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Sunday, 24 September 2017

Bitcoin, the inventorless invention


If you haven't been hiding under a rock all this while, you've probably heard of Bitcoin by now. Since last year, its value has gone up 4 to 5 times.Last year around this time, Bitcoin was trading for about USD609. Today, its price is at USD3640. So if you had invested USD1000 last year, this time, you'd be able to get back about USD6000 today.

Around this time last year, one Bitcoin was sold at USD609. Today, it's at USD3,640.

Bitcoin is unique because governments are taking notice of it. It was the first cryptocurrency that really took off in a big way, although, truth be told, it wasn't the first. There were earlier attempts to make cryptocurrencies, many of which did not take off.

Why did Bitcoin take off? In 2008, the US economy had collapsed, due to the subprime crisis. People were losing jobs and houses everywhere. In the midst of that chaos, a paper appeared, by someone named Satoshi Nakamoto, describing Bitcoin and how it could be used as a store of value for transactions.

Over the months that followed, Bitcoin was slowly implemented, and then the first block was mined. Then the first transaction took place. Slowly, the idea began to get acceptance. Eventually, Bitcoin has been worked into a frenzy, with its prices skyrocketing . . .

But Satoshi Nakamoto, the person, did not exist. He is frequently described as the "anonymous creator" or "anonymous inventor" of Bitcoin. His idea, however, has taken off, and the underlying concept that supports Bitcoin, i.e. the Blockchain, is today being adopted by banks and governments for its promise of tamper-proof secure recording technology.

Some Important Dates in Bitcoin History

Here are some important dates in Bitcoin history.

31 October 2008: Bitcoin white paper is published.
3 January 2009: Genesis block mined.
22 May 2010: First transaction conducted with Bitcoin. (2 pizzas for 10,000 Bitcoin!)
28 November 2013: Price of single bitcoin (1 BTC) exceeds USD1,000.
2 March 2017: Price of single bitcoin (1 BTC) exceeds the price of a single ounce of gold!

I got these dates from the Udemy course on Blockchain and Bitcoin Fundamentals. Thanks, Blockchain Institute of Technology!

Some videos on Bitcoin

Here is a playlist of videos on Bitcoin. These videos feature Andreas M Antonopoulos. He is the author of "Mastering Bitcoin", and a lecturer of a MOOC that I'm attending, the Introduction to Digital Currencies offered by University of Nicosia (Cyprus). So far, the MOOC has been fantastic and it has been a great help in bridging courses that teach how to buy and sell Bitcoin with the very technical (Coursera).

Bitcoin for Beginners, a talk delivered in Kuala Lumpur. (I missed that talk.)

Who is Satoshi Nakamoto?

Investing in Education instead of Speculation

Obviously, there's more videos where they came from, so here's a link to them. (Thanks Andreas!)

My thoughts on Bitcoin

Bitcoin will remain a force to reckon with, in the years to come, but there are challenges. 

Why will Bitcoin remain relevant? These are some reasons:
  • It was the first cryptocurrency.
  • There is great investment by a large community into Bitcoin and Bitcoin mining, making it the predominant cryptocurrency.
  • It has been well publicized and its acceptance is growing.
  • There are many countries in which poor infrastructure means that their populations need access to some form of banking; Bitcoin can step in to supplement that.
  • Bitcoin can also be used to transfer money and circumvent capital controls
  • Bitcoin is rapidly increasing in value, making it useful as a hedge against rising inflation.

Then why will Bitcoin face challenges? These are some reasons:
  • The effectiveness of the underlying mechanism, the Blockchain, is dependent on mining, under the concept of "proof of work". 
  • As the number of miners increase, it will become more and more difficult to mine blocks.
  • The time needed for confirmation of transactions is also too long, (But this is being addressed through the "Lightning Network")
  • It is facing competition from other cryptocurrencies, the chief contender of which is Ethereum.

Regardless of the outcome, it seems quite certain that many stakeholders have identified Blockchain as "the" next generation technology that can overcome hacking and tampering. 

For all the discussion, there is still one more challenge that nobody has mentioned yet. Bitcoin and all other digital currencies are dependent on Internet access. If, for some reason, Internet access were to be disrupted, then it would be quite inconvenient for owners of Bitcoin. 

Anyway, because Bitcoin does not have a patent by its inventor, anyone anywhere can implement Bitcoin and use it as the basis for their new startup. And perhaps that is the best catalyst for its growth worldwide. The Bitcoin technology has become part of the commons. 
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