Bitcoin basics

Get up to speed with the core principles behind the most popular cryptocurrency

The prevalent Bitcoin logo.

What is Bitcoin?

Bitcoin (BTC) is a universal digital currency that allows you to make fast, cheap, peer-to-peer transactions 24 hours a day, 7 days a week.

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💱 Bitcoin (currency code BTC or XBT) is a revolutionary digital currency that was invented in 2008 by Satoshi Nakamoto.

💸 BTC transactions are [...]

🔐 Transactions are immutable and encrypted [...]

🍕 The first 'official' use of BTC in a commercial transaction was made in 2010, when Florida resident Laszlo Hanyecz bought 2 pizzas from Papa John's for 10,000 BTC. At the time, his BTC was worth about $40, but in today's market that's over $400M

A bit of history

Bitcoin was invented in 2008 by Satoshi Nakamoto, whose true identity remains a mystery - it could be a man, woman, or group of people. What we do know is that the bitcoin.org domain was registered in August 2008, followed by the publication of the Bitcoin whitepaper in November 2008.

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bitcoin.pdf

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Bitcoin whitepaper

You don't have to read this paper, but it is recommended reading for anyone interested in studying the more technical details underpinning Bitcoin.

This paper served as the World's somewhat understated introduction to Bitcoin. In essence, it introduced a revolutionary form of currency that was created in the wake of the Global Financial Crisis.

The first goal of the paper is to define the objective of the Bitcoin network, which is to offer an alternative to the trust-based model of digital transactions. Prior to cryptocurrency, any online transaction required a third party (financial institution) to approve and execute it.

With a digital cash system, transactions can be conducted directly between participants i.e. peer-to-peer (P2P) without the requirement of a third party to mediate the transaction. Naturally, this eliminates the requirement of trusting third-party providers.

This goal was achieved with the inception of Bitcoin - a digital asset that allows P2P transactions that are immutable (i.e. can never be modified or deleted) and encrypted (using cryptographic techniques developed in the 1950s) in order to protect users from fraudulent activity.

Underpinning the use of Bitcoin as a medium of exchange is the Blockchain. When a user wishes to transfer BTC funds to another user of the blockchain, the network must verify when the sender first received that amount (previous block in the 'chain') and also confirm the amount they're transferring to the receiver (future block in the 'chain'). In doing so, the network ensures that the amount sent will no longer be in the sender's funds, via an irreversible transfer to the receiver.

To guarantee successful verification and eliminate the risk of fraud, all transactions are made public. This means anyone can access a record of transactions on the Blockchain.

Each transaction is registered using a timestamp. This displays both the origin and destination of the transaction funds. This process creates 'blocks' on the chain.

P2P platforms are not exclusive to cryptocurrency. They existed many years before Bitcoin was created (Napster was initially released in 1999), and are regularly used for distributing and sharing digital media such as music, movies and games. Using P2P software, useres are able to search for other computers on a P2P network in order to find their desired content.

With regular P2P file sharing services it's possible to transfer files and keep duplicates - so what's stopping someone doing the same with their cryptocurrency? This is known as the Double Spend problem, and is discussed briefly below.

Solving the Double Spend problem

Double-spending [...]

Who controls it?

Bitcoin is not controlled by any central company, bank, government or programmer.

Bitcoin is run solely by its community of users

Bitcoin's users are located across the globe - all that is required is an internet connection and a smartphone or computer.