Bitcoin is a concept that anyone with a basic familiarity with the internet will be aware of, but how many would be able to actually explain what it is? Most people would be able to tell you that it’s a currency that exists online, but beyond that, it’s a confusing world full of jargon that isn’t immediately accessible to all but the geekiest of web users. That may be partly true, but it is also becoming increasingly important in the ‘real’ world too, so it’s time to ask the question: what is bitcoin?
There had been a few attempts to create digital currencies in the years before bitcoin arrived on the scene, but none had taken hold. The correct term for these (and for bitcoin) is cryptocurrency, because of the use of cryptography for both securing transactions but also ensuring that the creation of new units of currency is controlled. The collective of users of that cryptocurrency determine when new units are produced, making it, in theory at least, more democratic than a regular currency, which is controlled by governments or banks.
Bitcoin was launched by Satoshi Nakamoto in October 2008 in a paper called ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, followed by the bitcoin software release in January 2009. Who is Satoshi Nakamoto? Well, that’s a good question and one that has been asked many times in the years since. ‘He’ claims to be a Japanese man in his early 40s, but little else is known about him and much has been speculated about what his true identity might be.
What is known is that he has made a lot of money out of bitcoin, apparently holding around one million units, which made him a billionaire in real world money. Back in 2009 though, things started off with much more humble amounts, and the first ever bitcoin transaction took place for 10 bitcoins from Nakamoto to a programmer called Hal Finney. Nakamoto has disappeared from the scene since, with the Bitcoin Foundation being established in 2012 to act as the standard bearers and protectors of the cryptocurrency.
Another key aspect of the technology behind bitcoin that Nakamoto introduced was the blockchain concept, which helped make bitcoin secure and safe from the possibility of ‘double spend’, as each block used is recorded and cannot be retroactively changed. Blockchain acts as a type of digital ledger, and it has been adapted for use by firms like Microsoft, Deloitte and Disney in various other forms.
The Rise Of Bitcoin
In the years since its launch, bitcoin quickly became the dominant force in digital currency, even though its open source coding meant that rivals could be easily set up. Organisations like WordPress, Wikileaks and OkCupid were early adopters in terms of accepting it as currency, while various legal cases tested whether it could be considered as legal currency. There have been setbacks though, not least with various political issues in China holding up its growth in what should be its biggest market. Additionally, it’s illegal to use bitcoin to buy real world items in China, but a law was passed earlier this year in Japan to pave the way for legal usage there and Russia is due to follow suit.
There’s plenty of real money to be made in trading bitcoin and lots of people who have made careers out of it, including American teenager Erik Finman, who has just made his first $1m, having dropped out of school at 15 to focus on it. The market size continues to grow, as does the value of the currency, with a bitcoin reaching $3,000 per unit for the first time earlier this month, continuing the rapid growth of the last few months.
The Future Of Bitcoin
However, bitcoin has dropped since and remains a volatile currency where market trends can be hard to predict, which will put off some investors, as will the niche nature of the market. In a recent article about the future of bitcoin in the StarTribune, digital marketing agency boss Roger Wu summed up the situation that has seen his firm accepting bitcoin since 2014 without actually receiving a single payment that way so far: “The biggest thing is, are people willing to pay in bitcoin?” Wu said. “The reality is that most of our customers are other businesses, and other businesses don’t use bitcoin.”
Will that change? There is certainly the potential for bitcoin to change the way the worlds of consumer and business finance, but so far there is no sign that it is doing so just yet. Companies which have started and since stopped accepting bitcoin payments include giants like Time and Dell (and even WordPress), while Morgan Stanley this month questioned whether there were valid reasons why consumers would choose it over traditional payment methods.
Bitcoin has been around for nine years now and has reached new peaks in value this month, but there remain significant hurdles to its adoption outside of its existing community. However, even in the world of digital innovation, technologies and software can take a long time to gain traction, and while there are people around the globe making their fortune out of bitcoin, you cannot rule out the likelihood of it having a significant impact on all of our lives, particularly as more governments start to accept it as legal tender.