Hi there! My name is Bitbit.
The Bitskwela team and I will be helping you out in understanding Bitcoin, the cryptocurrency that started it all, in just 5 minutes.
The world is becoming more and more digital-from communicating to streaming, learning, reading, shopping, and gaming. With this, it's no surprise that finance is also undergoing a digital transformation. And no, I'm not just talking about GCash, PayMaya, or digital banks. I'm talking about cryptocurrencies.
So what is Bitcoin?
Bitcoin is a digital currency created in 2008 during the Global Financial Crisis. The anonymous creator, Satoshi Nakamoto, invented Bitcoin due to the amount of fraud and corruption present in our current financial systems.
Bitcoin has three main properties: peer-to-peer, decentralized, and based on cryptography. Let's break these down.
The Bitcoin network is supported by different computers scattered around the globe. These computers help each other out in keeping the network efficient and secure.
Bitcoin does not have any central server. Unlike the banks we have today, no one person or party can control it. This also means that anyone in the world can participate in the Bitcoin network - regardless of skin color, race, nationality, or gender. Bitcoin is inclusive to all.
Based on cryptography
Bitcoin is backed by cryptography, making it secure, immutable, and tamper-proof. No one can falsify any data for their own benefit.
In simple words, the blockchain is a digital ledger that stores data happening in the Bitcoin network. Here's a quick example to help you visualize better.
Imagine a table of five people who are all with their own notebooks. Let's name them Pedro, Julia, Jerome, Darna, and Ryan. They're strangers to one another, which means there's no trust among them whatsoever.
Pedro wants to send two bitcoin to Darna. For that to happen, all five people must agree that the transaction is valid.
A lottery happens where a random person is chosen to verify the transaction.
For this example, let's imagine that the lottery selected Julia.
Now, Julia has to verify Pedro's transaction to see if it's valid. As soon as she does, Julia must show proof to everyone else at the table that she has completed the verification.
All the other four people must agree with Julia's proof. If they see that Julia had made a mistake, the lottery will re-roll and choose another person for the job.
But if they do agree, all five of them must record Pedro's transaction and Julia's proof on their notebooks. After that, Pedro's two (2) bitcoin are sent and the people at the table then move on to the next transaction.
Bitcoin works just like this. Each user has an identical copy of the blockchain, which is the notebook in our example. In this notebook, all transactions in the network are recorded and constantly compared with everyone else to ensure integrity in the network. This process repeatedly happens every day, keeping the Bitcoin network alive and secure.
Bitcoin has a fixed supply of 21 million. No one party can change, tamper, or adjust Bitcoin's supply since it's encoded into the code. Furthermore, there is no central party to blackmail or persuade, no center to hack, nor any infrastructure to demolish that may alter Bitcoin’s quantity. No other asset or currency has the same level of scarcity as Bitcoin has.
Ideally, money must possess the following seven properties to be truly efficient: durability, portability, divisibility, uniformity, stability, scarcity, and acceptability.
Check the chart below to see how Bitcoin compares to other forms of currencies.