Bitcoin
Bitcoin is a decentralized digital currency that enables secure online transactions without the need for a centralized financial institution. Launched in 2009, following a 2008 white paper by an individual or group using the pseudonym Satoshi Nakamoto, Bitcoin operates on a peer-to-peer network where users can send and receive payments directly. Users store their Bitcoin in digital wallets, which contain public and private keys necessary for transactions. The process of confirming transactions is called mining, and all transactions are recorded on a public ledger known as the blockchain.
Over the years, Bitcoin has gained significant popularity, particularly in the 2010s and early 2020s, with major companies and financial institutions beginning to invest in it. Its price has experienced extreme volatility, reaching highs of over $73,000 and drastic lows, which has raised discussions about its viability as a stable currency. While Bitcoin offers advantages like low transaction fees and protection against inflation—due to a capped supply of 21 million coins—it also faces challenges such as limited acceptance, potential loss due to technical issues, and concerns about illegal activities facilitated by its anonymity. Additionally, regulatory responses vary globally, with some countries banning its use altogether.
Bitcoin
Bitcoin is a payment system that involves electronic currency that is exchanged using open-source software. It is part of a category of digital currency called cryptocurrency. The currency is created and stored electronically, typically on computer hard drives and cell phones, and is protected from third parties by cryptography. Bitcoin allows users to make online transactions that are secure and untraceable.
What Is Bitcoin?
A paper concerning electronic currency was published on the internet about 2008. The paper, which was credited to Satoshi Nakamoto, proposed that this electronic currency could be used for online payments that do not involve financial institutions. A payment system called Bitcoin was then launched in early 2009. It is believed that for the next several years, Nakamoto and others developed the payment system, though according to Bitcoin's website Nakamoto left in 2010.
One of the unique features of Bitcoin is that it is decentralized, which means it does not have a central authority. In other words, Bitcoin is not controlled by a bank or any other institution. A traditional bank handles its customers' money. A banking customer must therefore trust the bank with their money. But with Bitcoin, banks are not involved.
Bitcoin's currency is in the form of units called bitcoins. These bitcoins are what change hands during a Bitcoin transaction. A bitcoin can be divided into eight decimal places. The smallest unit is called a satoshi—it was named after Nakamoto. Bitcoins can be used to purchase goods and services from other users or vendors accepting the payment, regardless of the geographic location.
To use Bitcoin, the user must first obtain a Bitcoin wallet, which stores keys that make Bitcoin transactions possible. Different types of wallets are available, including desktop, online, hardware, mobile, and paper wallets. They are typically stored on a computer or cell phone; paper wallets are printed on paper.
Once the user acquires a Bitcoin wallet, a Bitcoin address is created, which is a public key. A Bitcoin wallet also holds a private key that the individual uses to sign transactions. Transactions between users are confirmed within minutes. This process is known as mining. Confirmed transactions are stored in a public ledger called a blockchain.
The popularity of Bitcoin and other cryptocurrencies grew throughout the 2010s and went even more mainstream during the early 2020s as cryptocurrency trading platforms such as Coinbase made it easier for individuals to buy and sell cryptocurrency. By that point a number of major corporations and financial institutions, such as Goldman Sachs, had begun investing in Bitcoin and other cryptocurrencies. In January 2024 the United States Securities and Exchange Commission (SEC) approved the first US-based exchange-traded fund (ETF) tied to the value of Bitcoin, which was considered a key sign of cryptocurrency's increasing acceptance among financial and economic institutions.
According to Crypto.com in 2022, there were 295 million cryptocurrency users at the end of 2021; by the end of 2023 this number had grown to an estimated 516 million individuals with verified accounts containing cryptocurrency assets. Bitcoin was the most popular of these cryptocurrencies and many of these users located in Africa, Asia, and South America.
Prices for a single Bitcoin have ranged from a few dollars to a record high of $73,835.57 in March 2024. The price of Bitcoin had increased dramatically since its inception, although the cryptocurrency has also plummeted in value at multiple points, such as in the last few months of 2022. Although Bitcoin had reached a new high of $68,848.62 in November 2021, its price began falling in subsequent weeks and by the end of 2022 had fallen below $16,000; many observers felt that this highlighted the volatility of cryptocurrency markets at that time. However, the currency's price rebounded in 2023 and 2024; in March of that year, it broke its previous record-high value.
Satoshi Nakamoto
Mystery surrounds Bitcoin's origins, including the credited invention of the payment system by Satoshi Nakamoto, whose identity remains unclear. The name has been presumed to be a pseudonym for one or more people, and various candidates have been proposed. These include software developer Gavin Andresen (who was also involved with Bitcoin under his own name), computer scientist Nick Szabo, programmer Craig Steven Wright, and early Bitcoin user Hal Finney.
In March 2014 journalist Leah McGrath Goodman published an article on Nakamoto in Newsweek that drew much media attention. McGrath Goodman suggested that the inventor of Bitcoin was Dorian Nakamoto, who was born Satoshi Nakamoto in Beppu, Japan, in 1949. He and his family moved to California in 1959, attended California State Polytechnic University, and began a career in engineering before allegedly developing Bitcoin. Prior to the publication of the article, McGrath Goodman had interviewed Nakamoto at his home in Temple City, California, during which he simply stated that he was no longer connected with Bitcoin and that other people were now in charge. McGrath Goodman also interviewed other people to shed more light on Nakamoto. One of these people was Andresen, then Bitcoin's chief scientist. Andresen told McGrath Goodman that he and Nakamoto worked on Bitcoin's development, including its code. However, Andresen never met Nakamoto or even heard his voice; they communicated via e-mail or an online forum called Bitcointalk Forum.
Shortly after Newsweek published the article, Dorian Nakamoto denied any involvement in Bitcoin, claiming he had misunderstood McGrath Goodman's questions. Speculation as to Satoshi Nakamoto's true identity continued into the 2020s.
Advantages and Disadvantages
Bitcoin has numerous advantages over other forms of currency. Using Bitcoin is a highly efficient way to handle financial transactions. Bitcoins can be sent anywhere, and they are generally received within minutes. Compared to banks, Bitcoin charges very small transaction fees; transactions are sometimes even free. Bitcoin does not require the user to disclose secret information, as a credit card user has to do when making a purchase online. Therefore, with Bitcoin, secret information cannot be stolen. A Bitcoin is also owned by the user. They own the public and private keys, and they can never be taken away. With other digital payment systems such as PayPal, the company owns the user's account and has the authority to freeze the assets in the account. A number of platforms, such as Coinbase, emerged by the 2020s to allow users to buy, sell, and manage cryptocurrency assets.
Unlike other currency, Bitcoin is not subject to inflation. Inflation is the increase of the price of goods and services due to currency losing value. Currency loses value when more currency is circulated. For example, if the United States circulated twice as many dollar bills as it previously had, the dollar bill would lose half of its value. Goods and services would therefore need to double in price to keep their value the same as before the increase in circulation. Bitcoin does not work the same way. It was designed to never have more than 21 million bitcoins in circulation, which means that inflation will not occur.
Bitcoin, and more broadly blockchain, are still considered an emerging technology, so there is a degree of uncertainty surrounding its future. While some experts consider it an important development with the potential to revolutionize global finance, others see it as simply acting as another commodity. Analysts have frequently debated the boom-and-bust prospects of Bitcoin, especially as it increased rapidly in value in the late 2010s and early 2020s. The currency's volatility has created notable speculative bubbles and highlighted the risks of cryptocurrency trading.
In addition to these risks, Bitcoin has some other disadvantages. It is not accepted by all businesses, so Bitcoin users are limited as to where they may use bitcoins. If a hard drive crashes, bitcoins can be lost. Additionally, bitcoins can be stolen by someone who gains access to the keys to the code. While currency kept in a bank is insured by the federal government, stolen bitcoins are nearly impossible to track. Some analysts also point to the social disadvantage that Bitcoin and other cryptocurrencies make payment for illegal goods and services much easier, boosting the black market and the potentially abusive practices.
Some governments have sought to suppress Bitcoin trading. China banned the practice beginning in late 2017 and early 2018. Other countries have banned the use of crytocurrencies such as Bitcoin. They include Algeria, Egypt, Columbia, Indonesia, and India. Several major hacks or failures of cryptocurrency exchanges, including in 2018 and 2019, made headlines as hundreds of millions of dollars worth of Bitcoin were stolen or lost.
One of the biggest cryptocurrency scandals of the early 2020s involved FTX, a cryptocurrency exchange and hedge fund founded in 2019 by tech entrepreneur Sam Bankman-Fried. Although the company reached a million users in July 2021 and became the world's third-largest cryptocurrency exchange at that time, FTX collapsed in November 2022. The collapse of FTX cost cryptocurrency investors billions of dollars and led to criminal charges for Bankman-Fried and a number of FTX associates. While investigators were able to recover more than $7 billion of FTX user funds by the end of 2023, the FTX scandal undermined user confidence in cryptocurrency exchanges and led to speculation that distrust of Bitcoin and other cryptocurrencies would grow.
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