What is Bitcoin? The Original Cryptocurrency

Overview

Bitcoin is almost synonymous with the term “cryptocurrency”, as it is the first one to be developed, the most well known, and still by far the largest by just about any metric one might use to compare it to others. That may change though, as new cryptocurrencies emerge to fill niche markets and offer different approaches to issues of security, speed, and privacy.

Purpose

Bitcoin originally started out as an attempt to build an online cash system, which are the terms used to describe it in the original whitepaper that defined its creation in 2009.

Since that time, various interested parties have disagreed about that original vision, and Blockstream, the organization most in control of Bitcoin’s development, proposed that Bitcoin should be a “settlement layer”. Under this paradigm, Bitcoin would not be accessed directly by end users, as Bitcoins themselves would be too valuable and expensive to move for most people. Instead, all transactions would be handled through secondary systems such as “SegWit” and “Lightning” and then be settled in aggregate on the Bitcoin blockchain. This approach has been compared to how money has sometimes in the past been a secondary system that stands in for high-value assets like gold. People transact in cash, and then banks collectively settle large groups of transactions by trading between themselves in gold.

A large community of people want Bitcoin to operate in a similar fashion, partly because they believe that high fees for transacting Bitcoin is critical for incentivizing miners to keep the network running.

Technical

Bitcoin’s blockchain is mined on dedicated computers known as an Application-Specific Integrated Circuit, or ASIC. These are computer chips dedicated to the mining of Bitcoin, and coins derived from the same codebase as Bitcoin, such as Bitcoin Cash and Litecoin. With a large number of miners having invested in ASIC computers for the sole purpose of mining Bitcoin, they have a strong incentive to see Bitcoin sustained in the marketplace. Bitcoin is pseudo-anonymous, which means that all transactions are identified using a code generated by a sha256 hashing algorithm. However, all transactions are publicly visible on the blockchain, using “block explorers” such as the one on this site.  So, if someone successfully associates a transaction ID with one of the people involved, it is possible to trace some of that person’s past and future activity with the Bitcoins involved.

Market

As of May 2018, Bitcoin has a market capitalization of roughly 166 billion US dollars. This is over double the coin with the next largest market cap, which is Ethereum with around 79 billion US. However, while this indicates Bitcoin is still the dominant coin in the overall market, it should be noted that up until the start of 2015, Bitcoin held over 90% of the market share, and from mid-2016, Bitcoin’s share has dropped sharply to its current standing of 40%. It is not at all clear if Bitcoin will continue to be a major player, the way Microsoft maintains significance in the PC market in spite of strong competition, or if Bitcoin will be left behind, similar to how Facebook rendered MySpace irrelevant in the social network market.

Image courtesy of Carty Sewill
http://cartyisme.com

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