Bitcoin 101

February 19, 2018 Trends

I’m sure many of you have heard about bitcoin in the media, especially in recent months (at ABS we even have a client whose business is centered around bitcoin!) but what exactly is it? I thought I’d talk a little about it and give a high level overview of what it is, and the state of bitcoin today.

First, let’s discuss what it is and a little history. Bitcoin is classified as a cryptocurrency; it is essentially currency that uses secure cryptography to verify transactions, control the manufacture/creation of additional units and maintain security of the transactions themselves. Cryptocurrency is not a new concept. However, the first recorded conception of cryptocurrency was in 1983 by cryptographer David Chaum (he initially called ecash) and was not realized until 1995 with his company Digicash. The company isn’t around anymore, but the original concepts of bitcoin can be traced back to Chaum. What makes bitcoin so special however, is that it is the first decentralized cryptocurrency in the world, meaning there is no central bank or administrator controlling the currency. The entire network is a P2P peer-to-peer system utilizing blockchain technology. Bitcoin was first introduced in 2009 and was created by an unknown person or group of people under the alias Satoshi Nakamoto who is apparently a 42-year old Japanese native.

In today’s landscape, many people are beginning to see it as an investment for great and easy profits. There are a number of people that have gotten considerably rich off of holding bitcoin, especially if they were an early adopter of the currency. In 2010, the first recorded purchase of something with bitcoin was made: 2 pizzas for 10,000 bitcoins. At the time, the value of that number of bitcoins was about $41 USD. Fast-forward to more recent times, bitcoin had reached an all-time high of $19,783.06 per bitcoin in December 2017. The pizza purchase in 2010 would’ve been valued at just short of 200 million dollars at this point in time!

Some critics and speculators see this extremely rapid increase in prices as a giant bubble comparable to the dot-com bubble of early-2000s and the housing market bubble that occurred about a decade ago. While it is true that the prices of bitcoin have “crashed” over 50% from December’s all-time high, prices are steadily increasing again. The increases of prices in bitcoins over the past few years have also fostered the creation of more cryptocurrencies (nicknamed “altcoins”) such as Ethereum, Ripple, and Litecoin. Some of these altcoins are merely trying to ride the bitcoin success, but some of them have very specialized use cases.

The technologies of bitcoin and the various altcoins that have developed are extremely interesting to me, and I feel that this is just the start of an industry that will be potentially useful and game-changing in various regards in the near future. I can’t wait to see what the future holds for cryptocurrency.

 

Jesse is a rockstar Solutions Support Specialist in Virginia Beach. He spends his time staying current on IT trends and technologies while helping to architect sophisticated network designs for ABS clients.