** This post is currently undergoing a major overhaul. Its going to take some time to finish, so please bear with us 🙂
Bitcoin : A Peer-to-Peer Electronic Cash System
The TL:DR Version
Bitcoin is a fully decentralized form of electronic money. It has a limited supply of 21M coins that will ever exist. Bitcoins are released into circulation through mining. This mining process is intentionally hard to secure the network and fight off attackers. No single person, entity, or company controls bitcoin. Network participation is voluntary and free. Sending bitcoin to someone is permanent. Every bitcoin sent and received is recorded on a distributed, public, ledger of transactions. This ledger of transactions is technically infeasible to alter or change. Functionality of the core protocol cannot be changed, altered, or tampered with by anyone. The bitcoin project is open source. Implementation of changes only happen when community consensus is received. Holding bitcoin in control of the private key is economic sovereignty.
Bitcoin is hard money. Bitcoin is sound money.
Bitcoin P2P e-cash paper
I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.
Coming from an email to a cryptography mailing list, these were the Bitcoin creators first public words. Hiding under the pseudonym, ‘Satoshi Nakamoto’, the whitepaper first saw the light of day on Friday the 31st October, 2008.
In the email, Satoshi described the main properties of bitcoin as follows;
- Double-spending is prevented with a peer-to-peer network.
- No mint or other trusted parties.
- Participants can be anonymous.
- New coins are made from Hashcash style proof-of-work.
- The proof-of-work for new coin generation also powers the network to prevent double-spending.
I am not Dorian Nakamoto
Satoshi stayed active on multiple forums for a couple of years after releasing Bitcoin. Spending most of his time on Bitcoin talk and the P2P foundation, he helped answer developers questions while continuing to update the bitcoin core client.
His last ‘official’ correspondence was an email with Mike Hearn, an early bitcoin developer. Satoshi told Mike he had moved onto other things, and that “It’s in good hands with Gavin and everyone”. Gavin was also an early Bitcoin developer who stopped working on Bitcoin in 2014.
However, Satoshi popped back into existence by posting from his old account on the P2P foundation forum. His one-liner was in response to a Newsweek article that falsely identified someone they though was Satoshi.
On the plus side for the real Dorian, he was donated some bitcoin and actually made pretty good money from it.
A chain of blocks
I need proof that work has been performed
Bitcoins are mined by people (or groups, or companies) by doing a series of complex mathematics. When someone sends a bitcoin to someone else, the network broadcasts that transaction to the latest ‘block’ on the blockchain. Computers then add these transactions to the ledger and the miners confirm them, building up to a number of ‘confirmations’ that then becomes an immutable record.
Bitcoin has a block reward scheme to pay miners for helping keep the network active and correct. The more computational power a miner has, the greater the chance they are the one to mine the latest block in the blockchain and receive the reward. This is the incentivised scheme that drives the entire Bitcoin network.
The Bitcoin Currency
Its important to note and seperate the two meanings of Bitcoin and bitcoin. Bitcoin with an uppercase ‘B’ is actually the blockchain component of Bitcoin. Bitcoin with a lowercase ‘b’, is actually the currency itself.
But in summary, the question of ‘What is Bitcoin’ really comes down to the follow points. It is;
- A decentralised currency – no one person or group controls Bitcoin transactions.
- Uses a Blockchain ledger.
- Divisible – Bitcoin can be divided into smaller units which has future potential for micro-transactions
- Pseudonymity – users of Bitcoin are semi-anonymous with only a random address to identify them.
- Low transaction costs (see also, Disadvantages).
- Around 3-6 transactions per second (TPS).
- Immutable (irreversible) transactions
- Bitcoin (BTC ticker) currently has a circulating supply of 16 million (total 21 million).