The most important aspect of bitcoin may be the concept behind it. Bitcoin was created by developer Satoshi Nakamoto. Rather than trying to design a completely new payment method to overthrow the way we all pay for things online, Satoshi saw certain problems with existing payment systems and wanted to address them.
The concept of bitcoin is rather simple to explain: During the financial
crisis of 2008, people from all over the world felt its debilitating economic effects. And at the time of this writing (early 2016), many are still feeling the effects in terms of the dwindling value of their fiat currency (the currency approved by a country’s government).
As the global financial system teetered on the brink of collapse, many central banks engaged in quantitative easing —
or in simple terms, turned on the printing presses. Central banks
flooded the markets with liquidity and slashed interest rates to
near zero in order to prevent a repeat of the Great Depression of
the 1930s. The effect of this was large‐scale fluctuations in fiat currencies
and what has since been termed currency wars — a race
to competitively devalue so that an economy can become more
viable simply by its goods and services being cheaper than those
of its neighbors and global competitors. The response of central
banks around the world was the same as it always has been when
these things happen: Governments had to bail out affected banks
and they printed extra money, which further devalued the existing
money supply.
In bailing out the banks, there was a net transfer of debt to the
public purse, thus adding to future taxpayer liabilities. This created
a sense of social injustice among some quarters. Aside from
that, no one really knows what the long‐term effects of quantitative
easing will be. Perhaps inflation at some point in the future
and a further devaluation of those fiat currencies who engaged
in the schemes? What seemed clear is that central bankers, supposedly
acting independent of governments, were taking many
economies
into the unknown and were prepared to devalue their
fiat currencies
at will just to keep the wheels turning. In doing
so, they bailed out the very same institutions and bankers whose
reckless behavior had brought about this crisis in the first place.
The only other option would have been to let the whole system
collapse and be purged, as for instance happened in Iceland. That
country defaulted on its debt and endured great economic turmoil
in the aftermath of that event.
Therein lies the genesis of bitcoin: a decentralized financial system
taken out of the hands of a few elite global decision‐makers.
Satoshi Nakamoto decided it was time for a new monetary system,
one so different from the current financial infrastructure that you
could even call it a disruptive force. Whether or not bitcoin was
ever intended to completely replace the financial infrastructure
remains unclear, but we do know that multiple banks are looking
at the technology that powers bitcoin, because they see its potential
and want to adopt this technological power for their own use.
They are free to do so, of course, as the core bitcoin technology —
known as a blockchain (much more on that in Chapter 7) — was
open source from day one for everyone to see. Creating bitcoin
as open source meant that anyone was allowed to come up with
their own improvements and build platforms on top of it.
Viewed from this angle, bitcoin could be said to have a driving
ideology.
It is about so much more than just using the associated
coin as a payment method. It is about using the underlying technology
and discovering its full potential over time. How you decide to
use that technology is completely up to you. It can be adapted to
fit nearly any financial need you can imagine. All you really need
to do is be open to the technology itself. Even though you may not
grasp the entire concept from the start, just keep an open mind.
Let’s face it: The intersection of finance and technology is plagued
with troubles. All of us have been affected by the banking crises
of the 21st century, and quite a few countries are still struggling
to recover from that financial fiasco. Bitcoin developer Satoshi
Nakamoto was a victim of this mismanagement by central banks
and thought long and hard to come up with a proposed solution.
The mainstream financial infrastructure is flawed, and a viable
alternative is more than welcome. Whether or not that alternative
will be bitcoin remains to be seen.
When Satoshi Nakamoto came up with the idea of bitcoin, one
key factor was destined to play a major role: decentralization.
Decentralization means we are all part of the bitcoin ecosystem,
and we all contribute to it in our own ways. Rather than relying on
a government, bank, or middleman, bitcoin belongs to everyone,
in a system called peer‐to‐peer, and we all make up the bitcoin
network. Without individual users, there is no bitcoin. The more
people embrace bitcoin, the better it works. Bitcoin needs an
ever‐expanding community who actively use bitcoin as a payment
method, either by buying goods and services with bitcoins or offering
goods and services in exchange for bitcoins.
Due to the digital currency’s free market spirit, anyone in the
world can set up their own business and accept bitcoin payments
in a matter of minutes. Plus, existing business owners can offer
bitcoin as an alternative payment method, with the potential to
expand their customer base on a global scale. It’s easy to do your
bit(coin) and get involved.
