Bitcoin features

“I think that the internet is going to be one of the major forces for reducing the role of government the one thing that’s missing but that will soon be developed is a reliable e-cash a method whereby on the internet you can transfer funds from A to B without A knowing B or B knowing A” Milton Friedman 1999.

The crypto currencies came in the wake of the frustration and dissatisfaction felt by the world after terrible monetary policies from central banks like the Federal Reserve, commercial banks and hedge funds that led to the worst economic disaster since the Great Depression of 1929; 2008 financial crisis. It just had to be another way a way where people had a complete control over their own money.

Opinions are divided about Bitcoin as ones see it just the next evolution of another payment system and others describe it as a massive multi player online game where speculators are trying to out speculate each other. However, Bitcoin was invented by Satoshi Nakamoto seemingly no one knows who he or she or they are. Satoshi started working on Bitcoin he said in 2007 he was trying to solve a problem of how create a money where there’s no single person or organization of government in charge he started posting to a cryptography mailing list where he described how it would work and started to get a feedback from people on his idea.

At the beginning of 2009 he released an academic paper that described the system in detail he started up the Bitcoin. In January 2009 he actually launched the first block which was nicknamed GENESIS which released the code for the system and started it running.

The key problem that Satoshi solved that made the whole system successfully work was a solution to what’s called the double spending problem so if I have this digital asset that I want give to somebody else how do you prevent me from giving it to two different people at the same time because if it’s digital it’s easy to copy and Satoshi came up with a brilliant system for, if you try to do that ‘double spend” everybody notices and then one or the other of those transactions is considered valid and the other ones just ignored.

First of all, to fully appreciate the characteristics that might make Bitcoin a potentially world changing technology we first need to understand what money is:

Money, in some form, has been a decisive factor in human history for at least the last 3,000 years. Back to history, it is assumed that a system of bartering was obviously used. Bartering is an age-old method that was adopted by people to trade their goods and services: You trade what you have with someone else who has what you want and wants what you have. I'll give you 100 grains of wheat if you help me in deer hunting but agreements like this take time.

Then governments started creating representative currencies where you deposit your gold and silver, or they have gold and silver in the treasury, and they come out with notes that are basically a claim check on the gold, so they’re supposed to be as good as gold because you can always convert them into gold.

Throughout history precious metals were chosen as money not through government decree but because of their unique features gold is rare easily recognizable portable durable and divisible above all because gold is difficult to find and labor-intensive to mine refine and mint it has always been perceived as a store of value.

In 1860 western Union began transferring funds via telegram which gave rise to electronic funds. While western union’s introduction of e-money was successful one, oil companies and departmental stores offered regular customers their proprietary cards which were accepted by the business that issued the card and by a limited number of other stores.

As the world war two was coming to an end in 1944 the allied nations met at the small town of Bretton Woods New Hampshir here they drafted a new financial system which would stabilize the world’s financial system once the war ended with the US poised to enter a golden age of prosperity the US dollar was chosen to be the world’s reserve currency rather than using gold as the mean of exchange between countries as was the case under the old code standard, Under this new system the countries of the world would tie their currencies at a fixed rate to the US dollar and because most of the world’s gold was held in US vaults the US dollar would be backed by gold at a fixed price of 35 dollars per ounce this created a system where the currencies of the world were effectively backed by gold through the US dollar.

In August 1971 President Richard Nixon called for an emergency press conference where he announced foreign countries would no longer be able to convert their US dollar holdings into gold this surprise move would come to be known as the Nixon shock with this announcement President Nixon effectively created our current monetary system a system where no currency is backed by gold or anything of value except government promises this is what is known as a fiat currency.

BitCoin Characteristics:

No trusted entity interference:

Bitcoin had a fully distributed architecture, without the presence of any any single credible party i.e banks, PayPal, banks or the governmental jurisdiction to decides if you allowed to make that transaction or not. Bitcoin is a form of currency that is built on a global digital distributed ledger called a blockchain that it is a decentralized peer to peer system in this system millions of computers agree on a global record of the history of all transactions that have ever taken place in the system.

This global record is called ledger when you transfer some money or a service on the blockchain everyone in the system knows about it. It’s like transferring a transactions entry into a very long notepad of all transactions and the notepad can be seen by everyone because there are millions of computers keeping track of all the transactions this makes it impossible to cheat and create multiple fraudulent bitcoins.

Incentives and economic system:

BitCoin’s eco system brilliantly designed by Satoshi so there’re no need to pay anybody to be sure that all transactions are valid as long as the system itself pays those people who’re in charge of processing transactions and making sure that there are no double spins is tied in to the creation of new bitcoins.

These people are known as “BitCoin miners”, they use their computers to solve mathematical problems of how transaction should be put together each time a problem is solved is called a block and each block holds ten minutes worth of transactions and is put in the chain when it’s completed hence the name blockchain.

These miners got rewarded new Bitcoins for their work of avoiding cheat, certifying transactions and making sure that double spins don’t happen so that’s the way new Bitcoins come into existence this is all modeled on how gold is mined out of the ground.

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