Bitcoin
2008
Long Ago and Far Away October, 2008
Satoshi Nakamoto
A Person or Persons know only as Satoshi Nakamoto invented an Electronic Cash System, which allowed people to pay each other, without a bank or other trusted third party, (intermediary). Source
Electronic Person to Person Money
And it all started with these words from Satoshi Nakamoto "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party.". Source
Bitcoin White Paper
The email with this sentence also contained a file with the now-famous "Bitcoin White Paper" , which was originally published on Bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," Source
The Bitcoin White Paper introduced the world to many new words and concepts.
These can be challenging to learn and understand.
But if you learn them, you will really appreciate the beauty of bitcoin.
Using Bitcoin easy to learn, but understanding Bitcoin can be hard
Good News and Bad News: The good news is that learning to use Bitcoin to buy and sell is easy. It's like driving a car, you turn the key and drive away.
But like a car, if you look under the hood, to see what happens when you turn the key, well then, it's complicated.
So lets look under the hood of Bitcoin !
Blockchain, it's always right.
One of the things which make bitcoin a advanced and special technology is the fact it is built on a blockchain.
A blockchain is actually a special type of ledger, and a ledger is a record of financial transactions.
A blockchain is a special type of ledger where the transaction and recording of the transaction occur at the same time.
So the transaction is the record, and the record is the transaction.
This means the record of the transaction is always accurate.
The message is the money, and the money is the message
In addition, the transaction is a message, a message sending money, so the message is the money, and the money is the message.
Normal money can't be sent via the internet, it can only be sent by banks to other banks, who have agreements to transfer money.
So normally a message sent agreeing to pay regular money is really just a promise to pay. The message is a promise, and the promise is the message.
Contrast that to bitcoin, where the message is the money and the money is the message.
Regular money has a bunch of rules and really doesn't belong to you!
Plus regular money has limitations.
The government owns it.
The government controls it, and allows the banks to control it on their behalf.
So you can only send the amount the banks allow, to the people that banks allow, and you can only have a bank account to hold your money if the banks allow.
It makes you wonder, whose money is this anyway?
Well it is not yours, your just holding it temporarily.
But Bitcoin is yours.
The ledger can not be altered or entries forged to steal
The record or ledger is permanent, and cannot be changed.
In Bitcoin terminology this is called being *** immutable***, which means never changing, as in it cannot be changed.
The record is protected by cryptography, a form of computer security so advanced that it would take a supercomputer 100 years to break a single private key.
So now you know it's extremly accurate and it's extremely secure.
Distributed
It is also distributed, which means unlike your bank, there isn't a single central ledger, which the bank creates after the transactions, and thus susceptible to human error.
Exact copies of the Bitcoin ledger are on literally thousands and thousands of computers all over the world, and each copy is changed at the same time and they are always the same.
Amazing.
Bank ledgers are not distributed and they are not immutable.
A bank ledger is also not immutable.
The bank can change the ledger anytime it wants, mainly to correct for mistakes.
a bank ledger is not distributed.
There is usually only one, which is altered by entries from multiple bank branches, by multiple humans.
So entries are made after transactions, and errors occur. And the bank changes the ledger to correct those mistakes.
Bitcoin ledgers are open and transparent.
Every Bitcoin wallet has a specific identifying number, but in bitcoin language it means a specifric location, so in bitcoin language, it is called a Public Address.
It's where you send people money.
The money flows from your wallet to their wallet, addressed to them, using the public address of their wallet.
It's called a Public Address.
In this way, sending money is like sending a text message or an email.
Blockchain Explorer
All transactions are recorded on the blockchain, and you can look them up, by address on a section of the blockchain open for everyone to see. It's called a Blockchain Explorer in bitcoin terminology.
Blockchain explorer? Yes, if the bitcoin blockchain is a big record of trnsactions, exploring it means looking at transactions.
The fact that you can look at all transactions is amazing. and it is called Transparency in bitcoin language.
Transparency means no transactions are private.
While the bitcoin wallets don't have your name on them, they have an address like your house or appartment does.
So while looking at your address; 101 Main Street, doesnt tell you who lives there. There are other ways to find out who lives in a particular house.
The same situation is true for bitcoin. So the Police or the government might be able to figure out the public address of your bitcoin wallet depending on whether you connect it to your bank account or some other account which is attached to your name.
Bitcoin as an investment and Bitcoin as a store of value.
These two ideas; Bitcoin as an investment are similar, but not the same. So let us discus them briefly.
Bitcoin as a store of Value.
This is important to understand completely.
Bitcoin is not a stable value asset. It is not the equivalent or the same as a dollar.
Bitcoin is a asset which is created at a fixed rate of production and every 4 years the rate of production is reduced by 50%.
This means no government can decide to produce a huge amount of Bitcoin to pay off it's debts, which would reduce the value of the Bitcoin based on supply and demand.
Because of this Bitcoin is built to gain value as the other currencies lose value.
But bitcoin gains it's value over time as inflation reduces the value of other currencies or money.
Inflation
Inflation can be simply defined as the rise in the price of goods and services, due to the reduction in value of money.
Inflation is why a loaf of bread cost 25 cents once, and costs 2.25 cents now.
Inflation or printing lots of dollars, reduces the value of the dollar over time.
It's only noticeable when it occurs rapidly or fast or a lot.
The US Dollar normally is reduced in value by 2.5-4 percent a year.
It's a rate so small that people don't think about it.
But during economic crises the givernment can print lots of dollars, to pay it's bills, or to send to it's citizens. But this is inflation and will reduce the buying power of the dollar quickly and a lot.
Recently US givernment money printing caused inflation of more then 10% in one year. Some commodities increase in price 25%.
This caused hardships for the people being paid in dollars, or saving their excess cash in dollars.
Wealthy people buy assets to battle inflation and preserve the value of the dollars they earn.
Wealthy people have learned to save their money inside assets like gold or real estate during inflationary times, becauyse the assets gain in value more then the dollar loses in value.
Bitcoin as an appreciating asset . (An asset which goes up in value.)
That is simply what bitcoin does, or has done, during it's 16 years of existence.
Consider these statistics about Bitcoin as an investment.
Bitcoin has so far proven itself a spectacular way to grow wealth over time. With an annualized return of 230% over the last decade, it performed 10 times better than the Nasdaq 100. But Bitcoin has also suffered from high volatility. In 2014, it lost 58% of its value. In 2018, it dropped by 73%. From its peak in Nov 2021 to its bottom in Nov 2022, Bitcoin lost over 75% of its value. Furthermore, just because Bitcoin has performed well over the last decade, there's no guarantee it will continue to do so.
source
I think this is a lot to process, so I will stop here to allow you to reread parts of this essay.
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