Although it may seem like Bitcoin needs no introduction, there is more to this ‘progenitor of cryptocurrencies’ than initially meets the eye. The first functional blockchain and cryptocurrency, Bitcoin has become such a household name that for the uninitiated, the term ‘Bitcoin’ is synonymous with the blockchain industry itself. Perhaps this is no coincidence, as Bitcoin has established itself as the ‘gold standard’ of cryptocurrencies, influencing the entire blockchain space both in market capitalisation, dominance and price.
However, by now, a decade after it’s inception, some people might be excused for thinking Bitcoin is a living fossil, outdated and slow. But there’s improvements coming to Bitcoin which could see it competing with its younger cousins, and there’s still those out there who think Bitcoin is going to remain the ‘daddy’ of cryptocurrencies for a long time to come.
What is Bitcoin (BTC)?
The genesis block, mined by Satoshi Nakamoto in 2009, began what would become the bitcoin network. Embedded within the coinbase of the first ever block was the message “The Times 03-Jan-2009 Chancellor on brink of second bailout for banks.” – an eternally imprinted homage to Bitcoin’s core values of decentralisation – away from the control of central banks.
Very little is known about Satoshi Nakamoto, an anonymous figure, or a group of people, who first published the concept whitepaper of bitcoin on 31st October, 2008. Although many have stepped forward to claim the mantle of ‘bitcoin creator’, it’s still unknown exactly who wrote the original whitepaper – with various claimants unable to fully substantiate their claims.
Essentially, Bitcoin is the first ever functioning piece of distributed ledger technology (DLT). Made up of blocks, with each block containing a hash of previous blocks, all the way back to the very first genesis block; the Bitcoin network is essentially a public ledger which records bitcoin transactions – with one bitcoin (BTC) as the unit of account. Unlike newer proof of stake (PoS) blockchains, Bitcoin uses proof of work (PoW) consensus mechanism for new blocks to be accepted by the network.
Miners on the BTC network are required to find a ‘nonce’ value, with miners having to arrive at many different nonce values before meeting the difficulty target to mine a block. The difficulty of mining a block on the BTC network is the reason many miners pool their resources, creating huge mining ‘factories’ with many different machines working to mine a block, with block rewards shared equally among all participants.
In total, there are 21 million Bitcoin – not all of which are yet in circulation. Current estimates believe it could be as late as 2140 before every single Bitcoin is mined.
Bitcoin Use Cases & Limitations
Originally designed as a peer-to-peer digital asset for use in real world transactions, such as payments to merchants and services; some detractors would argue that Bitcoin has, to date, failed in its original vision. Due largely to Bitcoin’s huge and frequent fluctuations in value, and (in the eyes of investors at least) it’s upside potential, many people with bitcoin have chosen to hold their BTC as a store of value or investment; rather than use it as functional currency.
Add to this mix high processing fees, inability to perform refunds and frequently long waiting times for transaction confirmations – and it’s easy to see why Bitcoin has failed to gain traction as a method of payment. For Bitcoin to grow, it must successfully solve its scalability issues – the ability to process many hundred, if not thousands, of transactions per second.
However, there are multiple reasons why Bitcoin has come to dominate cryptocurrency markets. Firstly, the scarcity of BTC with it’s low total supply, creates a deflationary economic model. The laws of supply and demand dictate that with fewer bitcoins available (i.e. due to dwindling supply, ‘lost’ wallet keys), the price of BTC will rise. Low supply has made Bitcoin an attractive investment asset, so much so that it’s market fluctuations exhibit a knock on affect on other cryptocurrencies prices – functioning as a sort of digital ‘gold standard’.
Also principal to Bitcoins core value propositions is it’s direct possession by whoever holds a wallets private keys – ensuring security and a large degree of privacy. Inaccessible to third parties, and with zero storage costs, BTC is a secure and private place to store wealth – which some have called a “Swiss bank account in your pocket”. Likewise, as the Bitcoin network, and indeed other cryptocurrencies, is built according to game theory and cryptography, it’s fundamental properties are resistant to change or malicious attack.
Ongoing Development of the Bitcoin Network
Despite some of the pitfalls described above, Bitcoin’s strong developer and community base are working on layer-2 technology solutions which they believe will take BTC closer to Satoshi’s original vision.
With a large and open-source code base and development teams, many Bitcoin layering solutions have been proposed. One of the most anticipated has been the Bitcoin Lightning Network, which provides virtually equal security and privacy as the traditional Bitcoin network, while using centralised payment processors to facilitate instant payment for small and micro transactions. Other solutions for issues such as scalability have been proposed, such as ‘Ultimate blockchain compression’ – which compresses the Bitcoin blockchain in to trust-free lite nodes.
Many of these proposals have failed to gain traction. Internal disputes over the future of the Bitcoin network have caused friction between developer groups, leading to hard forks, differences of opinion regarding on-chain governance, and schisms from the original Bitcoin vision – and it remains to be seen if Bitcoin will remain a force to be reckoned with, faced with competition from second & third generation cryptocurrencies.
If the Bitcoin development community can agree on a clear and shared development vision for the Bitcoin Network, there’s no reason that BTC couldn’t scale and compete with second & third gen crypto’s. Likewise, Bitcoin’s active and large community is one of its core strengths.
Certainly, as Bitcoin’s status as a store of value and the ‘gold standard’ does not look set to change anytime soon; there could well be high times ahead for the original ‘daddy’ of cryptocurrencies – Bitcoin.