! The person who created the biggest and most successful crypto is unknown till date. There have been many assumptions as to who is Satoshi Nakamoto but all have turned out to be fake!

Satoshi Nakamoto’s statue installed at Budapest

Let’s move ahead, so the first block of bitcoin was mined in on 3rd January, 2009. This block is called the Genesis block. Lets also understand a few important terms that we have talked about here-

WhitePaper

It is a report or an informative document which contains the details of the project. It is intended to give the users and in-depth analysis and information regarding the project.
Pro Tip-Always read the whitepaper of a cryptocurrency before investing in it. Specially new projects.

P2P or Peer to Peer

In computing language it means sending information from one computer to another without the need of a server computer. Coming to crypto it simply means being able to send money directly from one person to another without the need of a bank or intermediator. The transaction is completely anonymous. This makes bitcoin different from fiat whose control is in the hands of the government or central bank.

Mining

No, its not what first came into your mind. Crypto is not made by digging through the earth like metals!
Mining in crypto refers to verifying transactions by miners by solving complex mathematical equations (done by the help of high end Computers). The miners are rewarded in bitcoin and thus new bitcoins are created. Interestingly in the initial stages miners got 50 BTC per block mined in 2009! This is halved every 4 years and now current reward is 6.25 BTC per block mined. Its to be noted that most of the early Bitcoin was mined by Satoshi. Two wallets associated with Nakamoto are believed to have almost over 1 million BTC.

Cryptography

It is the process of converting ordinary text into a coded language and reverse. It is a method of storing and transferring data from one source to another in a way that only the person who it is intended for can read it.

I hope you liked the Bitcoin introduction in a completely easy and jargon free language.

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