Why Does Bitcoin Exist?
Why Does Bitcoin Exist?
Bitcoin is designed to let you store, send, and receive money without any banks or credit card companies.
Until Bitcoin came around, you needed banks, credit cards, or companies like PayPal and Venmo to send and receive money. These companies were necessary to do something only they could do: verify that the person spending money actually has money to spend. Banks can do this because they hold everyone's money, so they know all account balances.
What's wrong with Centralisation?
But what's so great about not using banks and credit card companies? For starters, they are slow, expensive, and part of a broken financial system.
Banks have huge costs for buildings, lawyers, and highly paid executives - all funded by the fees you pay (and massive taxpayer bailouts, like in 2008). Banks also limit how you can access and send your money.
How did it all start?
In 2008, a mysterious person calling himself Satoshi Nakamoto invented Bitcoin. To this day, Satoshi remains anonymous and nobody knows who he or she is.
Satoshi could be a woman, a man, or a group of people. Nobody knows! What we do know is that the bitcoin.org domain was registered in August 2008. Then, in November, Satoshi posted the famous Bitcoin Whitepaper.
The first Bitcoins were issued in January 2009. Embedded in the first Bitcoin code was the message "Chancellor on brink of second bailout for banks." - hinting at Bitcoin's creation because of the 2008 financial crisis.
What's so special about it?
Bitcoin's breakthrough is that it's the first to solve a problem so tough, it has its own name: The Double Spend Problem.
Here is how the Double Spend Problem works: Digital money is just like a computer file, so it would be easy for somebody to just "counterfeit" it by copy and pasting. Before Bitcoin, the solution was for banks to keep track of the money in everybody's accounts, so that nobody could spend money twice.
Bitcoin solves the Double Spend Problem differently. It makes all accounts and transactions public - but without revealing private details like your name. Since account balances are public, it would be obvious if someone used the same money twice.
Once bitcoin is sent, it's publicly added to the receiver's account. So if a scammer tries to spend their Bitcoin twice, it's easily discovered and prevented.
Solving the Double Spend Problem is a big deal. It allows bitcoin to be sent directly from one person to another, without using ANY third party like a bank.
Not needing a third party (like a bank) to handle accounts and transactions has a lot of benefits. Transactions can be faster and cheaper since there is no middleman.
Plus, your personal information becomes more private since no bank has to store it. You're probably beginning to see why Bitcoin is such a game changer.
What are the key Benefits of BTC?
Bitcoin has benefits that make it better than traditional money, banks, and credit card companies. Let's explore what makes Bitcoin so unique.
Benefit 1 - Decentralized
Traditional money is controlled by banks and governments – which makes it a "centralized" currency.
Bitcoin is not controlled or regulated by any single entity like a bank – which makes it a "decentralized" currency.
Having no banks in control makes sending and receiving money cheaper, faster, and easier.
Not having banks involved means nobody can deny your application, nobody can close your account, and nobody can charge you outrageous fees. In short, banks are no longer in charge. This is what makes decentralized money so powerful.
Over 2 billion people worldwide can't even get access to bank accounts! This prevents them from connecting with the rest of the world – they're excluded. To them, a bank is like a fancy club they can't get into.
Bitcoin will give them the benefits of a bank, without needing a bank. Anyone with a smartphone and internet connection is welcome!
Benefit 2 - No Counterfeit Money
Paper currencies, credit cards, and checks can be counterfeit. If you've ever been a victim of fraud, you know how much this sucks.
Bitcoin solves the Double Spend Problem which means criminals cannot create fake bitcoins. Counterfeiting is impossible.
Counterfeit traditional money is very common. In the U.S. alone it is estimated that between $70 and $200 million in counterfeit bills are in circulation. That's up to 1 out of every 4,000 real bills. For Bitcoin, this issue simply doesn't exist. Plus, you won't have to pay those high fees for fraud protection!
Benefit 3 - Limited Supply
Traditional money is created by governments in unlimited quantities. They print more constantly, which decreases the value over time.
Bitcoin's supply is limited to 21 million coins. There can never be more! Why? It's designed to be scarce so that it increases in value over time.
A constantly increasing supply of money creates something called inflation. This means that the money you are holding is worth a little less every day. If you're working hard and trying to save up, that's bad. It's why an ice cream was $0.05 in 1950, but is $5.00 today… traditional money keeps losing value.
Bitcoin's limited supply creates the opposite effect, called deflation. This means the value of each Bitcoin is designed to increase over time. It's part of the reason why so many people are excited about investing in Bitcoin.
Benefit 4 - Divisible
Old fashioned money can be spent only in amounts as small as a single cent (so up to 2 decimal places).
Bitcoin can be spent in much smaller amounts, called Satoshis (all the way up to 8 decimal places). This means that it can be used even for tiny purchases.
Bitcoin is highly divisible because its value is designed to increase over time (through deflation). This divisibility means you can spend very small amounts of a bitcoin. So basically, an ice cream cone may cost 0.001 bitcoin today, but in the future it may cost 0.00000010 bitcoins, if bitcoin's value rises even more.
A practical example where Bitcoin's high divisibility is useful today is for microtransactions. These are very small payments used for digital goods and services. For example, imagine paying only a tiny amount of bitcoin for every page of an ebook you read, instead of paying for the whole book.
Microtransactions are something traditional money can't do, because cents are not divisible enough and therefore too big for very small purchases.
Benefit 5 - Security
There is a lot of money stored in Bitcoin, so it needs to be very secure. Bitcoin uses cryptography to securely send payments.
That's why Bitcoin is called a cryptocurrency. The code is so strong that tampering is virtually impossible. There is A LOT of money held in Bitcoin, but it has never been hacked!
In simple terms, cryptography is a technology that protects information through complex math functions. Bitcoin uses strong cryptography to protect your account and let you securely send money. It's designed so that nobody can hack your account, and it prevents the wrong person from receiving your money.