Other than being confusing, the reason for the distinction (uppercase and lowercase) is for differentiating between the overall network/protocol and the cryptocurrency that moves around within the network. Both those things together are incredibly powerful because they enable the next step in the evolution of money: one that is more fair, open, and global while also less restrictive, less rent-seeking, and less open to abuse/being manipulated.
Bitcoin (and others) are considered a “cryptocurrency” because they are a form of digital currency that utilizes encryption techniques as a means of securing and validating transactions.
From the outset of the white paper, the goal of Bitcoin was to eliminate many of the problems and inefficiencies created by the traditional financial market: intermediaries, unnecessary fees, settlement times on the order of days, corruption, and the inevitability of fraudulent transactions. How does it do that? By exhibiting these qualities and traits:
- Decentralized: There is no central entity that could censor transactions, charge fees, alter to the existing rules, or be attacked or extorted by governments or bad entities. There is no Federal Reserve of Bitcoin to manipulate the money supply. There is no board of directors that can decide to charge higher fees. There is no CEO to sue. Bitcoin is P2P and open-source software, like BitTorrent. It spreads like a grassroots movement or a virus.
- Drilling down deeper specifically into the decentralization of a blockchain, we learn that a decentralized blockchain is determined by the ability of the weakest node in the network to verify the rules of the system. If your favorite blockchain is highly performant yet requires incredibly expensive or permissioned software/hardware to verify the chain, then only those select few individuals will be able to attest to the veracity of the data. That significantly hinders the blockchain’s ability to be adopted globally by the masses. Luckily, Bitcoin is open-source code that can be run on an average, everyday laptop. It is about 300 gigabytes which may take several hours to sync.
- 21 million capped-supply: Bitcoin is truly revolutionary because it is the world’s first instance of digital scarcity. Only 21 million bitcoin will ever exist, of which ~90% has already been issued. There has never been an asset, especially digital, with provable finite scarcity.
- Censorship-resistant: No one can dictate what you choose to do with your money. Bitcoin is apolitical. If you want to conduct a transaction and have paid the small miner’s fee, the network will process it.
- Immutable (or irreversible): This is critical to any system in which value is being transferred. Users want to be certain that when they send $10, that transaction will be processed, their recipient will receive that money, and that the transaction can never be reversed in the future by someone in power. Meanwhile, Bitcoin’s cryptography (public-private key system) guarantees that only the owner of a certain “key” can send the funds associated with that address ensuring sufficient funds in the transaction and security that no one else can spend your bitcoins.
- Impossible to counterfeit/digital scarcity: This is the monumental breakthrough afforded by Bitcoin’s Proof of Work (discussed below) model that has created for the first time digital scarcity. Before Bitcoin, everything on the internet (pictures, files, documents, etc.) could be duplicated at no cost. If you received a picture and then sent it to a friend, you didn’t send the actual picture, but rather you just sent them a copy of the original. You still had a version of the picture in your possession. Due to this reason, the concept of digital money did not work without a central middleman, but luckily, bitcoin solved this dilemma known as the “Double-spend problem.”
- Transparent: There will only ever be 21 million bitcoins created based on a predictable and known supply schedule that is always and forever publicly verifiable and auditable. No government can change that. This is paramount to the value of bitcoin! A fixed supply that everyone knows ahead of time is far more egalitarian than an infinite supply of money that is created behind closed doors by a small group that decides where it goes. With bitcoin, no government can devalue your wealth through inflation, Quantitative Easing, or any other economic experiment in vogue at the time.
- Permissionless/anyone may use bitcoin: Anyone can exchange bitcoin with anyone, anywhere, and anytime. The Bitcoin protocol, for the first time in history, allows users to send money like we currently send packets of data (emails, web links, pictures, etc.). It is the digital equivalent of having the ability to directly hand a $5 bill to your friend in Europe or anywhere else. No middlemen. No hidden fees for processing the transaction. No exchange rates. No company harvesting your transactions in order to sell that information to advertisers. Most of us are forced to transact and save in a particular currency based on where we were born. For many, this is a terrible deal through absolutely no fault of their own and is based on the government regime they live in. Imagine if the people of Venezuela, Turkey, or Zimbabwe had a choice in their day-to-day currency. Would they use those currencies or something else? Bitcoin at least gives them a choice.
- Pseudonymous/”incognito” - Bitcoin is not totally anonymous like many believe. In fact, as explained previously, Bitcoin’s blockchain LEDGER makes all transactions public to anyone. However, Bitcoin accounts and their transactions are not directly linked to any personally identifying information like a social security number or house address. Each user has a Bitcoin wallet with a wallet address containing a long string of letters and numbers. While this provides some level of privacy, in many cases, it is possible to trace the wallet address back to a real individual and bank account based on user activity or if an exchange’s data is hacked.
- Global: No one country owns Bitcoin and it isn’t limited by the physical borders of any country.
- Fast: Bitcoin allows anyone to send and receive payment 24/7/365 with settlement in minutes as opposed to days. There are no banking hours, no 9-5 stock market times, or holidays. Users are free to transact on their own schedules.
- Cheap: It’s relatively cheap to send bitcoin to anyone in the world especially when across national borders. Current fiat remittance fees vary from 7-20% depending on the nations involved. Bitcoin transactions are typically less than $3, making them far cheaper for medium to large sum payments. In fact, In January 2020, an undisclosed entity moved $1.1 billion worth of bitcoin for just $80 or a 0.00000007% fee.
- Divisible - Bitcoins are divisible up to 8 decimal places (the smallest increment known as a Satoshi). This means that you do not have to own or spend whole bitcoins. This allows users the freedom to send any amount they want and even spend bitcoin on very small purchases when the price is very expensive in U.S. dollar terms.
- Digital: Most money is already digital. However, much of it is hampered by the outdated legacy system and swath of rent-seeking middlemen. Again, sending bitcoin is the digital equivalent of directly handing cash to the recipient without it being routed through different banks, payment processors, clearing houses, government borders, and taking several days to finally clear.
Bitcoin, although only conceived in 2008 and launched in 2009, has been a long-time coming. It is an amalgamation of breakthroughs in different fields like computer science, cryptography, and mechanism design over the course of several decades. It wasn’t until around 2008 that Satoshi Nakamoto, the anonymous creator of the network, had all the tools necessary to create the world’s first truly decentralized, permissionless, censorship-resistant cryptocurrency.
In fact, Bitcoin is not some one-hit wonder that came out of nowhere. Numerous attempts to create a digital currency outside the normal government-issued money (fiat) preceded bitcoin. Previous examples include David Chaum’s DigiCash (1989), Jackson and Downey’s e-gold (1996), Wei Dai’s B-Money (1998), Nick Szabo’s Bit Gold (1998), and Arthur Budovsky’s Liberty Reserve (2006). Some monies focused on privacy, others emphasized the peer-to-peer aspect, but all ultimately failed for a similar reason: they were not truly decentralized, i.e had a single point of failure.
Did you notice that I was able to list all the names of the inventors of those previous projects except for Bitcoin? Every failed pre-Bitcoin project had a person or company that was solely responsible for it. This is pretty common considering nearly every other company in existence today is built in a similar fashion.
You get a faulty Ford truck, sue Ford the company. Want to work for Amazon? Send your resume to their headquarters or HR staff. But a big reason as to why bitcoin is so special is because you cannot do any such things. There is no CEO, no headquarters, and no central server room in which to shut it off.
This is huge! Bitcoin removes the need for trust in a transaction between strangers. Previously, we paid banks to be the arbiters of trust. Your bank would ensure that the opposite party had enough funds to pay you and make sure you received those funds. They would keep track of who has what money, how much, and who to send it to and fro. Now, we have an infallible, nondiscriminatory internet protocol capable of the same thing instead of a profit-seeking corporation run by a board of directors looking to maximize profits at your expense!
This is what we mean when we say Bitcoin is decentralized. It is a peer-to-peer network with no centralized entity in charge and thus, no central point in which to attack. In pre-Bitcoin projects, competitors and governments alike were able to pinpoint the people in charge and either run them out of business or force them to shut down. Satoshi Nakamoto, the creator(s) of Bitcoin, recognized this weakness and thus architected Bitcoin to be an open-source, permissionless network. This means that anyone, anywhere, may own bitcoins, help “run the network,” or even contribute to the code.
Three important factors impact the ability of the average person to run a node in a decentralized network such as Bitcoin:
- Bandwidth: The cost of downloading and broadcasting any blockchain-related data
- Compute: The cost of running the computations
- Storage: the cost of storing “state” (data) in order to continue processing new blocks of transactions
Helping “run the network” is done so on a permissionless basis by anyone who wishes to run a bitcoin full node. Each node can broadcast transactions to the entire global network, validate the full history of the blockchain, and ensure consensus among the participants based on a common set of rules. This allows Bitcoin users to reach a common consensus regarding bitcoin ownership (who owns what and how many) on a decentralized basis without any middlemen, third-party arbiter, or trust between the participants.
This unique design feature has allowed Bitcoin to flourish in 11 short years as there are currently millions of people who own bitcoin, ten thousand plus help run the network, and hundreds have contributed to the core code. So, because of Bitcoin’s decentralized design, shutting it down means you’d have to stop tens of thousands of people all across the globe (some even anonymous) instead of just one individual or company.
Bitcoin is able to continue to run, even if 99.9% of its network is destroyed in part because of its decentralized nature, but also in part because it was built using blockchain technology. Yep, we’re at that point in the discussion. Aren’t you amazed we made it this far without going into the intricate details of blockchain!?
