What's bitcoin all about?

Cryptocurrency, bitcoin, blockchain, altcoins. These are all terms you may/may not have heard of. What I want to do in this post is show you what all of these mean and explain why blockchain technology is about so much more than teenagers buying drugs on AlphaBay or The Silkroad (R.I.P.) using bitcoin. So without further ado, let me delve into the future of technology and show you why you should care.

Bitcoin is a cryptocurrency and the technology behind it is called the blockchain. There are over 900 different cryptocurrencies in existence, all of which have varying properties and weird and wonderful names from PutinCoin and CyclingCoin to BunnyCoin and CannabisCoin. Bitcoin has the largest market share by a length, at 45.7%, and has a total market capitalisation of $65bn (meaning if you took all the bitcoin in the world and sold it for USD, you’d have that much money). It is currently worth $4000 but this value fluctuates a lot depending on news in the cryptocurrency world. It was, for example, worth half this value just over a month ago.

So what is the point, why would anyone use bitcoin rather than PayPal or normal £££? Well, as it happens there are actually a few very good reasons:

1. Secure: Bitcoin is much more secure than conventional fiat currencies and eliminates the need for trust in all markets and transactions
2. Cheap: Transaction costs are tiny (fractions of cents rather than dollars) and this enables micropayments
3. Private: All transactions can be anonymous
4. Quick: Transferral of value happens in minutes not hours or days

To understand why this is the case, let’s look at the technology in a bit more detail. The blockchain protocol was formally proposed by Satoshi Nakamoto (a pseudonym for an individual or group whose identity remains unknown) in the famous whitepaper of 2008. Satoshi’s masterstroke was to create a ‘distributed ledger’ so that rather than an institution like a bank or PayPal keeping record of all transactions, each ‘node’ in the blockchain network has its own copy of the ledger and as soon as 50% of the nodes agree, a transaction becomes cemented within the blockchain for eternity. So each block in the blockchain is essentially a list of all of the transactions that have taken place in the last 10 minutes, all hashed together using algorithmic functions. Here lies the security aspect of the blockchain because the need for a 3rd party adjudicator and one central ledger listing all transactions is eliminated and there is therefore no way for one malicious party to hack in and alter the ledger, because all of the other nodes would simply recognize this straight away. The replacement of a 3rd party with a distributed ledger running on automatically computed functions means also that the blockchain is both fast and cheap.

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