What Is Bitcoin and What Makes It Different?
Episode #2 of the course The basics of Bitcoin by John Saddington
Hello and welcome back to the second lesson of this course! Yesterday, we walked through a very top-level primer of who the creator(s) was and who was responsible, as well as why it matters. Today, we’ll dive in deep and give you a broad sweeping overview of what it is and how we can better understand it.
Let’s go!
Currency, Technology, Software, Network, or Philosophy?
The term “bitcoin” is simultaneously a number of things, as it’s a currency unit (an exact and specific “coin”), but it’s also used to describe the open-source software, as well as a technological framework and network of a new digital monetary ecosystem.
Not ironically, bitcoin can be described as a collection of concepts, principles, and technologies, just as “Satoshi Nakamoto” is often understood as a collection of inventors and inventions.
But for our purposes, we shall more often use the term bitcoin as a unit of currency, which is the easiest way to understand how it’s most widely used in conversation.
Bitcoins, as a unit of currency, are used to store and transmit value between participants in the much larger bitcoin ecosystem and network. They do this by communicating through the internet via many different types of machines, applications, and devices, such as your home computer or mobile phone. A bitcoin could be even encoded as an emoji or as an assortment of images in the background of your holiday card.
Participants will be able to use this unit of currency to buy and sell goods and services, just like you do today, although most countries are just beginning to recognize bitcoin as a currency. For instance, the US, the Netherlands, Canada, South Korea, and a few other countries are progressively open to bitcoin as payment. Also, participants can send money to other participants (individuals and organizations) on the bitcoin network (or off of it), as well as exchange them for other units of value or currency.
To a very real degree, the utility of bitcoin is only limited to one’s own imagination because it’s an entirely virtual form of currency, and to get super technical, it is understood as a “content type,” which means it can be transmitted anywhere on anything in any form!
What Makes This So Different?
Well, do you mean besides the fact that it’s an entirely virtual currency with no physical coins (or paper)? And if we’re to be completely technically accurate, bitcoins are also not even digital coins, per se. The coins are implied in the actual transaction between participants, the sender and the receiver.
As mentioned, there is not a central authority that mints or controls the value of a bitcoin, like a bank or physical monetary exchange. Ultimate control and agency is managed, maintained, and declared via each individual participant, including you. This means that you, philosophically and pragmatically, are your own bank. Bitcoin has no borders (is “borderless”) and does not require anyone’s permission to be used or activated. It is censorship-resistant and impossible to stop. Bitcoins and the transactions between participants are fast, secure, and relatively cheap.
Finally, it is simultaneously anonymous and transparent, meaning that participants can send and receive value without ever having to identify themselves (i.e. share personally revealing information like names or physical addresses) and that every transaction is recorded for everyone to see in a publicly available ledger, called blockchain (we’ll talk about blockchain in more detail in the next lesson).
This is a lot to take in, so we’ll end the lesson here as you think and reflect on these fundamentally different principles and characteristics of bitcoin. Tomorrow, we’ll dip our minds into the concepts of bitcoin mining, which is important because it not only creates new bitcoins but also serves as the basis of validation.
Talk tomorrow!
John
Recommended book
The Ascent of Money: A Financial History of the World by Niall Ferguson
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