Defining Bitcoin and Dispelling Common Myths

On Oct. 31, 2008, Bitcoin was introduced to the world through an online paper by a mysterious, unknown entity referred to as Satoshi Nakamoto. Readership was intrigued. Bitcoin officially launched on Jan. 3, 2009 and hit the exchanges in 2010. [Source: U.S. News and World Report Article] Since its introduction, Bitcoin has had many ups and downs, from being worth less than a penny to being valued in five figures. It continues to remain of interest to investors and is surging once again, valued at over $50,000 USD as of early 2021. But, what exactly is Bitcoin? Here is what you need to know. In essence, Bitcoin is a digital asset. Unlike government-issued currencies, like the United States dollar, it is operated by a decentralized authority, not under the purview of any national government. That is one of the major benefits of Bitcoin. As it is not issued by a government, it can be resistant to the effects inflation has on traditional currency. However, unlike traditional currencies that may be backed by gold, silver, or at least centuries of use, Bitcoin’s value stems from the trust that investors have in the blockchain network it is built on, which means its value can plummet and skyrocket more frantically than many other national currencies.

Bitcoin “Mining” and Blockchain

There are no physical bitcoins. It is not printed like ordinary currency, but rather it is created by computers through a process called “mining,” which companies like Core Scientific undertake. The creation of Bitcoin is fairly complex, and a cap has been placed on the amount of Bitcoin “mined,” which stands at 21 million. This makes Bitcoin scarce, just like other natural precious metals like gold and silver, driving up its value. As of January 30, 2021, just over 18 million have been mined. 

Bitcoin is open-source. What that means is that its design is public, nobody owns or controls Bitcoin, and everyone can take part in owning Bitcoin. Bitcoins are not issued or backed by any banks or governments, so their value cannot be as easily assessed as logging into a bank account. Instead, balances are kept on a public ledger that all investors and consumers have transparent access to. In fact, all Bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, which is known as a blockchain. Some companies even specialize in hosting or providing blockchain, such as Core Scientific. The decentralized immutable blockchain where Bitcoin lives is distributed worldwide every 10 minutes.

Righting the Wrongs of Bitcoin Misinformation

While the aforementioned information is a fairly complete summary of Bitcoin for beginners, there is a lot of incorrect data out there about Bitcoin that often sticks in people’s minds. This needs to be addressed. 

Cryptocurrency vs. Digital Assets

For one, many people refer to Bitcoin as “cryptocurrency.” However, this term is a misnomer. The “crypto” in “cryptocurrency” comes from “cryptography,” which is the practice and study of techniques for secure communication. “Currencies” are centralized, government-backed systems of exchange. What are commonly referred to as cryptocurrencies are better described as “digital assets,” and, indeed, recent court rulings have stated as much.

Criminal Activity

Many people assume that there is an abundance of criminal activity taking place on the digital asset networks. However, that’s just not the case. The most widely used asset for criminal activity is cash. Since transactions on the blockchain are trackable, law enforcement would have an easier time identifying criminality rather than trying to trace cash payments.

Impact on the Environment

Some prospective investors are concerned with the effects that the blockchain ecosystem could have on the environment. In fact, many believe that digital assets across a network use more energy than the current legacy system. Truthfully, replacing the current legacy system with a digital system would actually use less energy overall. The continuing innovations in the space will also drive progress in renewable energy, which, by nature, cannot be depleted. With zero input cost, renewables are the best energy sources in the long term.

To learn even more about Bitcoin, including its history and future, check out the history of Bitcoin Insights article.