Why Was Bitcoin Created? Genesis of a Revolutionary Digital Currency

Why Was Bitcoin Created? Genesis of a Revolutionary Digital Currency

Different people have different ideas about what “Bitcoin” means. When they start explaining it, they often use technical terms like “blockchain” and “protocol.” They also talk about things like “peer-to-peer networks” and “distributed ledgers.”

Bitcoin Language

Bitcoin's Evolution
Bitcoin’s Evolution

Wow, that’s a lot of confusing terms! 🤮

It’s easy to feel overwhelmed by all these words. Describing “Bitcoin” accurately can become technical and complicated really quickly! 🤯

Instead of going down that path, I think it’s better to start by looking at the PROBLEMS that Bitcoin aimed to solve.

Once you understand those issues, everything will become much clearer. You’ll be able to understand the technical ideas more easily and follow along better. you may also read this Crypto As A New Asset Class: Exploring the Evolution of Cryptocurrencies in Financial Markets

Why Bitcoin Was Created?

According to the Bitcoin white paper, Satoshi Nakamoto wanted to make:

“…electronic cash that would let people make online payments directly to each other without needing a bank in between.”

In simpler terms:

“Just like physical cash lets me buy things directly from someone without a bank, I want this same kind of freedom online. So, I need a digital version of cash, like digital cash.”

Satoshi’s solution: Bitcoin.

Creating a digital version of cash that could be sent online without needing a “trusted middleman” might sound simple. But before Satoshi Nakamoto made Bitcoin, all the previous attempts failed.

No one had ever succeeded at this before.

Let me explain why with an example.

Meet Ursula the Unicorn, who bakes and sells singing, waterproof cupcakes. Each cupcake costs $1, and they come with free delivery by unicorn.

Ursula the Baker

Imagine Molly the Mermaid wants to buy one cupcake from Ursula.

So, they meet up and use physical cash for the transaction.

Cash Transaction

Here’s what happens:

  1. Molly gives Ursula a $1 bill.
  2. Now Ursula owns the $1 bill.
  3. Ursula believes the $1 bill is real and unique.
  4. The $1 bill is indeed real and unique because it’s issued by a central bank.
  5. This special $1 bill becomes a way to trade with others (“goods and services”).
  6. Ursula gives the cupcake to Molly.

Now, what if Molly is really far away? Shipping the cupcake via a service like FedEx or UPS would be necessary.

Ursula wants Molly to pay online, but how can Molly send cash over the internet?

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Turning Cash into Digital

This is where the problem with cash comes in.

Cash exists as physical money, like paper bills and coins. But here’s the issue…

You can’t send physical cash through the internet!

People need to be in the same place to use cash, which isn’t always possible.

Face-to-Face Cash Transaction

So, how can we move cash online?

By turning it into digital currency.

But when it’s digital, it can be copied easily (counterfeit).

How do we prevent someone from spending the same digital money multiple times?

That’s one problem.

There’s another issue.

Molly wants to use her cash, but to send it online, she needs a bank’s help.

But what if Molly doesn’t have a bank account? She can’t buy cupcakes then.

Thankfully, Molly has a bank account in this story.

But relying on banks comes with risks.

Imagine the bank doesn’t like cupcakes and blocks Molly’s transaction. No cupcakes for Molly!

Shark Banker

Or they might charge extra for non-local transactions.

Even worse, if the bank dislikes unicorns and anyone dealing with them, Molly, despite being a mermaid, could be seen as “evil” for buying cupcakes from a unicorn!

The bank could freeze Molly’s account, locking her out. The bank controls all her money, making it centralized.

Bank Censorship

Molly just wants her cupcake and is frustrated.

“If I could use cash, I wouldn’t need my bank’s approval! This stinks!”

“I wish for digital cash.”

“One I control completely.”

“I want to use digital cash online, just like physical cash, without needing anyone’s approval.”

Molly wants two things:

  1. Digital money usable online like cash…
  2. …that’s not controlled by one entity.

Decentralization is the opposite of centralization. It means control is shared among many.

In terms of money, “decentralization” means not relying on a bank.

This would let you spend digital money freely without worrying about blocks or frozen funds.

Molly wants decentralized digital cash.

But this is really hard to achieve!

Let’s find out why…

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Q1: Is Bitcoin the only cryptocurrency? A1: No, Bitcoin was the first, but numerous other cryptocurrencies have emerged since its inception.

Q2: How do I acquire Bitcoin? A2: You can obtain Bitcoin through cryptocurrency exchanges or by participating in mining activities.

Q3: Can Bitcoin be hacked? A3: The Bitcoin blockchain itself has never been hacked, but individual wallets and exchanges have been vulnerable.

Q4: What determines Bitcoin’s price? A4: Bitcoin’s price is influenced by factors like supply and demand dynamics, market sentiment, and macroeconomic trends.

Q5: Is Bitcoin legal? A5: The legality of Bitcoin varies by country; some nations have embraced it, while others have imposed restrictions.