What is Bitcoin? Part 2
You can read, 'what is Bitcoin? Part 1' where we looked at BTC as an electronic payment system created in 2009. It allows you to send money to anyone worldwide, and you don't need to ask anyone's permission.
What is Bitcoin Part 2?
Bitcoin was created as a solution to the modern financial system, where several central banks control and authorise account access and process transactions. This means the control of money is centralised, and we have to trust the banks to act responsibly.
Bitcoin decentralises the monetary-financial system meaning that central banks and governments cannot control or take possession of our money. Think of the Canadian truckers protesting in 2021. Please don't get caught up in the illustration's politics but consider the Canadian government's principle and practice of freezing the protestors' bank accounts.
Bitcoin is just a computer program; you can download it and run it on your computer. When running the program, it connects to other computers also running it, and they will start sharing a file with you. This file is called the blockchain, an extensive immutable list of transactions.
When a new transaction enters the network, it gets relayed from computer to computer until everyone has a copy of the transaction. At roughly 10-minute intervals, a random computer (node) on the network will add the latest transactions they have received onto the blockchain and share the updates with everyone else on the network. The blockchain (record of transactions) is immutable and transparent.
A node is a computer connected to other computers which follows rules and shares information. A ‘full node’ is a computer in Bitcoin’s peer-to-peer network which hosts and synchronises a copy of the entire Bitcoin blockchain.
Some criticise Bitcoin for having no underlying asset, but this is not true. Underlying Bitcoin is the largest decentralised computer base and community of people worldwide. The distributed Bitcoin network is safe because there is no single point of weakness. Consider a guard standing at the castle gate. That guard could be defeated or bribed if an enemy wanted to attack. Put 100 guards at the palace's front gate, and there is still one point of weakness. Bitcoin is decentralised and therefore has no single point of weakness or control.
As a result, the Bitcoin program creates an extensive network of computers that communicate with each other to share a file and update it with new transactions.
What use is Bitcoin and what problem(s) can/ does it solve?
This is not going to be a conclusive list but here are a few suggestions to consider.
From a technical and accounting perspective.
Before Bitcoin, it was possible to relay transactions across a network of computers. Still, the problem was that you could insert conflicting transactions into a network of computers. For example, you could create two transactions that spend the same digital coin and send both of these transactions into the network simultaneously, known as a "double-spend". The double spend only existed for the digitisation of money therefore some critics suggest it was a problem to be “unsolved”. However, it was important to be solved so that society could reap the benefits of the digitisation of money (safety, self-sovereignty, efficiency etc).
From an individuals perspective:
Bitcoin offers individuals different benefits depending on one's context.
Applicable to everyone, Bitcoins creation enables us as individuals to fully own their money, therefore, achieving a degree of economic freedom unobtainable before its existence.
In many developed countries, Bitcoin acts as a long-term hedge against inflation and a store of value. In developing countries, Bitcoin enables individuals to conduct international permissionless transactions at a comparatively minimal cost. In authoritarian governmental states, Bitcoin is helping the oppressed to break free by giving them a vehicle to build their own wealth. In countries experiencing hyperinflation (something developed countries haven't experienced for a long time), people use Bitcoin to preserve their wealth and to protect their money from nation-states claiming the American dollars in which some store their value.
From a business and commerce perspective?
Many use cases are already underway, but for now, I'll mention a couple, and you may wish to do your own research.
Traditionally gold was the medium of international settlement and store of value. Gold is mostly stored centrally, is slow, difficult and expensive to physically transport and presents certain safety risks. Comparatively, Bitcoin can be sent safely and easily in uber large amounts. Consequently, increasing the international monetary system's speed, safety and efficiency. I am not poo-pooing gold, and it's an excellent asset to hold if one is fortunate enough to do so. Still, Bitcoin outperforms gold in all of the ways previously stated.