Bitcoin: What It is and How It Works

The story of digital payments begins with an international man of mystery: A heretofore unknown computer programmer, referred to only as Satoshi Nakamoto — the Japanese equivalent of John Smith1 — devised a unique methodology for digital payments. The year was 2008. In the wake of the subprime mortgage bubble, the pillars of the global financial system stood askew, threatening collapse. Consumer trust in government, banks and fiat currency – that is, those little bits of paper emblazoned with engraved portraits of presidents, statesmen and monarchs issued by central banks – evaporated. The notion of a secure, transparent means of exchange resonated and quickly gained traction on Wall Street as well as on Main Street. This was the state of a world ready for something new — ready for Bitcoin. In those days, bitcoin actually had no monetary value. It wasn’t worth anything. It was just an idea to see if the concept would work. Well, not to ruin your day, but sure that was a great time to get in… Because today, the value of a single bitcoin is several thousand dollars. But take heart, because even with bitcoin’s rise to date, there is still plenty of money to be made. The worldwide cache of these digital golden nuggets is worth some $50 billion, or roughly half of the total market value of all cryptocurrencies. Bitcoin is the 400-pound gorilla that can’t be ignored, so we might as well use it as the starting point for understanding this new frontier. Let’s be clear, though, this is a frontier that could put the power of currency into the hands of investors – sorry, “the people” – instead of governments. It’s an idea whose time has come. Worldwide global conflict and a decline in longstanding institutions, particularly of the financial type, has created the perfect conditions for digital currency to begin to enter the mainstream. Some houses on the market are even being priced in bitcoin right now. That’s the good side. The trouble with any currency is that the dark side of human nature tends to take over and mess up a perfectly good thing: Bitcoin is also what hackers have started demanding from corporations as payoffs not to torpedo their computer systems. What’s more, any time any item of value is created, society eventually must deal with theft and counterfeiting and other potential means of defrauding someone of their property. One rather elegant solution, then, is to reward transparency and honesty. This is what bitcoin is built on. It takes the weakness of stealable and fakable old greenbacks and turns them into a strength. If there is no reward for dishonesty, most people won’t be dishonest. read more download pdf

Leave a Reply

Your email address will not be published. Required fields are marked *