The most well-known characteristic of Bitcoin is its price volatility. Bitcoin has experienced a number of rapid declines and rises in its price. In mid-December 2017, Bitcoin hit an all-time high of $850. But a few days later,…
Bitcoin price rising trends that seemed like they would never stop have recently come to a halt. It means that market uncertainty has increased, but those who have not been able to invest in Bitcoin because of the soaring price are also seeing this period as a buying opportunity. Most people that are close to me always tell me that, “I don’t know what it is, but I’m going to buy a little because there’s a lot going on around me.”
For those who do not know Bitcoin at all but want to buy it for now, and those who do not intend to invest but want to know what the concept is, we have compiled some frequently asked questions about Bitcoin and the answers to them.
Q1. Who, why, and when was Bitcoin created?
▶Bitcoin was developed in 2008 by an anonymous developer with the pseudonym ‘Satoshi Nakamoto’. Bitcoin was first issued in January 2009, and Bitcoin Core, the official software related to Bitcoin, was released in February.
“The problem with the root of a conventional currency is all the trust it needs to make it work,” Nakamoto said at the time of Bitcoin’s unveiling. “He claimed he has got a critical view of the existing finance system.
The fact that the time when Bitcoin first appeared coincided with the global financial crisis triggered by the subprime mortgage crisis in 2007 suggests that distrust in the existing financial system may have affected the development of Bitcoin. After all, Bitcoin was developed to enable ‘person-to-person payment transactions’ without a central authority such as the government or intermediaries that have supported finance in the past such as financial institutions.
It is still unknown who the developer is. He left the Bitcoin project at the end of 2010 and is estimated to still hold up to 1.1 million bitcoins. This is equivalent to tens of trillions of won in present value, and if Nakamoto was an individual, he would be the person who owns the most bitcoins in the world. However, it is said that he is not selling at all, as no bitcoins ever left his wallet.
Q2. Bitcoin, what do you see and invest in?
▶ All virtual currencies (cryptocurrencies), including Bitcoin, have virtually no reliable investment judgment measure. Therefore, most of them decide whether or not to invest based on a number of conditions such as companies developed based on the ‘white paper’ and related investors. In the coin market, a white paper means a kind of business plan. In addition to technical explanations, blueprints such as coin usage and development plans are included.
Bitcoin was first known to the world through a simple 9-page paper, which was published on the Internet in an English paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. Since then, it has served as a catalyst for many people to become interested in Bitcoin. Since Bitcoin has nothing to be called a white paper, this paper is practically a white paper.
Is it because the word ‘thesis’ sounds too difficult? Few people around who actually bought bitcoin had read this paper. So, when I checked it out myself, the only part that the general public could read was only the introduction and conclusion, which were one page long. This is because the rest of the content is a part that explains how Bitcoin technically works, and in fact, it is close to a basic explanation of the ‘blockchain’ technology.
The gist of this paper is clear enough to be summed up in just one line. According to the paper, Bitcoin is ‘an electronic money system that allows two parties to directly transact based on cryptographic proof instead of trust without a trusted third party such as a government or financial company’.
To put it bluntly, Bitcoin has no intrinsic value. The same is true for fiat currencies such as dollars and won, which have no intrinsic value, but trust in the state or government maintains the value of fiat currencies.
Anyone who has invested in Bitcoin thinking that it is really worthwhile would have noticed this characteristic. Bitcoin is the first electronic currency that has long been recognized for its value through the beliefs of its participants without a reliable government guarantee.
Q3. So, is Bitcoin a currency?
▶It is clear that the creator, Nakamoto, wanted to create a ‘currency’. And he defined this electronic money as a ‘chain of digital signatures’. This is what we call ‘blockchain’. In the paper, in particular, Nakamoto emphasized the use of payment in ‘Internet-based commerce’. Simply put, Nakamoto dreamed of a world where he could easily pay with bitcoins without having to intervene with a bank or credit card company when shopping online.
However, the prevailing opinion is that it is difficult to see Bitcoin as a ‘money’ at this point in time when even financial companies and technology companies have begun to show great interest in Bitcoin. Although it was developed for the purpose of ‘electronic money’, it is actually evaluated as a virtual asset as an ‘investment product’.
A monthly report published last month by Citibank to send out to key global customers assessed Bitcoin as having trouble functioning as a store of value or currency, based on price volatility in recent months. “Bitcoin is an alternative investment product at this point,” said Navid Sultan, Chairman of Citi’s Institutional Customers Group. Other major financial institutions are making similar diagnoses.
Q4. How does Bitcoin work?
▶Bitcoin is the first cryptocurrency to which blockchain technology is applied. In fact, the working principle of Bitcoin can be seen as a general application of blockchain technology itself.
Blockchain technology continuously records distributed public ledgers without a central system, leaving transaction records that are virtually impossible to forge or falsify. To put it simply, all blocks (ledgers) record and share information about a single transaction, making it impossible to forge or falsify unless all the books in the world are manipulated. Those who participate in this network are incentivized, and eventually trust can be established without having to control the system.
