What is bitcoin?
Onramp Fundamentals Series – Chapter IV
Bitcoin is many things.
First off, bitcoin is a peer-to-peer electronic cash system.
This is the definition its inventor(s), Satoshi Nakamoto, assigned to it in the Bitcoin Whitepaper released on October 31, 2008.
Bitcoin is an invention.
Among other things, it solved the double-spend problem which plagued bitcoin’s e-cash predecessors. The double-spend problem is the problem of ensuring that no bitcoin can be duplicated and spent more than once at the same time. By solving this problem, bitcoin invented digital scarcity. For the first time, there was a digital good that could not be infinitely copied.
Bitcoin is a ledger.
Who controls the ledger? A decentralized set of computers, called nodes, all independently store a copy of the ledger – the full history of transactions on the Bitcoin network, and thus the ownership of each bitcoin.
Whenever a user of the bitcoin network wants to update the ledger (make a new transaction), all the nodes communicate with each other and reach consensus that the proposed transaction adheres to the bitcoin network’s rules – the bitcoin has not been double-spent – and thus is valid. Once consensus is reached, the ledger is updated for the new transaction, and each node stores a new copy of the updated, longer, ledger.
Bitcoin is money.
In What is money? we described why ledgers are the foundation of money.1
Since bitcoin is a ledger, it follows that it can be used as money. Indeed, as per the Whitepaper, its original intended use was as e-cash.
The first bitcoin block was mined on January 3, 2009 in the throws in the Global Financial Crisis, and was inscribed by Satoshi with the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” – Satoshi, 2009
These messages, along with its fixed supply of 21 million, lets us infer that bitcoin was also intended as a check on government money printing, and a hard money open-source alternative to the fiat monetary system.
Bitcoin is the portability of digital fiat combined with the scarcity of gold.
Bitcoin is digitally-native money technologically and socially suited for the 21st century digitally-enabled global economy.
With every bitcoin divisible into 100 million sub-units, called satoshis, or sats, bitcoin is divisible into two-quadrillion-one-hundred-trillion units of value. At an exchange rate of $100,000/BTC, each sat is worth a tenth of a penny.
Being natively digital, bitcoin is perfectly portable, able to travel across space at the speed of information.
With near perfect 100% uptime 24/7/365 since its inception, perfect 100% uptime since 2013, and no successful or even known attempted network attacks, bitcoin has thus far proven durable. Even Fedwire has failed to achieve 100% uptime over this time period, and does not attempt to run 24/7/365 as bitcoin does.2
With satoshis technically being distinguishable from one another, bitcoin does not possess perfect fungibility. Although one could argue that satoshis are as fungible as $1 dollar bills with different serial numbers.
With a decentralized ledger maintained by consensus and run on open-source software accessible to all, bitcoin is perfectly verifiable.
And with a fixed supply of 21 million, bitcoin is not only perfectly scarce, but is the scarcest commodity ever known to mankind.
But how do we know for sure there will only ever be 21 million?
1 Lyn Alden, Broken Money, 1
2 Lyn Alden, Broken Money, 417