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The What and Why About Bitcoin and Cryptocurrencies

As I hear about billions of dollars being made and lost in crypto space, it brings back memories from the Internet Bubble of the late 1990’s. Back then I got my first corporate job at a conservative Pittsburgh-based insurance payer to replace an experienced computer programmer who was about to leave the company to pursue a job at a hot Internet start-up. Unfortunately for him and millions of others, that start-up shop was a complete flop. Eventually, he recovered and came back to corporate as a full-timer after many years of doing contracting work.

I think it is human nature to admire the risk-takers that win big while ignoring the many others that end up as casualties. During an interview with Wired Magazine in August 1996, then 86-year old Peter Drucker said “Will you people at Wired please accept the fact that the computer industry, as an industry, hasn’t made a dime? […] Every year since then the industry as a whole did not make a dime. Intel and Microsoft make money, but look at all the people who are losing money all the world over. It is doubtful that the industry has yet broken even.”

I believe we can draw a close parallel to the ongoing cryptocurrency speculation and the multitude of initial coin offering (ICOs) we have seen recently. Out of all these collective madness, we place the spotlight on the winners, the leaders, the experts who have made billions as if they have been appointed by divine providence, while we collectively ignore all the people who have lost billions chasing crypto mirages.

What is Bitcoin and cryptocurrency after all?

Bitcoin is considered the first and the most widely used cryptocurrency. A cryptocurrency is a completely digital, transparent, decentralized currency. Cryptocurrencies are built using rules enforced by computer code, cryptography, and economics.
Bitcoin runs on blockchain technology. A blockchain is a distributed, append-only ledger, meaning that any information added to the ledger cannot be deleted. The Bitcoin blockchain runs on a vast decentralized network of computers storing a permanent history of all transactions to ever occur in the history of Bitcoin. There is no single point of failure in Bitcoin because the network is maintained by thousands of computers all over the world run by miners or users themselves.

In a practical sense, Bitcoin is a complete financial system with no central body in control. This cryptocurrency is not backed by any central organization, government, or company. Instead, Bitcoin is built by the users, for the users.

Bitcoin is also a Cultural Revolution. Bitcoin represents a shift towards privacy and decentralization. It gives people sovereign control over their money; transactions cannot be censored; they cannot be intercepted. If you hold the cryptographic key to your Bitcoin wallet, it is you and only you in control.

How did Bitcoin get started?

Several different attempts were made at decentralized or anonymous currency, but all of them failed, until the Bitcoin whitepaper, or research paper, was published in October 2008 by the notorious and mysterious Satoshi Nakamoto.

The white paper was a nine-page proposal for the structure of a peer-to-peer electronic currency. In his whitepaper, Nakamoto envisioned a currency where users do not rely on banks, credit card companies, or other financial intermediaries. Instead, all of the users verify and record all the transactions at the same time. No one user, government, or bank could force a fee on a payment, or control its flow.

The result is an easier, quicker, and cheaper way to exchange money even across international borders. In addition, users do not need to use their real-world identities or trust anyone in order to make transactions with each other.

Issues with Bitcoin

Because there are no central parties, it is challenging to ask about the status of other users’ accounts or kick out malicious users.

Bitcoin is a valuable hacking target because of the rising popularity and funds stored in it. Bitcoin has been under attack since its inception and no one has been successful. The hacking attacks related to Bitcoin we hear about in the news are connected to the security failures of the entities acting as custodians of people’s Bitcoins. As long as you keep the crypto key to your wallet secure, no one else has access to your Bitcoins.

There is also the concern that many people are losing money because of speculative trading on Bitcoins. I am not a financial advisor, so I encourage you to seek professional advice before investing in the Bitcoin market.

The one thing for sure is that cryptocurrencies are changing our world and there is a potential for Bitcoin or something like Bitcoin to make our world better.

In the next posting, I will be sharing more about my experiences with cryptocurrencies and what makes them so interesting.
Until next time. Cheers!