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Bitcoin: The basics

Getting to grips with bitcoin

a pile of coins

In October 2008, a mysterious whitepaper touting a potentially revolutionary monetary concept made its way to a cryptography mailing list. In a tidy nine pages, Satoshi Nakamoto, a pseudonym for an individual or group of individuals, introduced the world’s first decentralised peer-to-peer money system. The paper claimed that participants in this fully open system, available to anyone with an internet connection, would be able to exchange value globally at any time without the need for a trusted intermediary.

In January 2009, the first version of bitcoin software formally marked the creation of the bitcoin network, referenced in this article with an uppercase “B.” The network was the first application of blockchain technology, a fully transparent, shared, and continually reconciled distributed ledger that records transactions and tracks assets. The network’s launch also marked the creation of bitcoin. Referenced in this article with a lowercase “b,” bitcoin is a digital currency that’s divisible, fungible, and easily transferable with a programmatically defined monetary policy that ensures its scarcity.

Bitcoin’s launch coincided with the peak of the Global Financial Crisis (GFC) when many individuals lost trust in the large banks that held their money and the governments that set monetary policy. Bitcoin represented a new form of “hard money" that could not be adjusted or controlled by any centralised entity.

In the years that followed the GFC, bitcoin steadily gained credibility, but it largely remained a niche asset, prone to volatility and scepticism. Then the COVID-19 pandemic, and the federal stimulus it required, thrust bitcoin’s most prominent features back into the spotlight. Eager investors seized the opportunity to participate in bitcoin and the cryptocurrency community more broadly. While its large price swings and detractors remain, bitcoin is more mainstream than ever and solidifying its foothold.

Today, there are 18.97 million bitcoins in existence, with a total market cap of $827bn. Roughly 280,000 bitcoin transactions are conducted on-chain daily, representing approximately $5.41bn in volume on average.1

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As a currency, bitcoin is a finite supply asset in a network of users who agree on its value as a form of money that cannot be controlled or altered by a singular entity. Unlike traditional government-backed fiat currencies, bitcoin has no physical bills or coins.

The bitcoin network allows for the transfer of bitcoins on a peer-to-peer basis without an intermediary like a financial institution. The network utilises fully transparent blockchain technology to facilitate the recording of transactions and the tracking of bitcoins.

The bitcoin network is a financial ecosystem where participants don’t need to trust a government to back the currency or to manage the money supply responsibly. It provides a mechanism for financial inclusion for unbanked and underbanked populations, particularly in countries struggling with political instability, corruption, or severe inflation.

Still in its infancy, bitcoin, like other digital assets, operates in an uncertain, patchwork regulatory environment that varies by country and jurisdictions within countries. With varied regulations, classifications, and tax treatments around the world, assessing the regulatory landscape for bitcoin is difficult.

The European Commission has proposed comprehensive crypto-asset regulation, called Markets in Crypto-assets (MiCA), aiming to harmonize crypto-asset regulation across the member states of the EU by 2024. In time, we expect more defined regulatory frameworks to develop across the globe.

Bitcoin’s formative years coincided with two historic economic crises which highlighted two of the biggest issues with the traditional financial ecosystem: mistrust and inaccessibility. Bitcoin’s main tenets solve these issues.  

Thirteen years later, Nakamoto’s identity remains unknown, but bitcoin continues to gain legitimacy as it becomes more familiar. After all, the potential to own a verifiably scarce asset with an increasing network of global users will typically find an audience with investors.

Learn more about bitcoin here.

Footnotes

  1. Blockchain.com, as of 1 March

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