If you clicked this article, you are probably one of billions of people around the world that is starting to see Bitcoin pop up in their daily lives, but you’re not quite sure what it is or how it works. Well you’ve come to the right place! Today, I’m going to break down Bitcoin, starting with how it came to be, moving into what it actually is as well as the technology that powers it, and finally discussing its role in today’s society, both from the views of a currency and an investment. So join me today in breaking down one of the stranger parts of personal finance in the 21st century. Welcome to Bitcoin.
Where Did Bitcoin Come From?
In order to understand Bitcoin, you have to understand a little bit about the world back in the late 2000’s. The world was teetering on the edge. 2007 and 2008 saw the fall of the United States housing market, taking with it many financial institutions and cratering the stock market almost overnight. Joblessness exploded, retirement accounts were wiped out and banks…well banks were actually fine. Why? Because they received big checks from the federal government in order to stay solvent, meaning the banks went largely unpunished for their greediness in over-leveraging themselves and pouring money into “risk-free” mortgage backed securities. Once the mortgages imploded, so did the banks, prior to getting bailed out.
This bailout, while saving the banks and the money within them, caused a large sense of distrust in the general public. Why do banks get to make huge mistakes with our money, then get bailed out while the average person feels the pain? This type of sentiment drove one anonymous online coder named Satoshi Nakamoto to push back.
In 2008, Nakamoto published a nine-page whitepaper outlining his dream for a future where people can use a digital currency that is decentralized, free from the control of central bodies like governments or banks in a direct, peer-to-peer payment environment. The crux of this paper was built on the concept of cryptography, a concept popularized by former Microsoft engineer Wei Dai in 1998, but more on…