Last updated on January 19th, 2023 at 10:04 am
Cryptography’s first Global Digital Currency (Bitcoin) and How it Works
Although predictions and speculations over digital currencies span decades before, Bitcoin, launched in 2009, is considered by many investors as the first virtual currency.
In 2002, the Organization for Economic Co-operation and Development (OECD) published a series of papers presented at a Forum for the Future meeting observed in Luxembourg. They envisioned the concept of digital money in a book titled “The Future of Money.”
The foreword of the book begins: “Looking to the next few decades, technological advancement combined with fairly dramatic and social changes could create conditions for the emergence of new, virtual forms of money and credit.”
A programmer (or group of programmers) would come under the pseudonym “Satoshi Nakamoto” only 7 years afterward and create a virtual form of money, the one known as Bitcoin. Bitcoin is considered the mother of all electronic coins and rightly so because it is the first known success of its kind and holds about 45% of all the cryptocurrencies in the world
Related: What is cryptocurrency?
What is Bitcoin?
In a 2008 whitepaper for digital currency, Satoshi Nakamoto explains the concept of Bitcoin as a purely peer-to-peer version of electronic cash that allows virtual payment to be sent directly from one party to another without the use of a financial institution.
The whitepaper also reveals: “The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”
And because Bitcoin operates on the cryptographic Blockchain Technology, it is decentralized and safe from any third parties. No intermediaries (governments, financial institutions, or any central regulatory authorities) stand between users when they trade or exchange using this form of money.
Bitcoin appears to be the best version of money in the financial narration of mankind thus far because: Unlike traditional money, it is decentralized. You can buy, sell, and store wealth without involving any central authorities.
- It is more secure than fiat currencies. Since they’re shielded from third parties through encryption and decryption technology (cryptography), you can be sure your data is safe and private.
- Bitcoin transactions are accounted for through Distributed Ledger Technology, ensuring diligent computation and perfect account records spread across the networks involved.
- It checks on the powers of the sometimes-creepy central authorities and saves individuals from high bank charges.
- It is an easy and seamless way of transferring money to anyone, anywhere in the world.
- The electronic coin is a store of value just like gold—it appreciates over time (and depreciates as well sometimes).
- As an internet-based currency, it favors today’s tech-driven society.
Why is Bitcoin Valuable?
As mentioned in this article, humanity, over time, has chosen what item, object, or concept to confer value on. The most basic way to start a discourse on why Bitcoin is valuable is a simple truth: humans are now saying it is.
Over the past 5000 years or so, money has evolved off the shoulder of the barter trade system. Animal hide and other similar features, gold, silver, metal, cowries, seashells, coins (of diverse make-up), paper currencies, etc., have all served as representations of value at different times.
People are willing to give out or receive Bitcoins for tangible and intangible products and services—even in exchange for fiat currencies. Primarily, they’re valuable because we have said they are.
Other reasons why Bitcoin is valuable to include:
- Scarcity: Bitcoin has been programmed to never exceed 21 million coins in circulation. It is known that value follows scarcity or limited supply.
- Difficulty to harvest: Reaping a Bitcoin takes a tedious, power-consuming, and financially demanding process that makes it valuable.
- Durability: Like every other known store of value, Bitcoin lasts (and outlasts others). If stored without one granting others access, willingly or unwillingly, Bitcoin lasts for as long as the system lasts.
- Originality: Bitcoin cannot be counterfeited or copied. The blockchain protects it from hackers or intruders.
Now you know the key reasons why Bitcoin is valuable. But we must fall back on our first mention to truly establish why a form of money would be of any good to anyone. Bryan Routledge, associate Professor of Finance at the Tepper School of Business, Carnegie Mellon University, can’t agree more.
He said: “Bitcoin has value because people think it does. And if that sounds kind of unstable and goofy, it’s because it is.”