3. An Overview of Cryptocurrency
Introduction to Cryptocurrencies
Bitcoin, the first true cryptocurrency, emerged in 2009. Developed by a mysterious developer (or group of developers) under the pseudonym Satoshi Nakamoto, it gained significant prominence in the years following its release because of its amazing capabilities. The concept of Bitcoin is derived from the simplicity of cash transactions. In what used to be the norm only a few decades ago, transactions were handled through an exchange of currency directly from one party to another. The person buying a good paid the seller with cash, the ownership of that good was transferred onto the person that bought it, and the transaction was complete.
The rise of the Internet made this process much messier; you can’t use physical cash when buying something off a website. Companies that realized the need for a digital exchange medium created a system of payment that started to involve middlemen: credit cards.
With credit card transactions, the transaction first needs to go through multiple security checks to be proven legitimate, an exchange of data between banks needs to occur, and then the bank has to approve and settle the transaction. This not only creates tons of processing and transactional fees that cause the purchase price to go up, but the transaction is then not settled for days while the bank processes all of the payment information.
This system is slow, expensive, and burdensome to both producers and consumers. Bitcoin showed it doesn’t have to be this way.
Source: ChatGPT
Instead of relying on existing fiat currency to transact on the Internet, Bitcoin flipped the script and created an entirely new digital asset to bring back the peer-to-peer nature of cash transactions and cut out all the extra noise of online monetary transactions that we have to deal with today. It did so by cutting out one major component: Trust. Bitcoin removed all trust assumptions that we have today with banks and credit.
- We trust that our money is safe inside a big bank vault.
- We trust that credit card companies will complete our transactions as requested.
- We trust that the government will maintain the value of the dollar and not let it collapse.
Bitcoin removes all of these assumptions by operating in a completely trustless manner that does not rely on any person or entity to make any decisions about its state. No external party can exert any control over the supply, value, or who gets to hold Bitcoin and what they can and can’t do with it.
Bitcoin created a unique currency that did not belong to any one government. It created a truly global online payment method that could be used and accessed by anyone. The only thing you need to tap into its network is an Internet connection. No ID, citizenship, or even name is required. This makes it truly decentralized and fair, marking a new wave of finance that opens the door for anyone to take control over their financial assets.
📋 Practice Question