Satoshi’s Dream Child

It has taken me more than a decade to digest just how ingenious Bitcoin is. Its like when you first go to a foreign country and realize how many things you took for granted are just socially accepted conventions. Bitcoin, cryptocurrencies and blockchain are like that for rethinking money, property, governments, and lots more.

Bitcoin was first.

Bitcoin is the first cryptocurrency. It was created in 2009 under the alias Satoshi Nakamoto by a person or group of persons. Twenty-one million bitcoins can ever be issued, and around 19 million are already in circulation.

Bitcoin is the only economic entity where the supply is unaffected by the demand. Bitcoin’s hard cap is set at 21 million coins. Bitcoin’s block reward is paid out to miners who secure the bitcoin blockchain.

Bitcoins can be issued to anyone with a powerful computer: it mints them by solving complicated mathematical problems. The problems are automatically made harder to ensure that the overall supply of Bitcoins cannot grow too fast.

Bitcoin is traded and exchanged online, with transactions cryptographically authenticated and stored on the blockchain.

Shortly after the currency launched in 2009, articles spread around the internet saying that Bitcoins would protect wealth from hyperinflation and that early adopters would make a fortune.

Bitcoin was the first practical cryptocurrency to work and gain traction. However, many earlier attempts failed because the technology wasn’t there yet, and they lacked one or another of the critical components that made bitcoin work.

Bitcoin has a predictable supply. There is a limit on how many bitcoins will ever be created. Twenty-one million bitcoins will be made, of which 19 million have been created. Bitcoin value, like gold, is governed by scarcity.

The bitcoin protocol is based on:

Peer to peer networking

Proof of work consensus mechanism

Public key cryptography

A pair of keys known as a public key and a private key (a public key pair) are associated with an entity that needs to authenticate its identity electronically using public-key cryptography. Each public key is made public, but the private key is kept private.

The generation of such key pairs depends on cryptographic algorithms based on mathematical problems termed one-way functions.

Public key cryptography is how cryptocurrency wallets work and store our crypto assets. Keep your private key information in a safe place. Don’t share your private key as then that person has access to your storage, and don’t lose your private key information. There are many stories of people who forgot their private keys and can no longer access their cryptocurrency. There is a famous saying,

“not you key not your coins.”

Bitcoin is a mechanism to store transactions. It is a transaction ledger as opposed to a balance ledger like Ethereum.

It is a double-entry ledger system like double-entry bookkeeping, which is the basis of accounting.

Double-entry bookkeeping was the innovative technology of the 15th century that helped finance and usher in the renaissance. It is the basis of banking and financial markets and business.

The bitcoin blockchain is a payment system. A payment system is a method to amend and record changers in ledgers for money.

Bitcoin’s proponents cite its limited supply and decentralized nature as protection from policymakers and central bankers printing up more and depreciating it like fiat currencies. For example, since March of 2020, the Federal Reserve has issued 40% of all US dollars ever created. That is a very significant increase in the money supply.

Bitcoin is supposed to weather inflation and retain purchasing power. But unfortunately, inflation is everywhere, and people will increasingly look for alternatives to government money.

But crypto skeptics point to Bitcoin’s price action that suggests this asset class is acting more like a tech stock than an inflation-fighting store of value.

Time will tell.

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