"What is the main purpose of Bitcoin?"

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In this blog post, we'll dive into Bitcoin's history and analyse the problems it is trying to solve by commenting on its main original and acquired design features.

Brief history of Bitcoin

Bitcoin was invented in 2008 by an individual or group of individuals going by the pseudonym Satoshi Nakamoto. The identity of the creator(s) remains, to date, unknown. In a publication published on October 31st 2008, Nakamoto outlined the concept of a decentralised digital currency that would use cryptography, a branch of computer science that uses mathematical algorithms to encode and decode information for secure communication and data protection, to secure transactions and control the creation of new units. This currency was named "Bitcoin." Each Bitcoin is divisible in 100 million units, called "Satoshi", or "Sats" for brevity. In January 2009, the first block of the Bitcoin blockchain, also known as the "genesis block," was mined. This marked the creation of the first units of the currency. In the following years, a small community of early adopters began using and mining Bitcoin. However, it wasn't until 2010 that the first known commercial transaction using Bitcoin took place, when a programmer in Florida purchased two pizzas for 10,000 Bitcoins (two very expensive pizzas, by today's standards). Over the years, Bitcoin grew in popularity, adoption and value. Today more than ever, it is facing regulatory challenges, with some governments cracking down on its use and on Bitcoin miners' activity. Despite this, Bitcoin keeps on thriving and fulfilling its main purpose: providing a credible alternative to traditional "fiat currencies". How exactly is Bitcoin accomplishing this goal?

Bitcoin's purpose

Bitcoin was engineered as a solution to the monopoly that Central Banks have had over the creation of money and dilution of purchasing power over the last century.

In a nutshell, Bitcoin seeks to separate the concept of money from that of the State by making itself available to anybody capable of connecting to the internet. The Bitcoin protocol is permission-less in nature, meaning that anybody can generate a wallet for themselves and start using it. This feature allows Bitcoin to absolve its role as a financial instrument that increases inclusiveness, anywhere around the globe, 24/7, 365 days a year. Bitcoin's rules are enforced by code rather than committees of politicians or their nominees. While the subject of Bitcoin's immutable monetary policy will be tackled in a future blog post, it is essential to remember that Bitcoin's supply is limited to 21M coins, which come in circulation gradually according to a predefined and publicly verifiable schedule. In order to understand why those features are crucial to its purpose, it is important to go back in time to more than 100 years ago and understand the drawbacks of forms of money commonly used nowadays, such as the US Dollar, the Euro, or any other traditional currency.

The drawbacks of traditional currencies

The assassination of Austrian Archduke Franz Ferdinand took place on June 28, 1914. Shortly after, Austria declared war against Serbia, de facto starting a cascade of events that would in hindsight be recognised as the start of World War I. This escalation of violence rippled across continental Europe, reaching London. In England, the start of WW1 brought with it a fear of a potential bank run, and the Bank of England and other British banks held a total of £9 million in gold reserves. In response, Chancellor David Lloyd George took measures to "protect" the nation's financial system by extending the August bank holiday and passing the Currency and Bank Notes Act 1914, which removed Britain from the gold standard. This Act allowed the Treasury to issue £300 million in paper banknotes without the gold backing to pay off the bank's obligations, thus proving to be a highly profitable measure for the government in the form of a "War Loan without interest for an indefinite period".

By this act, the Bank of England unilaterally decided to dilute its citizens savings by orders of magnitude, forever interrupting the accountability guarantee that the gold standard provided. In the coming years, multiple countries started abandoning the gold standard too by starting engaging in dangerous practices such quantitative easing and reckless credit creation. The ever increasing public debt and purchasing power debasement has come to light multiple times in the past 50 years, where a spree of hyper-inflationary and defaults events undermined the ability of sovereign states and their citizens to remain solvent. With its immutable monetary policy, which translates to a fixed supply and a precisely defined and scheduled issuance, Bitcoin's promise it to serve as "sound money", which is money that does not lose value over time, reinstating the individuals in control of their the purchasing power.

In our next blog post, we will dive deeper into the more practical aspects of Bitcoin and how it operates. Stay tuned!