The goal of these next 6 articles, all brief and divided by subjects, is to present Bitcoin, both technically and monetarily, in a clear and easy-to-understand way. More and more people are fascinated by this technology and cstart to support it passionately. And not because they “can get rich” but because they believe in Bitcoin, in its initial idea and the good it can bring to the world. Thank you reader for taking time to read these articles, I hope you enjoy it.
That said, get ready to have an overview and quite complete of what this new technology is capable of revolutionizing the world in the coming years. Good read and long Bitcoin!
Last Friday I went from Barcelona to Madrid to witness the beginning and the first session from the Master in Blockchain of Tutellus in Madrid. I’m really looking forward to the first session from Iñigo Molero. They aren’t going to talk about Blockchain apps, neither about implementing good tokenomics, instead they will explain the first Blockchain application: Bitcoin, and they will settle the ideological layers and the philosophical beginnings behind Bitcoin, due to the Cypherpunks and hacktivists movements of this years.
I was fascinated for a long time how complicated it is to define and understand it. Because Bitcoin is not only a Blockchain, it is money, freedom… It could be described in hundreds of different ways because of its own potential. That’s why my objective today, which is something I’ve actually been wanting to do for a while, is to define what Bitcoin is for me, and why I’m fascinated from the first day I discovered it. In my opinion Bitcoin goes further from a simple Blockchain, because there’s a lot of different elements that combine to make it to be so special.
It’s a new way of money. An asset that has made us reconsider the ways we interact, save and transfer value, and maybe the definition I find more accurate is Miguel Caballero’s quote: “Bitcoin is a symbol of freedom.” I feel like this one involves all the disruptive potential it has.
The first part of the article is going to be a definition and analysis of its operation from a technical view, so I will first introduce some concepts:
- P2P network: A peer to peer network is a network where the participants connect directly. From you to you, without intermediaries.
- Protocol: Computer software that functions as the “language of the network” and allows participants to communicate and understand each other.
- Decentralized: Without a central entity.
- Cryptography: Science that allows you to encrypt information. “Crypto” comes from secret, and “graphy” comes from text. Make a text secret.
- HASH: Cryptographic function that encrypts information and also allows to create a unique alphanumeric sequence and a unique fingerprint for that information.
WHAT IS BITCOIN?
We could define Bitcoin as a protocol used in a peer to peer network composed of distributed nodes (computers) that communicate with each other without the need for a trusted third party. It is the first decentralized form of “electronic cash” that allows to transfer value directly, at low cost, without taking into account borders, discrimination or permissions. It uses cryptography (specifically a HASH algorithm, which is basically a function that encrypts a message creating a kind of fingerprint of it) as a security method to ensure the ownership and veracity of transactions, and doesn’t have the need to have a central control body such as governments or central banks, surely one of the most interesting aspects. Instead, all transactions and balances are kept in a public ledger known as Blockchain or chain of blocks, which is verified and distributed by thousands of computers (nodes) that are responsible for maintaining the network. Transfers are made without any intermediary, and therefore anyone with internet access can transfer value to anyone else in the world without having to ask anyone for permission. Revolutionary.
If we get meticulous, Bitcoin, in capital letter, refers to the distributed network of nodes connected by a P2P network that records transactions in the distributed ledger called the Blockchain. And bitcoin with a lowercase is the unit of value that is used as a means of exchange and is transacted on this network, generating the information stored on the Blockchain.
This “electronic cash” system was proposed in 2009 by a person or group of people known by the pseudonym Satoshi Nakamoto. He disappeared in 2011 and has never been heard from again. A fascinating story, perhaps the icing on the cake, to finish making Bitcoin more attractive than it already is. We can say that Bitcoin is really a sovereign form of money since its creator is unknown and also its success and evolution has arisen thanks to the contribution of hundreds of thousands of people, without the existence of a leader or founder.
WHY DOES IT EXIST?
We have given a very technical definition, which may not have clarified anything about what Bitcoin is. In fact, I am one of those who think that to explain Bitcoin you first have to explain why it was invented.
“The root of the conventional money problem is all the trust it takes to make it work. We must trust the central bank not to devalue the currency, but the history of all fiat currencies is replete with breaches of that trust. We must rely on banks to store our money and transact electronically, but they lend it in waves of credit bubbles with only a fraction in reserves. We must trust them with our privacy, trust that they won’t let identity thieves empty our accounts. Your great generals make costs impossible. “
CYPHERPUNK BLOG, 2009
This is a quote that Satoshi left us when he entered the cypherpunk Blog with the proposal to create a form of money without intermediaries. Bitcoin was born with the purpose of creating a system capable of keeping accounts (who has what) that does not depend on ANYONE. A system in which we do not have to entrust anyone with the power to alter the information or the monetary characteristics of that system, and therefore be able to send value in a decentralized way, without slow and expensive intermediaries and without asking for anyone’s permission.
Thus, Bitcoin offers us an alternative to 2 big problems:
- Inflationary monetary policies: For more than a century, control of the currency has been in the hands of governments, completely monopolized. Something illogical in my opinion that in a free market, the most important element, which is money, is monopolized. We are all against corporate monopolies, but we do not even consider the fact that money itself is completely monopolized. Probably if it were not for Bitcoin, I would still not know or understand what this means, since its existence has made us question such fundamental things as what money really is. Every day, the Central Banks — because it has been decided that way — generate more money supply without the consent of the population, causing what is known as inflation. The reality is that every year each Spaniard is 2% poorer, since the purchasing power of the money they use to store their wealth has been devalued. The Central Bank and the big corporations earn money at the cost of a “legal and obligatory” robbery of all their citizens. And that in Spain, a country that uses the euro, a currency with responsible inflationary policies. When we go to more chaotic scenarios like Venezuela, the loss of purchasing power by the population can be reduced by 2% -5% DAILY. The prevailing monetary theories currently argue that moderate inflation (2%) is good for the economy. Although having this point of view is easy for governments and large companies, since they are directly benefited. I believe that a way to obtain financing by indirectly “stealing” from all the citizens of a region will never be something that I can consider good or legitimate.
- Dependence on commercial banks: For years, technology has allowed money to be found mainly in digital format. Due to the problem of double spending, the idea that I can copy my digital money and pay twice with the same currency, it has been necessary to have a trusted third party responsible for updating the accounts of each one and avoiding this problem. This, despite being the only solution (before Bitcoin and Blockchain) generates a great dependence on banks, giving them incalculable power. They charge very high commissions and at the same time, we give them access to all our financial information abandoning our right to privacy, and also, we don’t know if they are doing their job correctly. We simply trust them. Just because.
Now, how does Bitcoin become an alternative? And why haven’t we had any alternative until today to such an obvious problem?
We will explain how Bitcoin manages to offer its technology to the world, first from a technical perspective, because to trust technology in a world full of skepticism, we need to understand how it works on a fundamental level.
I’ll be in the next post talking about this.
- HASH SHA-256 generator
- Satoshi Nakamoto Whitepaper