Demystifying Bitcoin and its Meteoric Rise

If I would need to think of 2 words that would describe 2017, I can easily say it is Bitcoin & Blockchain.

And speaking about Bitcoin & Blockchain, I can only repeat myself that it is very much like teenage sex -- everyone talks about it, nobody really knows how to do it, everyone else is doing it, hence, everyone claims they are doing it as well.

Therefore, let us put some bits and pieces into right places.

So, what the hell is Bitcoin?

In very simple terms, you can call it digital gold. Going a bit further, Bitcoin has started off as a digital peer-to-peer cash, which is now become more like a store of value, and thus represents an alternative asset class, which in turn is very much driven by speculation and hype. Lots of hype.

The important thing to understand here is that Bitcoin is NOT a currency, and hardly ever will be. I have expanded further on this in my last piece in Cointelegraph (press here for a direct link).

Is this new?

Not really. The original software was laid out in a white paper in 2008 by a person or a group of persons known as Satoshi Nakamoto. By the way, read the original white paper (it's just 9 pages), it is not only a good read, but it is essential to understanding Bitcoin and everything around it (press here for a direct link to a PDF).

The key idea and innovation behind Bitcoin is the Blockchain - publicly visible and pseudonymous online ledger that records Bitcoin transactions.

How does it work?

When you do a bank transfer, you trust your bank to debit your bank account and credit the respective sum of money to someone else. To add, bank also makes sure you don't spend your money twice.

Bitcoin allows you to do the exact same thing but without a bank or any other central authority. All of this is tracked and recorded on a Bitcoin blockchain.

This is probably one of the best infographics explaining how the Bitcoin transactions work:

What the heck are those Bitcoin Miners?

Bitcoin protocol works by consensus on a decentralised network. New transactions are bundled together into a batch and broadcasted to the network for verification by so-called Bitcoin miners.

The transactional data in each batch is encrypted by a formula that can be unlocked only through trial-and-error guessing on a massive scale. The miners put large-scale computing power to work as they compete to be the first to solve the respective puzzle.

If a miner's answer is verified by others, the data is added to a linked chain of blocks of data and the miner is rewarded with newly issued Bitcoin.

Isn't Bitcoin used to finance terrorism?

No. Terrorist and terrorist organisations fund terrorism. It's that simple. And if you want to blame (crypto)currency for this, look no further than cash (primarily - USD) which has been used to fund so many wars and bombings that you simply couldn't imagine.

In fact, this is probably one of the biggest myths when it comes to Bitcoin. I have busted 3 more in my recent post (press here for a direct link).

What's behind Bitcoin's meteoric rise?

It comes down to 2 things: FOMO (fear of missing out) and HODL (holding on for dear life). Both of which are driven by greed, speculation and hype from the media. Lots of hype.

At the end of the day, Bitcoin's value today is the expectation that it will go up tomorrow. As simple as that.

Therefore, as long as new buyers with such expectations keep coming in, Bitcoin will grow.

Is it a bubble?

Probably.

In fact, it might be the biggest bubble a mankind has ever seen. Of course, many will make a hell of money out of this. But many more will lose. Big time.

Despite all of that, I see this as a positive thing - it is a part of learning and technology adoption curve. To be fair, the sooner it will burst - the better. Because so much will be learned. For the better.

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About: I am a business developer, sales professional, FinTech strategist, as well as cryptocurrency and blockchain enthusiast. I'm highly passionate about Financial Technology and Digital Innovation, and strongly believe that it will change the world for the better. Apart from my daily job at one of the leading alternative banking providers in EEA, I'm an active member of FinTech community and a TechFin evangelist.

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