(Financial News) In my previous article on Bitcoin, I wrote about, “What is Bitcoin? And everything else you want to know about this digital cash.” In today’s piece I want to discuss one of the questions we get asked the most here at Financial News by many of our readers is, “Who invented Bitcoin and more importantly why?” The answer goes back just over a decade ago to the last big financial bust of 2007/2008.
The first part of the story many already know, a single person or a group of people, who went by the alias of Satoshi Nakamoto is credited with releasing the original whitepaper on Bitcoin back in 2008. Now the purpose of this article is not to discuss Satoshi Nakamoto’s potential identity (let us save that conspiracy theory for another article), instead it is to outline more of the “Why?” Bitcoin was invented and correlating that to the last financial meltdown and its repercussions.
Want to learn more about Bitcoin? Check out our other articles on Bitcoin
- What is Bitcoin?
- Who invented Bitcoin and more importantly why?
- Bitcoin transactions explained
- Bitcoin cyptography explained
The first clue we have to the “Why?” is coded into the genesis block of Bitcoin’s blockchain. The block simply reads, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
This illustrates 2 points, number 1 it illustrates that Bitcoin was officially launched on January 3, 2009 and number 2 that we are in the aftermath of biggest financial crisis of modern times.
If you know anything about blockchains, you will know that most blockchains must have their genesis block hardcoded into the blockchain, and the reason for that is rather simple. In order for bitcoins software to create a new block, it must use the information from the previous block and since the first block, AKA the genesis block has nothing previous to it, it almost always is hardcoded into the blockchain.
So our mysterious founder(s), Satoshi Nakomoto, chose a very specific headline to illustrate the depth of the global financial meltdown. Putting myself in the mindset of someone who is putting forth an entirely new monetary system in the height of the aftermath of a financial crisis that pulled the rug out from under billions of people, we can more clearly understand their motivations and see how they ended up with Bitcoin as it stands today.
Bitcoin is the result of the merger of biggest financial meltdown in modern times with technology (along with a hint of distrust of government)
Bitcoin was born from the rubble of a financial crisis that wiped out trillions of dollars from the global economy in the blink of an eye. Satoshi Nakamoto saw first hand both what got us in the situation in the first place, and even more importantly how governments around the world dealt with the problem.
In the eyes of Bitcoins mysterious founder(s), the present iteration of the fractional reserve banking system was responsible for the financial crisis, and Satoshi Nakamoto set out to find a way to address the issues of the failing system of 2007/2008 and incorporating them into what would come to be known as Bitcoin.
Satoshi would have to overcome several challenges of the present fiat system in order to create an entirely new system that is not susceptible to man, government or any sort of outside pressure.
Issue #1 – With fiat money inflation is controlled by the whims of man
One of the biggest problems of a traditional fractional reserve system is that the introduction of new money into the system is controlled by government – and this means it is run by people. And people don’t like to see catastrophe happen on their watch. instead they like to pass the so-called buck.
In a fierce game of hot potato, everyone is just passing the toxic money problems down to the next guy, knowing good and well that the problem will get bigger and the consequences will be worse with every pass, but that is OK as long as it does not have to be dealt with here and now!
Satoshi Nakamoto was able to foresee this inflationary cancer and was able to deal with this by by creating an inflationary system on bitcoin that is bound by the laws of mathematics. As system that is actually only inflationary for a small period of time and ultimately becomes deflationary. A system that is impervious to the whims of man, a system that cannot cave to pressure or mob rule and knows nothing about the laws of man and only about the law of mathematics which are hard-coded into it.
Issue #2 – Bitcoin is censorship resistant
In the present system of fractional banking adopted by most modern nations, it is the role of government to print money, and the roll of banks to protect and safeguard it. And that seems all good and fair, when you look at it on paper, but in reality, what does that really mean?
It means that we have concentrated lots of power into the hands of banks and governments. In today’s modern world, it is essential to have a bank account, but not everyone is allowed to have a bank account. Some don’t qualify, some are deemed risky. Whatever the reason may be, the result is a denial of the pursuit of life and liberty. Let’s face it, in the developed world it is not possible to function without a bank account. you cannot pay bills, you cannot function. Our lives are dependent on a financial system that doesn’t give everyone the opportunity to participate. Our participation can be blocked.
With bitcoin, you don’t need an ID card, you don’t need to prove who you are (or who you are not), you don’t need to take a test to qualify, nor do you need to be a particular nationality. Anyone anywhere can use Bitcoin, it is censorship resistent, it is borderless and its adoption could prove to take away the concentration of power from the present banking system and return it to the hands of the people, and I believe this was a core reason for the creation of Bitcoin.
Issue #3 – Bitcoin is Immutable
The idea of having a transaction to be reversible obviously means that it is never final. In reality it means that your money is never actually yours. It means that your money, can be taken or frozen by a bank, the government, a court, etc. You can be compelled to give your money involuntarily by having it taken directly from your own bank account.
That is an immense concentration of power for your bank, and it shows that your money, although you feel it is yours, isn’t actually your property. It is the property of whoever controls and decides who ultimately gets to spend the money.
By creating a blockchain that is computationally impractical to hack and a system of blocks that require the changing of all other blocks just to change a single block (which at the time of this writing is a block number 610,322) is unfathomable and creates a system that makes bitcoin immune to any outside authority and making transactions immutable.
Does this immutability bring with itself a new set of problems? Yes it does. You can no longer go cry to your bank when you lose your private key or password. You can can longer get your money back when you send it to someone and they take it.
With bitcoin, you are your own bank, you are your own custodian, and this is great power to you. As they say with great power comes great responsibility. You simply must understand this and be aware of this when you embark on the bitcoin journey.
ALL SALES FINAL!
New users of bitcoin must educate themselves on the finality of transactions. There is no protector there, once you send someone bitcoin, its final. Like they say on the fine print when you are buying that discounted item, “All Sales Final!”
Issue #4 – Bitcoin decentralizes a centralized monetary system
Decentralization is the hallmark of blockchain technology, and is the one single reason that Bitcoin was never outlawed in countries all over the world. The reason is simple, the blockchain technology that runs bitcoin is actually a decentralized and distributed ledger that is replicated and authenticated by every single computer making up the bitcoin network.
To put it simply, all computers on the Bitcoin blockchain network have the exact same copies of the ledger (blockchain), and therefore are able to provide consensus on the validity of transactions.
Before bitcoin existed the only way to keep a ledger of transactions for any payment system such as a bank or payment service provider required a centralized database or ledger that would authenticate all transactions. This also means that the proprietor of this database could essentially control any and all aspects of their ecosystem.
This put lots of control into the proprietary system you were using to handle said financial transaction.
Bitcoin solved this with the advent of the blockchain and created a decentralized public ledger that operates on consensus of the entire bitcoin network in order to validate transactions.
Issue #5 – Bitcoin is a leaderless headless system
The bitcoin network has no leader. It has no face. It has no official representative. It has no nation. It has no creed. It simply exists at the whim of its participants who form the backbone of its ledger system.
Participants can decide to leave at anytime, they can also decide to join at anytime. There is no authority that gives permission to join or leave bitcoins blockchain.
Furthermore, Bitcoin is and opensource project and at any point anyone can change the Bitcoin software to their liking and “fork” the software and create a new blockchain and in turn a new currency. These people don’t need anyone’s permission, they don’t need a mandate, they just need to do it, plain and simple.
Bitcoin rose from the ashes of the single biggest financial collapse of modern times, and it has proven to be very resilient to any sort of oversight.
This is probably what the mysterious founders set out for when being shaken to their core by the last financial meltdown of 2007/2008.
According to Coin Market Cap, as of today, the Bitcoin network is valued at approximately 134 billion dollars. This is 134 billion dollars of decentralized wealth on Bitcoin’s blockchain in a matter of just under 11 years.
The real question is, where will bitcoin be 10 years from now?