94,504 bitcoin were moved today in a transaction. That’s $1,000,000,000 transfered[sic] for a $700 fee. No government, bank or third party had to verify the transaction, nor could they have stopped it if they wanted to. The true power of bitcoin. 🔥@Rhythmtrader
Think about that for a second. In an age of financial surveillance, regulations, KYC, global trade wars, negative interest rates, and speculative bubbles, a massive and more importantly, unstoppable move of capital was conducted peer-to-peer with no intermediary, no government, no bank, and we really don’t know who or what conducted the transaction. This is the age of digital currency, this is the future of finance, this is the significance of Bitcoin.
You can view the bespoke transaction here.
In this series, we take a look at the technological significance of the Bitcoin protocol. Invented in 2008 and introduced in 2009 under the pseudonym Satoshi Nakamoto, Bitcoin has emerged from the fringes of the cypherpunk movement to become an unstoppable force in technology and finance.
Prometheus and the Gift of Fire
According to Greek Mythology, Prometheus took pity on man’s primitive and fragile state, and stole fire from Hephaestus’s workshop on Mt. Olympus and gifted it to mankind. Prometheus also taught man how to use this newfound technology, ushering great advances is science and metalworking.
Outraged by Prometheus’ theft, Zeus bestowed punishment by having Prometheus chained to a rock and having an eagle devour his liver, to perpetuate suffering, the liver regenerated nightly so the eagle would also return to torment Prometheus.
So how does Bitcoin fit into this? Andreas Antonopolous describes:
“Satoshi is Prometheus. He took money from the banks and gave it to man, and now there’s no taking that back. Once you have knowledge, knowledge is eternal.”Andreas Antonopoulos – Melbourne Bitcoin Technology Center, 2016
Privacy and Disintermediation
Looking at the privacy model of Bitcoin and you’ll quickly notice efficiencies straight away. Bitcoin eliminates the need for Trusted Third Parties, and Counterparties.
Rethinking the Concepts of Money
On its surface, Bitcoin appears to have many of the attributes of traditional currencies and stores of value with the obvious advantage that it has no ‘physical form’ and thus no need for storage. Digging further, you’ll notice it’s much more than this.
From a very high level, all Bitcoins are ‘stored’ in virtual addresses only accessible via private/public key keypairs. Software known as ‘wallets’ serve as the user interface for transferring value from address to address. New Bitcoins are created using a Proof of Work process called ‘mining’ where computers try to solve mathematical equations to earn whats called a ‘block reward’ where every 10 minutes new Bitcoins are created on an algorithmic schedule. These newly minted bitcoins are either held by the miner, traded for goods or services, or sold on a exchange for cash.
Now if you’re new to Bitcoin, this may seem like a lot of jargon. Don’t worry if you don’t understand it right away! The important part of this is that anyone, anywhere in the world at any time can without trust, personal identification, credit worthiness, conduct commerce or send value for any reason, regardless of race, color, creed, religion, or even sentience (addresses can belong to software programs!).
Bitcoin Clearing & Settlements
One of the most important features of Bitcoin is the manner in which it eliminates certain counterparty risks associated with monetary exchange. Bitcoin transactions are cleared in near real time on a global basis, as they are made. Until now, this was impossible with the current financial infrastructure. To do this with traditional financial instruments, the only true way to really do this is to physically trade currency for goods and services. And no, PayPal and Venmo, and other such services don’t count, as they are not technically settled instantly, nor are they final!
With the introduction of Bitcoin and other cryptocurrencies, you’re able to create a immutable financial arrangement on a peer-to-peer basis between any two entities, anywhere in the world. You are transferring value over the internet, peer-to-peer, in a trust-less fashion, where the transfer of coins from address to address are rearranged when the transaction is confirmed on the bitcoin ledger which is known commonly as “the blockchain”.