Bitcoin began its new year for the first time since 2015, continuing the negative trend it recorded for the record high of $ 19,511 per unit reached on December 18th. The virtual currency fell, on January 1, in New York, to $ 13,624.56 per unit. And this in the context in which early 2017, the cryptocurrency was only $ 1,000. It remains a controversial currency, which has enriched some beyond the limits of imagination and changes the way we think of money.

What is bitcoin?

Bit-coin, that is, a bit of coin. In August 2008, an interesting work called “Bitcoin: A peer to peer money system” was sent to more users interested in cryptography. The work was written by Satoshi Nakamoto, the same programmer or group of programmers who registered the site that year and launched the open source software. Nakamoto’s identity is still unknown. Read all about it here.

In January 2009, the bitcoin network was born, and Satoshi Nakamoto “mined” (we’ll see later) what was the first “block”, called the genesis block, and received a reward of 50 bitcoins for that. Under the original block is the following: “The Times January 3, 2009 Chancellor close to the moment of a second bailout for banks”.

This message was interpreted both as a method of marking the date when the currency was born and as a criticism of the fragility caused by the banking system based on fractional reserves. One of the first contributors and supporters of bitcoin, who was the first person to trade the currency, was programmer Hal Finney.


Currency volatility

Since then, the currency has undergone numerous cycles of appreciation and depreciation, to which economists refer to the terms of “bubble creation” and “bubble burst”. In 2011, bitcoin value rose rapidly from about $ 0.3 to $ 32 and returned as fast as $ 2. In the second half of 2012, during the financial crisis in Cyprus, the bitcoin price began to rise again to $ 266 per unit, and in April 2013 it collapsed again to $ 50. The volatility of the coin is about 7 times higher than that of the gold trading price and about 18 times the dollar. And in the past year, the currency rose from $ 1,000 in early January to $ 12,400 at the beginning of December. These extreme fluctuations have created tremendous interest for the currency among high-risk investors interested in business, and the large number of transactions and users that have entered the network have perfected and stabilized the system.

From people dedicated to the mission of getting rid of the world of greedy bankers and economic crises, to wealthy investors who have made fortunes of billions of dollars overnight or criminals who have perfected in the theft of digital information, the creation of pyramid organizations or Ponzi schemes, the bitcoin world is a mirror of truth, where if you look, you will see who you really are.

A “ledger” with content

Okay, now is the time to cover the slightly more complicated part and try to explain how Bitcoin works. It is important to note that the following description is Bitcoin’s initial operating model, which although not fundamentally altered, some of its parameters have changed as a consequence of the number of transactions, users and their value.

If we simplify the explanation to the maximum, Bitcoin is actually a file, a registry, an English “ledger” that contains the names of people on a column, and the balance of their digital wallets on the other. When you made a Bitcoin transaction of any kind, you appear in this file. All users participate in transaction monitoring, i.e. they also have a copy of this file. Thus, if John sells Mateo a pizza at the price of 5 Bitcoin, as a result of this transaction, John’s balance drops by 5 and Mateo’s balance is increased by 5. There is no tax authority, bank or government to oversee this transaction. And the only reason John trusts to sell her pizza as real as 5 extra points in this digital file is that he hopes that other people will have confidence in the system.

By Kar

Dr. Kar works in the interface of digital transformation and data science. Professionally a professor in one of the top B-Schools of Asia and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a regular contributor of Business Fundas and a frequent author in research platforms. He is widely cited as a researcher. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.