Bitcoin
Why Now?
BTC is best understood as a new type of open-source, peer-to-peer electronic cash system. Unlike conventional currencies that rely on trust in central banks and financial institutions, BTC operates in a completely decentralized manner, with no central server or trusted third parties. This decentralization is achieved through a network of participants around the world who run software that verifies and validates transactions.
At its core, BTC functions using a distributed public ledger known as the "blockchain". This blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block contains a batch of validated transactions, and once a block is added to the chain, it becomes very difficult to alter, ensuring the immutability of the transaction history. This transparency and immutability are fundamental to BTC’s operation, as anyone can view the entire history of transactions, although the identities of the participants remain pseudonymous.
New blocks of transactions are created and added to the blockchain by "miners". Miners use specialized computer hardware to solve a complex cryptographic puzzle, a process known as "proof-of-work". The miner who successfully solves the puzzle first gets to create the next block, which includes thousands of pending BTC transactions. In return for this service, miners are rewarded with newly created bitcoin (the "block subsidy") and the transaction fees included in the block. This process not only adds new transactions to the ledger but also secures the network by making it computationally expensive for any single entity to gain control and tamper with the transaction history. The network is designed to produce a new block approximately every ten minutes on average.
A key characteristic of BTC is its finite supply. The total number of BTC that will ever be created is capped at 21 million. This scarcity is a fundamental aspect of BTC’s design and is often compared to that of precious metals like gold. Each BTC is divisible down to eight decimal places, with the smallest unit being called a "satoshi" (sat), making a total of 2.1 quadrillion sats. This divisibility allows for transactions of any size.
BTC provides a powerful capability for the fast, global, and censorship-resistant transfer of value. Once a BTC transaction is confirmed within a few blocks on the blockchain (typically within 30-60 minutes for significant transactions), it is considered irreversible. This peer-to-peer nature means that users can send BTC directly to each other over the internet without needing to go through traditional intermediaries like banks. This eliminates the potential for censorship by governments or financial institutions, making it a valuable tool for individuals and organizations facing such restrictions. Furthermore, the ability to self-custody BTC using private keys allows individuals to maintain control over their funds without relying on custodians. A user can even memorize twelve words representing their private key and carry their savings anywhere in the world without the need for a centralized counterparty. This is a significant advantage compared to physical cash or gold, which can be difficult to transport across borders.
Over time, BTC has increasingly been recognized as a store of value due to its scarcity, immutability, and decentralized nature. Many people hold BTC as a form of savings, appreciating its limited supply and the difficulty of increasing that supply. This "monetary premium" adds to its value beyond any inherent utility.
Furthermore, BTC’s network effects contribute to its value. The more people who hold, use, and develop applications for BTC, the more useful and valuable the network becomes for everyone. The growing ecosystem of exchanges, custodians, payment processors, and the development of layers like the Lightning Network (for faster and cheaper small transactions) and sidechains (for increased functionality) enhance BTC’s utility and adoption. The increasing liquidity of BTC markets also makes it easier for larger pools of capital to enter and exit, further supporting its value.
While BTC is still a relatively young technology and faces risks and volatility, its unique properties have led to its increasing recognition as a valuable and potentially transformative monetary asset in the digital age. Its design attempts to solve fundamental problems with traditional financial systems, such as the need for trusted intermediaries and the potential for currency debasement.
The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations.