By Albert Szmigielski
Quite often I face the question: “What is Bitcoin?” And it comes from people who have not heard about Bitcoin. When I try to come up with a short answer, I usually reply: it is digital, programmable money. However the counterpoint always gets raised: “Digital money already exists, paypal, visa, e-transfers, etc.”. So let’s try to pin down what Bitcoin really is. To that end we started a Bitcoin Basics series, this is part #001.
In short Bitcoin is software, a digital currency, a payment system, a decentralized, permissionless network, and an evolving organism with an immune system.
Software, Digital Currency, Payment System
It is noteworthy that Bitcoin is ever evolving. So the way we will define it today may not be the case six months from now. Having said that, let’s start.
First and foremost, Bitcoin is open-source computer software, we should not forget that. In its original incarnation Bitcoin was a digital currency, a “Peer-to-peer digital cash system”. That still holds today, we can send value to anyone with a Bitcoin wallet. As a result Bitcoin can be thought of as a Payment System. Thanks to the robust ecosystem of miners, Bitcoin as a payment system is extremely secure.
Perhaps the most important feature of Bitcoin is the fact that the entire system is decentralized. There are no trusted authorities verifying , nor keeping track of anything. All transactions are on a peer-to-peer level. No peer is more important than any other. As such, joining the Bitcoin network is as easy as downloading and running the software. There is no need to verify your email address or banking information. In fact the Bitcoin network needs to know absolutely nothing about your personal details. That is the beauty of Bitcoin, it is permissionless. Which means you dont need anyone’s permission to use it.
The decentralized aspect of Bitcoin is not to be underestimated. For the first time it is possible to transact directly with one another without going through any intermediaries. This is a big deal. Just like the internet eliminated the middle man in a variety of industries, Bitcoin has the potential to eliminate middle men in banking and finance in general. Therefore Bitcoin is a revolution in finance.
Network, ‘evolving’ organism
Bitcoin is also a network of computer nodes running the Bitcoin software, and miners securing the blockchain. The amount of computational power on the Bitcoin Network is staggering. In Dec 2015, the network collectively performs 600 quadrillion calculations per second. (that’s 600 followed by 15 zeros). This collective computational power makes the network very secure.
Bitcoin’s popularity invites attacks on it. The network and the community of developers behind it fight these attacks by issuing patches of code to fix the newly discovered vulnerabilities and as a result Bitcoin becomes immune to them. This is how the system becomes stronger and immune to threats. Every time an attack happens observers state that Bitcoin will perish as a result of the attack. Not only does Bitcoin survive each and every single attack thrown at it so far, it becomes stronger and more secure. In a way we can think of Bitcoin as a living organism with an immune system.