Types of cryptocurrencies include stablecoins, non-fungible tokens, central bank digital currencies, security assets, and crypto assets like Bitcoin. It’s easy to assume that all cryptocurrencies are more or less the same, but bitcoin stands apart in the crowded cryptocurrency landscape, not merely as the pioneering digital currency, but also due to its distinctive protocol. This sets it apart from its peers, cementing its role as the ‘anchor’ of the industry – a symbol of stability and enduring presence.
Bitcoin distinguishes itself from other centralized cryptocurrencies by offering the largest available network, a predetermined supply, full sovereignty over one’s coins, and a transparent structure that cannot be easily influenced by any one organization.
In fact, Bitcoin is sometimes referred to as “digital gold”. People in all walks of life have always looked for assets that were not controlled by governments, and for centuries, gold has been the standard-bearer for such commodities. However, as governments have moved off the gold standard and as we have moved into the Internet age, Bitcoin has become the ultimate example of a decentralized financial asset.
Much like gold, Bitcoin has a low correlation to the stock market, and it has therefore become a viable option for those looking for hedging opportunities, fungibility, and many of the other characteristics of gold.
A Brief History Of “Digital Gold”
Bitcoin was invented 15 years ago by the mysterious Satoshi Nakamoto – a pseudonym for a person or persons unknown. Published on Oct. 31, 2008, a transcript known as the Bitcoin Whitepaper laid out plans for a computer technology that would enable multiple parties to send payments online without verification from financial institutions, such as banks. The creators of Bitcoin utilized the principles of cryptography, to develop a decentralized digital currency system that ensures secure and verifiable transactions, protecting them from unauthorized access or tampering by third parties.
A set of Bitcoin transactions from a certain period of time is known as a block. Each block is stacked in such a way that one block depends on its predecessor. This series of blocks, or the blockchain, holds a complete, public, and permanent record of every Bitcoin transaction. This means that anyone can see where Bitcoin is flowing at any given time.
In the years since its introduction, Bitcoin has reigned as the world’s largest cryptocurrency in terms of market capitalization. Decentralized digital scarcity is the real innovation and Bitcoin was the first to introduce this concept.
There will only ever be 21 million Bitcoins in existence, meaning that people who own Bitcoin will not have to worry about their coins losing value through the inflation caused by printing more of a currency. This has been a major issue for modern currencies, which can rapidly decrease in value over time.
Furthermore, as most learned in their first economics class, the supply of an asset plays a big role in determining its price. A scarce asset is likely to be more valuable, meaning the limited supply of Bitcoin is an attractive quality.
Another attractive feature of Bitcoin is its anonymity. While Bitcoin transactions are recorded on the blockchain, users’ identities are kept pseudonymous. This helps create privacy for those who wish to keep their financial transactions secret.
New adoptions like Ordinals are a great example of how Bitcoin technology is continuing to evolve over time. Ordinals are digital assets that can be inscribed on a satoshi, the lowest denomination of a Bitcoin. In this sense, Ordinals are very similar to Non-Fungible Tokens, or blockchain-based tokens that each represent a unique asset like a piece of art, media, or even a contract.
As more people and businesses adopt and use Bitcoin, its network effect grows stronger. The larger the network, the more valuable and widely accepted Bitcoin becomes as a form of currency.
As such, it seems that although other cryptocurrencies will come and go, Bitcoin’s popularity has remained strong for over a decade, and it is built to last.
Bitcoin Miners Create A Network With Integrity
Bitcoin’s network is key to helping maintain its viability and integrity.
Bitcoin runs on a peer-to-peer, decentralized network to help verify transactions, keep records, and prevent fraud. This network relies on a process known as Bitcoin mining to verify that all transactions are legitimate and to add new coins to the network. This process prevents people from spending Bitcoin that they don’t own.
Participants in the Bitcoin network, called miners, verify and collect transactions. Miners are responsible for ensuring that all transactions are valid and that no fraud is taking place within the network.
Before a miner can add a transaction to the blockchain they must solve a complex mathematical problem. This concept is known as “proof of work” and typically requires powerful, single-purpose computers to verify and approve transactions. Miners compete with each other to solve the problem and the first one to solve it is allowed to verify the transaction and collect the reward.
Further verification by fellow miners results in a new block being added to the blockchain. The successful miner is rewarded with newly created Bitcoins and transaction fees from the added block.
The fact that Bitcoin miners are rewarded with Bitcoin is a critical component that helps maintain the network’s integrity. If miners were to try and undermine the network, then the value of Bitcoin would likely fall, along with the price of Bitcoin.
This reward system, which helps align miners’ incentives with that of the network, is one of many characteristics that make Bitcoin’s model so unique. After laying the groundwork for other cryptocurrencies, Bitcoin has the longevity and track record that only come with a cryptocurrency that has seen such widespread adoption.
These are among the many reasons why Bitcoin has been called digital gold. With a finite supply, Bitcoin is the rarer of the two assets, benefiting those who have invested in the 19 million bitcoins that have been mined so far and are currently in circulation.