Bitcoin and the Blockchain
In October 2008, a nine-page thesis paper was released on the internet under the pseudonym Satoshi Nakamoto, outlining the basic structure for a digital currency known as Bitcoin. To this day, no-one knows exactly who Satoshi Nakamoto is.
Perhaps even more remarkable is that whilst the token’s astronomical rise from a fraction of a cent to over $70,000 USD would make Nakamoto one of the wealthiest individuals globally, the Genesis wallet belonging to its creator has never once been touched, to cash in.
Nakamoto was concerned that traditional currencies were too reliant on the trustworthiness of banks or governments to work properly and as a result of Bitcoin’s continuous operability without failure, some believe Nakamoto’s invention is one of the most important of all time.
What is Bitcoin?
Bitcoin is a revolutionary technology that enables a new way to send money over the internet. Most importantly, unlike national currencies that are centrally controlled by governments, Bitcoin is decentralised – meaning no person or entity can control it.
How does Bitcoin work?
Bitcoin (capital ‘B’, meaning the system) is a global network of computers working together to track ownership of digital tokens called bitcoins (small ‘b’, meaning the tokens). When you send someone bitcoins (or a fraction of a bitcoin to eight decimal places known as Satoshi’s or Sats), the transaction is broadcast to the entire network.
If the transaction is verified, it is placed with other transactions to form a block and recorded in a public ledger called the blockchain. This ledger is shared with everyone on the network. Those who help to process transactions and maintain the ledger are rewarded in bitcoin. This is known as bitcoin mining.
Unlike the global banking system that shuns the poor, Bitcoin can be used by everyone. With Bitcoin, you can send any amount of money to anyone, anywhere in the world as easily and as quickly as sending an email or SMS text.
An early admirer of Bitcoin was a gifted, Canadian teenager called Vitalik Buterin. Having lived in communist Russia, Buterin had a growing resistance to centralised control and shared his views on Bitcoin forums, stating that ‘government is bad because it’s a monopoly’.
After contributing articles for a Bitcoin blog and receiving five bitcoins as payment (worth about a dollar each at the time), Buterin embarked on a bitcoin discovery tour, attending conferences and meet-ups around the world. After working on a project in Tel Aviv, Israel, Buterin realised that whilst decentralised money was a quantum leap, adding a programming language on top of the blockchain offered endless possibilities.
After releasing his white paper for Ethereum in 2013, Buterin found himself in a shared house in Zug, Switzerland where people descended from around the world to help create Buterin’s vision and share in the riches it might bring. These included Charles Hoskinson who became the Chief Executive and an English programmer called Gavin Wood who created the initial implementation.
As others joined and the house became overcrowded, tensions mounted in the scramble for co-founder status and in some ways, twenty-year-old Buterin was ill-equipped to manage the situation. Yet he stayed true to his altruistic vision, throwing a bombshell by announcing that ‘Ethereum would be non-profit and open source’.
Amidst the ideological fallout, Hoskinson left to create his own blockchain called Cardano, whilst Gavin Wood created another called Polkadot, and although Ethereum’s success turned Buterin into a billionaire, he remains committed to humanitarian causes, donating 1.14 Billion USD to India’s covid relief fund in 2021 and denouncing Russia’s invasion of The Ukraine in 2022 and supporting with funds.
When Ethereum’s value reached 100 Billion USD in 2017 and people piled into the market in such a frenzy that they crashed some of the biggest cryptocurrency exchanges, an exasperated Buterin tweeted ‘All crypto communities, Ethereum included, should heed these words of warning. Need to differentiate between getting hundreds of billions of dollars of digital paper wealth sloshing around and actually achieving something meaningful for society’.
Today, there are literally thousands of blockchains that are used for all kinds of purposes including real world asset tokenisation, where the ownership of property, cars, art and other collectibles can all be certifiably verified through blockchain applications.
It means that a real-world asset can be owned by a great number of people but how does it work?