Sure, Bitcoin’s Price Is Cool, but Bitcoin’s Technology Is Hot

Bitcoin is back in the news.

As a wave of institutional liquidity pours into Bitcoin’s markets, even some of its staunchest critics are finding it hard to dismiss the 12-year-old asset as its price surges to new all-time highs.

At the very least, these past three years have proven that Bitcoin is certainly not dead. At the most, it gives credence to the investment thesis of its most bullish proponents: that it is one of the most revolutionary technologies of its time.

But what makes bitcoin so unlike any other investment (or cryptocurrency) that blue-chip insurance funds, hedge funds and asset managers are now comfortable with buying it?

Bitcoin is a synthesis of decades of cryptographic technology and research with numerous precursors and false starts that predate it. For all of its predecessors, Bitcoin was the first attempt at digital cash that laid out a (more or less) completely decentralized system.

For those of you who are new, here’s what that means and the technical features that make bitcoin such a standout.

Fact #1: Bitcoin is cryptographic money

Contrary to common misconception, Bitcoin transactions aren’t kept secret or encrypted – in fact, they’re quite public.

But Bitcoin’s system is built on public-key cryptography, a branch of computer science that uses complex math (via a system of digital keys) to encode data and keep it hidden from those who don’t have the right key to decode it.

Read more: What Is Bitcoin?

With Bitcoin, users have a public key (from which they can create public addresses to receive bitcoin) and a private key; as their names suggest, the former is meant to be shared while the latter must be kept secret (if revealed, your bitcoin can be stolen, but more on that later).

The private key is what gives you a claim to the bitcoin you own. Technically speaking, wallets store private keys and not “bitcoin.” Every bitcoin exists on the blockchain – wallets just hold the keys that give users access to them.

You need your private key to approve transactions, and you need someone else’s public address to send a transaction.

If you’re familiar with PGP encryption, you may see how Bitcoin transactions are similar. The same principles that make encrypted communications so secure are baked into Bitcoin’s code, except instead of messages, Bitcoin’s design secures the bitcoin currency.

Factoid: Bitcoin with a capital “B” refers to the Bitcoin technology or protocol. We use bitcoin with a lowercase “b” when we are referring to the digital currency.

Like sending an encrypted message, Bitcoin transactions are peer-to-peer and (because of the mining process, which we’ll cover later) they can’t be obstructed by anyone.