Bitcoin 101 Series: 5 Attributes of Bitcoin Everyone Should Know

From geeky experiment to promising financial instrument, Bitcoin has become a major player in the world of finance. But how was Bitcoin created and how does Bitcoin work? And seriously, what the heck is it?

Attribute 1: Bitcoin is Software

Article 1 of 5 Dec 7, 2020 10 min read

Just to be clear, Bitcoin is not a physical coin. Bitcoin is code — it's software. But don’t worry, you don’t need to be a web developer to understand, use, or invest in Bitcoin.

Before getting to what Bitcoin is, it’s important to understand where it came from.

How Bitcoin Started

Bitcoin was created anonymously by Satoshi Yakamoto. Satoshi’s identity remains unknown to this day.

Satoshi shared the idea of Bitcoin by publishing a white paper on October 31, 2008. In Satoshi’s view, the inefficiencies of the modern system of digital money transfer has flaws. These flaws lead to fraud, higher transaction costs, double spending, and a lack of privacy. The white paper describes how Bitcoin solves these problems.

white paper: unmasked

A white paper is a report or essay that educates readers on a topic by presenting a problem and a solution. Satoshi's Bitcoin white paper described problems digital financial transactions, and how the design of Bitcoin could solve these issues.

You may be thinking, “I’m able to transfer money just fine. I love my credit cards and reward points, and Venmo is the best thing since sliced bread.”

No argument there. But let's not be so shortsided to not be able to consider what could be. The adoption of new technology takes time. As the technology improves, it becomes more usable. As it becomes more usable, it becomes more useful, more influencial, and more adopted.

Consider the internet — the most disruptive technology of the last 30 years. To have perspective on where Bitcoin and other cryptocurrencies are today in terms of usability, let's go back to the early 1990's. The internet had been around for over a decade. Many businesses had intranets (internal networks), but the public internet of dot coms was a nascent technology ripe with opinions and websites that weren't incredibly useful.

Behind the scenes, new internet companies and dreamers such as Jeff Bezos, Bill Gates, and Michael Dell, were innovating. Computing technology improved and the digital age began to take shape as desktop computers appeared in homes across America. Personal computers were the points of access to the internet. Throughout the internet's growth in the 90's, however, many considered the internet a fad that would eventually die.

internet skeptics: unmasked

The day was February 26, 1995. Five years before stock valuations of internet companies rose thousands of percent to temporarily peak in the dot com boom and bust of 2000/2001, a piece was published for Newsweek by a computer wiz and originally titled "The Internet? Bah!" The author, Clifford Stoll, accurately described the internet as a place rife with misinformation and noise. But what he and other skeptics missed were the positive attributes of the technology, the possibilities that optimistic dreamers turned into Google, Microsoft, and Amazon. Just months after his comments, the internet rapidly transformed into a disruptive technology that would transform society.

In the age of VHS players and walking the aisles of Blockbuster and Hollywood Video, who was thinking how great it would be if they could stream movies on their computer? Innovative tech companies of the 90's were ridiculed by mainstream media. Bitcoin is 12 years old this year. When the internet was 12 years old, it was 1995 and Amazon had just launched an online bookstore.

These are early days.

"It paid off to bet against the internet," said no one, ever.

Satoshi’s original vision for Bitcoin was for it to be used as money. Satoshi viewed Bitcoin as a preferable alternative to the money we know today. The usefulness of Bitcoin is still being defined, and will likely continue to evolve over time.

Without getting into the technical nitty-gritty, Bitcoin provides a way to digitally transfer money between two parties without a middleman (e.g. a bank, credit card company, or Paypal). To complete the transfer, each party simply needs an internet connection and a digital wallet to store, send, and receive Bitcoin.

If you’re brave — and I think you are — let’s dive one level deeper.

How Bitcoin Works

Similar to how the internet exists, thanks to an enormous network of connected computers hosting files that we access through browsers like Safari, there are a lot of computers involved with Bitcoin, too. Any individual around the world can connect their computer to the Bitcoin network. When they do, their computer contributes to running the network. The more computers that are involved, the more trustworthy the network is.

Bitcoin only exists today, 12 years after inception, because a lot of individuals and companies around the world are participating in running the Bitcoin network. The participants are called miners, and the network is called a blockchain. Stay tuned for more on the importance of the Bitcoin network being decentralized, what gives Bitcoin value, and why publicly traded companies, Ivy League Universities, and well-respected investors are buying millions of dollars of Bitcoin.

In 2009, Bitcoin came to life and the first Bitcoin was created (a.k.a. mined) on the Bitcoin network by Satoshi Yakamoto and some developers who participated in the Bitcoin experiment.

Bitcoin Today

By most, Bitcoin is not viewed as a global replacement for money in the way that Satoshi Yakamoto may have originally envisioned it. Instead, Bitcoin is beginning to be recognized as an investable store of value.

store of value: unmasked

When bananas cost 10% of your monthly income, there's a problem. Hyperinflation of Venezuela's currency started in 2016 and has caused prices of goods to be so high that the country's currency has become almost worthless. An extreme example, but an example nonetheless as to how a national currency can lose value. Goverments of developed nations have been printing trillions of dollars to stimulate the economy since the housing crash of 2008. When a currency's supply increases, it's value relative to other national currencies typically descreases. If the dollar cannot be trusted as a reliable store of value that won't depreciate, other options are real estate, gold, and precious metals. Enter Bitcoin, which has a fixed supply of 21 million coins that will ever exist, and you have a new, trending, trustworthy store of value. J.P. Morgan has been highly critical of Bitcoin, but has now turned positive.

The only reason to invest your hard-earned cash in anything is to build wealth. If it’s under your mattress, it’s not growing. Today, putting cash in your bank’s savings account is no better than that cash sitting under your mattress — although a bank might be the safer alternative. With the interest rate of savings accounts averaging 0.01%, and annual inflation rising 1.2% — increasing your cost of living — your cash is losing value if it’s sitting in a bank. Over the short term, that may not be a problem. But over the long term, you’re losing real purchasing power.

If you're not already, you need to be invested in Bitcoin. Even if it's just a few hundred dollars. Millions of dollars of "smart money" is flowing into Bitcoin every day. 2021 may be an incredible year for Bitcoin.

Ready to buy Bitcoin?

There are many great apps. Coinbase and BlockFi are two of the best apps to buy Bitcoin with. BlockFi is great because you can earn 6% APY (Annual Percentage Yield) on the Bitcoin in your account, plus if you signup using this link you'll get a free Bitcoin bonus. So not only do you benefit as Bitcoin’s price increases over time, but you also can benefit from compound interest. Very cool! Coinbase was the first mobile app to make it really easy to buy Bitcoin. Both Coinbase and Blockfi, among other platforms, are great options for the new crypto investors wanting to buy Bitcoin for the first time.

Already invested in crypto?

Earn interest on your investments. Find the best crypto interest savings accounts for your coins.

Did you know?

May 22, 2010 is known as Bitcoin Pizza Day. A Florida man by the name of Laszlo Hanyecz paid 10,000 Bitcoins for 2 Papa John’s pizzas. He sent his Bitcoins to a guy in the United Kingdom who placed the order for him. Back then, 10,000 Bitcoins were worth $41. Nine months later, 1 Bitcoin was worth $1, making the two pizzas worth $10,000. With bitcoin around $20,000/coin today, 10,000 bitcoins would be worth $200 million!!! Most expensive pizza ever. Despite what seems like a heartbreaking loss, Laszlo didn’t seem to regret his purchase when he said, "It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool."

Go deeper.

Read the original Bitcoin white paper written by Satashi Yakamoto.

Read the Newsweek Article by former internet skeptic Clifford Stoll

Read what J.P. Morgan thinks about Bitcoin as a store of value.

This is a map showing the locations of Bitcoin miners around the world.