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What Is Bitcoin?

Bitcoin is a decentralized digital currency created in January 2009. It follows the ideas set out in a white paper via the mysterious and pseudonymous Satoshi Nakamoto.12 The identity of the person or men and women who created the era remains a mystery. Bitcoin offers the promise of lower transaction fees than traditional on line payment mechanisms do, and not like government-issued currencies, it is operated via a decentralized authority.

Bitcoin is known as a type of cryptocurrency as it makes use of cryptography to hold it at ease. There are no bodily bitcoins, only balances saved on a public ledger that everybody has transparent get admission to to (although each record is encrypted). All Bitcoin transactions are validated by using a large amount of computing electricity thru a system known as "mining." Bitcoin is not issued or sponsored through any banks or governments, nor is an character bitcoin treasured as a commodity. regardless of it no longer being felony smooth in maximum elements of the sector, Bitcoin is very famous and has prompted the release of masses of different cryptocurrencies, collectively known as altcoins. Bitcoin is normally abbreviated as BTC while traded.

KEY TAKEAWAYS

• Launched in 2009, Bitcoin is the world's largest cryptocurrency by market capitalization.
• Unlike fiat currency, Bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, known as a blockchain.
• Bitcoin's history as a store of value has been turbulent; it has gone through several cycles of boom and bust over its relatively short lifespan.
• As the earliest virtual currency to meet widespread popularity and success, Bitcoin has inspired a host of other cryptocurrencies in its wake.

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What Is Bitcoin

Understanding Bitcoin

The Bitcoin system is a collection of computers (also referred to as "nodes" or "miners") that all run Bitcoin's code and store its blockchain. Figuratively speaking, a blockchain can be thought of as a collection of blocks. In each block is a collection of transactions. Because all of the computers running the blockchain have the same list of blocks and transactions and can transparently see these new blocks as they're filled with new Bitcoin transactions, no one can cheat the system.

Anyone—whether they run a Bitcoin "node" or not—can see these transactions occurring in real time. To achieve a nefarious act, a bad actor would need to operate 51% of the computing power that makes up Bitcoin. Bitcoin has around 13,768 full nodes, as of mid-November 2021, and this number is growing, making such an attack quite unlikely.3

But if an attack were to happen, Bitcoin miners—the people who take part in the Bitcoin network with their computers—would likely split off to a new blockchain, making the effort the bad actor put forth to achieve the attack a waste.

Balances of Bitcoin tokens are kept using public and private "keys," which are long strings of numbers and letters linked through the mathematical encryption algorithm that creates them. The public key (comparable to a bank account number) serves as the address published to the world and to which others may send Bitcoin.

The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used to authorize Bitcoin transmissions. Bitcoin keys should not be confused with a Bitcoin wallet, which is a physical or digital device that facilitates the trading of Bitcoin and allows users to track ownership of coins. The term "wallet" is a bit misleading because Bitcoin's decentralized nature means it is never stored "in" a wallet, but rather distributed on a blockchain.

Peer-to-Peer Technology

Bitcoin is one of the first digital currencies to use peer-to-peer (P2P) technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network—Bitcoin "miners"—are in charge of processing the transactions on the blockchain and are motivated by rewards (the release of new Bitcoin) and transaction fees paid in Bitcoin.

These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoins are released to miners at a fixed but periodically declining rate. There are only 21 million bitcoins that can be mined in total. As of November 2021, there are over 18.875 million Bitcoin in existence and less than 2.125 million Bitcoin left to mine.

In this way, Bitcoin and other cryptocurrencies operate differently from fiat currency; in centralized banking systems, the currency is created at a rate matching the growth of the economy; this system is intended to maintain price stability. A decentralized system, like Bitcoin, sets the release rate ahead of time and according to an algorithm.

Early Timeline of Bitcoin

Aug. 18, 2008

The domain name Bitcoin.org is registered.7 Today, at least, this domain is WhoisGuard Protected, meaning the identity of the person who registered it is not public information.

Oct. 31, 2008

A person or group using the name Satoshi Nakamoto makes an announcement to the Cryptography Mailing List at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." This now-famous white paper published on Bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," would become the Magna Carta for how Bitcoin operates today.1

Jan. 3, 2009

The first Bitcoin block is mined—Block 0. This is also known as the "genesis block" and contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks," perhaps as proof that the block was mined on or after that date, and perhaps also as relevant political commentary.8

Jan. 8, 2009

The first version of the Bitcoin software is announced to the Cryptography Mailing List.

Jan. 9, 2009

Block 1 is mined, and Bitcoin mining commences in earnest.

Who Is Satoshi Nakamoto?

No one knows who invented Bitcoin, or at least not conclusively. Satoshi Nakamoto is the name associated with the person or group of people who released the original Bitcoin white paper in 2008 and worked on the original Bitcoin software that was released in 2009.1

 In the years since then, many individuals have either claimed to be or been rumored to be the real-life people behind the pseudonym, but as of November 2021, the true identity (or identities) of Satoshi Nakamoto remains obscured.

Although it is tempting to believe the media's spin that Satoshi Nakamoto is a solitary, quixotic genius who created Bitcoin out of thin air, such innovations do not typically happen in a vacuum. All major scientific discoveries, no matter how seemingly original, were built on previously existing research.

There are precursors to Bitcoin: Adam Back’s Hashcash, invented in 1997, and subsequently Wei Dai’s b-money, Nick Szabo’s bit gold, and Hal Finney’s Reusable Proof of Work. The Bitcoin white paper itself makes reference to Hashcash and b-money as well as various other works spanning several research fields. Perhaps unsurprisingly, many of the individuals behind the other projects named above have been speculated to have also had a hand in creating Bitcoin.

There are a few possible motivations for Bitcoin's inventor to keep their identity secret. One is privacy: As Bitcoin has gained in popularity—becoming something of a worldwide phenomenon—Satoshi Nakamoto would likely garner a lot of attention from the media and from governments. Another reason could be the potential for Bitcoin to cause a major disruption in the current banking and monetary systems. If Bitcoin were to gain mass adoption, the system could surpass nations' sovereign fiat currencies. This threat to existing currency could motivate governments to want to take legal action against Bitcoin's creator.

The other reason is safety. Looking at 2009 alone, 32,490 blocks were mined; at the reward rate of 50 Bitcoin per block, the total payout in 2009 was 1,624,500 Bitcoin.9 One may conclude that only Satoshi and perhaps a few other people were mining through 2009 and that they possess a majority of that stash of Bitcoin.

Someone in possession of that much Bitcoin could become a target of criminals, especially considering that Bitcoin is less like stocks and more like cash, wherein the private keys needed to authorize spending could be printed out and literally kept under a mattress.

Why Is Bitcoin Valuable?

Bitcoin's price has risen exponentially in just over a decade, from less than $1 in 2011 to more than $68,000 as of November 2021. Its value is derived from several sources, including its relative scarcity, market demand, and marginal cost of production. Thus, even though it is intangible, Bitcoin commands a high valuation, with a total market cap of $1.11 trillion as of November 2021.12

Is Bitcoin a Scam?

Even though Bitcoin is virtual and can't be touched, it is certainly real. Bitcoin has been around for more than a decade and the system has proved itself to be robust. The computer code that runs the system, moreover, is open source and can be downloaded and analyzed by anybody for bugs or evidence of nefarious intent. Of course, fraudsters may attempt to swindle people out of their Bitcoin or hack sites such as crypto exchanges, but these are flaws in human behavior or third-party applications and not in Bitcoin itself.

How Many Bitcoins Are There?

The maximum number of bitcoins that will ever be produced is 21 million, and the last bitcoin will be mined at some point around the year 2140. As of November 2021, more than 18.85 million (almost 90%) of those bitcoins have been mined.18 Moreover, researchers estimate that up to 20% of those bitcoins have been "lost" due to people forgetting their private key, dying without leaving any access instructions, or sending bitcoins to unusable addresses.