Bitcoin, digital currency or store of value?

Bitcoin started as a domain, registered under Bitcoin.org on 18 August 2008. The decentralized digital currency was pioneered by an unknown person or group of people using the name Satoshi Nakamoto. With its implementation being released as open-source software, the currency came to use when Nakamoto created the Bitcoin network by mining the starting block of the chain, known as the genesis block, on the 3rd of January 2009.

Bitcoin was initially designed to be a digital replacement for cash, as shown by its first known commercial transaction in 2010, where programmer Laszlo Hanyecz bought two Papa John's pizzas for 10,000 Bitcoins from Jeremy Sturdivant, however being the first cryptocurrency, its steady rise in popularity has enabled it to become an essential store of value; comparable to the likes of gold, even being referred to by some as "digital gold". 

According to blockchain analysts, Nakamoto had mined at least one million Bitcoins before disappearing in 2010 when he gave the network alert key and control of the code repository to Gavin Andresen who later became lead developer at the Bitcoin Foundation, then aimed at decentralizing control.

Bitcoin-money decentralization

Bitcoin's potential impact on current financial systems cannot be addressed without highlighting how it is implemented; through blockchain technology. One of the critical aspects of blockchain technology is decentralization. With decentralization, financial transactions can be carried out without central banks or governments. This means that any individual can access the blockchain and have a copy of the public ledger, provided he has the means for it. Each transaction can then be verified through this replication over a distributed network. Therefore, if any criminal or malicious organization wants to remain undetected, they would have to tamper with all the copies on the blockchain. Distributed ledgers are also shown to automatically record transactions in real-time, reducing the chances for fraud or any other suspicious transactions to occur. As a result, traditional banks might find this aspect of blockchain appealing as it could fundamentally change the existing framework in which financial systems operate better.

Blockchain technology can also show its efficacy in managing risks, operations adopted by commercial banks to track and monitor loan use are known to not be as suitable and efficient at times. In addition, global regulation of capital circulation can prove to be even more of a challenge. Blockchain technology can offer its multi-centred feature that treats each user as a single node in the blockchain, which would then allow direct peer-to-peer transactions between borrowers and lenders to take place, thereby eliminating the requirement for credit guarantees by banks or any other intermediaries. This would also increase efficiency in managing funds and lower credit risk, brought by asymmetrical information. 

Bitcoin started a revolution in the digital market as the first-ever cryptocurrency. Through its open-source implementation, thousands of other cryptocurrencies entered the market, following in its footsteps. As such, other cryptocurrencies like Ethereum, Polygon Matic and Chainlink would never have found their way into the crypto space if it were not for Bitcoin’s underlying success. Over the years, it has become an essential store of value. It is one of the most popular mediums for investment opportunities, inviting a steady pool of investors worldwide. Not only that, but it also paved the way for non-fungible tokens (NFT) to enter the crypto space, which eventually went on to take the digital world by storm.

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Credits: Photo by FrimuFilms