What is Bitcoin?
Bitcoin is commonly referred to as digital money or recently digital gold. However saying Bitcoin is digital money is like saying the internet is all about emails. Money is just the first of many applications. Bitcoin is a ground breaking new technology, one that the world has never seen before.
History of Bitcoin
Bitcoin was invented in 2008 with the publication of a paper titled “Bitcoin: A peer-to-peer Electronic Cash System” written under the alias of Satoshi Nakamoto. Nakamoto combined several prior inventions (B-money, Hashcash) to create a completely decentralised electronic cash system. It does not rely on a central authority for currency issuance or settlement or validations of transactions. The bitcoin network started in 2009 using the proof of work algorithm (mining) which will be explained further in this article. In recent times bitcoin price and popularity has grown exponentially reaching an all time high value of just under $20,000.
Satoshi Nakamoto withdrew from the public in April 2011, leaving responsibility of developing the code and network to a thriving group of volunteers.
In order to full understand bitcoin you must first understand the difference between centralised and decentralised. Banks and other financial institutions are centralised. This means that it is a client – server relationship. In simple terms, your money only exists as a form of debt in a ledger that you do not control. A ledger that is stored on a server , and you are simply a client, you have no control over it at all.
Example – “Today, if you go to an cash machine and you put in your card, the bank may decide to give you money. However one day, as the people of Cyprus and Venezuela to name a few have found out, one day you go to the bank and it does not want to give you the money, because they don’t have to.”
Bitcoin is fundamentally different because in bitcoin, you don’t owe anyone anything and no one owes you anything. It’s not a system based on debt. It’s a system based on ownership of this abstract token. This makes it completely decentralized, it does not rely on banks. It does not rely on governments. The decentralised network is a peer to peer network where all nodes are equal, that means, every bitcoin user is equal.
Peer to Peer
Another key concept is the peer to peer concept of bitcoin. This technology was around before, with a one of the first uses in the late 1990’s being the file sharing site Napster. Peer to peer refers to the architecture used in terms of networking to describe the relationship between participants and a system. It means every participant in the networks speaks the protocol on an equal level. There are no special bitcoin nodes; all nodes are the same.
Peer to peer means that when you send out a transaction to the netwrok every peer treats it the same. When you make a transaction, £0.01 or £1,000,000 it is treated the same. There is no context inside the peer’s system other than what it gets from the network.
This is the first part of ‘What is Bitcoin’ and covers the history and more detail on what makes up the revolutionary technology. Part 2 will be coming soon.