Bitcoin was created by an anonymous person using the pseudonym Satoshi Nakamoto. In October 2008, this anonymous person published a paper and spread it through a crypto community.
In 2009, Nakamoto completed the code for the Bitcoin software and invited people from the open source community to contribute.
On January 3, 2009, he mined the first block himself. According to public records of Nakamoto’s Bitcoin address, Nakamoto owns $19 billion in Bitcoin. That means he is the 44th richest person in the world.
But no one knows who Satoshi Nakamoto is. Numerous journalists’ investigations continued, and there were speculations that he might be a student or a celebrity, but nothing has been confirmed so far. As funny as it may sound, some argue that Satoshi Nakamoto is also someone who has crossed a time machine from the future.
One incontrovertible thing here is that Satoshi Nakamoto invented Bitcoin and revolutionized the concept of money, thereby solving the problems encountered with traditional money.
B. Problems with traditional currency
Anyone knows how to get cash at an ATM and buy chewing gum at the supermarket. But how many people know why this deal is valid? Why is it that we all value coins made of this metal and pieces made of paper?
Traditionally, money must be a commodity with a physical form. The gold standard system using gold is a typical example. In 1900, gold was worth $20.67 an ounce. That is, the US government paid $20.67 for an ounce of gold. In addition, US dollar holders were able to exchange gold equivalent to their own dollars with the government.
In the United States, the system was abolished in 1971, the year the US dollar was designated as the fiat currency. Fiat money is money that has no intrinsic value. In recent decades, all major currencies in the world have been converted to fiat money systems.
In this case, the value of money is determined by supply and demand, and is maintained by people’s trust in the economy. In this way, the government can promote economic stability by controlling economic aspects. Here, economic aspects refer to credit supply, liquidity, interest rates, etc. Also, hyperinflation may occur if the government prints more money than necessary with this fiat money system.
Another problem with fiat money is that it requires a lot of regulation because the system is centralized. In other words, all transactions must be executed by a financial institution such as a credit card company or a bank in order to be reliably executed. For this reason, anyone pays a fee when using an ATM other than the main bank or when transferring money to a friend’s account.
C. Bitcoin can solve the problem of centralized money
Bitcoin aims to solve the problems caused by fiat money.
With Bitcoin, you can transfer funds in seconds, with minimal transfer fees.
In essence, Bitcoin is a decentralized, decentralized cash register where all financial transactions are recorded. This cash disbursement is implemented through a technology called blockchain . Each block in the blockchain represents a series of transactions, and when enough transactions occur, the block is complete and no further changes are made.
By using the public ledger, Bitcoin seeks to solve a number of problems:
- Decentralization: The most important characteristic of Bitcoin is decentralization, that is, the currency is not controlled by any particular authority or person. The code for this software is open source and maintained by voluntary contributors. The system is run by an open network of computers spread all over the world. Anyone who wants to participate can comment and contribute.
- Anonymity : Unlike traditional financial systems, Bitcoin software cannot pinpoint information about specific participants. The participant’s identity is indicated by their Bitcoin address. A participant’s ability to execute financial transactions depends solely on whether they have sufficient funds in their account.
- Immutability: The Bitcoin network and the underlying blockchain are immutable . This means that once a transaction is made, it cannot be reversed. This means that when money is decided to be sent to a person, that person is sure to receive the money. One might think that this method is problematic for e-commerce. In e-commerce, buyers need to be protected. However, since you can create an escrow account with Bitcoin, this immutability does not appear to be a big problem.
- Limited supply : Traditional fiat money has an unlimited supply because reserve banks can print as much money as they want. The value of money is determined only by demand and the benefits people see in Bitcoin.
Now, let’s take a closer look at the technology underlying how Bitcoin works. To this end, we will examine the problems associated with building a decentralized currency system and how Bitcoin solves them.