A pseudonymous software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008, as associate degree electronic payment system based on mathematical proof. The idea was to provide a way of exchange, independent of any central authority, that would be transferred electronically during a secure, verifiable and changeless means.
To this day, no-one really knows who is Satoshi Nakamoto.
In what ways is it totally different from ancient currencies?
Bitcoin can be used to pay for things electronically, if each parties are willing. In that sense, it’s like standard dollars, euros, or yen, that also are traded digitally.
But it differs from fiat digital currencies in many vital ways:
1 – Decentralization
Bitcoin’s most important characteristic is that it’s decentralized. No single establishment controls the bitcoin network. It’s maintained by a group of volunteer coders, and run by an open network of dedicated computers spread around the world. This attracts people and groups that are uncomfortable with the control that banks or government institutions have over their money/accounts.
Bitcoin solves the “double spending problem” of electronic currencies (in that digital assets will simply be copied and re-used) through an ingenious combination of cryptography and economic incentives. In electronic edict currencies, this function is fulfilled by banks, which takes them control over the traditional system. With bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by no one.
2 – Restricted supply
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply – central banks can issue as several as they want, and might try to manipulate a currency’s value relative to others. Holders of the currency (and especially citizens with very little alternative) bear the value.
With bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset – in theory, if demand grows and the supply remains the same, the value will increase.
3 – Pseudonymity
While senders of traditional electronic payments are typically identified (for verification purposes, and to fits with anti-money laundering and other legislation), users of bitcoin in theory operate in semi-anonymity. Since there’s no central “validator,” users don’t need to identify themselves when sending bitcoin to different person.
Once a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them. The system doesn’t need to know his or her identity.
In practice, every user is identified by the address of his or her wallet. Transactions will, with some effort, be tracked this way. Also, law enforcement has developed methods to identify persons if necessary.
Furthermore, most exchanges are required by law to perform identity checks on their customers before they’re allowed to buy or sell bitcoin, facilitating differently way that bitcoin usage may be tracked. Since the network is transparent, the progress of a particular transaction is visible to anyone.
This makes bitcoin not an perfect currency for criminals, terrorists or money launderers.
4 – Immutability
Bitcoin transactions can’t be reversed, unlike electronic fiat transactions. This is as a result of there’s no central “adjudicator” that may say “ok, return the money.” If a transaction is recorded on the network, and if more than an hour has passed, it’s impossible to modify.
While this might disquiet some, it does mean that any transaction on the bitcoin network can’t be tampered with.
5 – Partible
The smallest unit of a bitcoin is termed a satoshi. It is one hundred millionth of a bitcoin (0.00000001) – at today’s prices, about one hundredth of a cent. This might conceivably enable micro transactions that traditional electronic money cannot.