Bitcoin, launched in 2009, is the world’s first peer-to-peer cryptocurrency. It runs on a decentralized peer-to-peer ledger that doesn’t need a bank.
Bitcoin started it all.
It was the first cryptocurrency and launched an industry that now includes thousands of them. But who invented it, how does it work, and why is it so important? We explore this and more for you below.
What is Bitcoin?
Bitcoin (BTC) is a peer-to-peer cryptocurrency. Think of it as a digital token. You cannot physically touch or hold Bitcoins, and all Bitcoin transactions are recorded on a public, decentralized, immutable ledger.
did you know
The first official Bitcoin purchase was for pizza in May 2010. Two Papa John’s pizzas were exchanged for 10,000 BTC. May 22 is now celebrated as Bitcoin Pizza Day.
Bitcoin’s original appeal was a new way to pay for goods and services that are not dependent on a centralized bank, government, or credit provider. These days, there are ongoing debates about whether Bitcoin really works like everyday money or more like a store of value (the “digital gold” argument).
Who Invented Bitcoin?
Nobody knows it for sure. But the person (or persons) most directly responsible used the pseudonym Satoshi Nakamoto when he wrote a white paper in October 2008 called “Bitcoin: A Peer-to-Peer Electronic Cash System.” It was posted on a small crypto fan mailing list.
In January 2009, the software to create the coin was released, followed shortly after that by the first block mined on the network, known as the Genesis block.
The inventor or inventors go by the name of Satoshi Nakamoto, a mysterious character (or characters) that many have tried to find, some with more success than others.
The first identifiable person to get involved with Bitcoin was a programmer named Hal Finney, who downloaded the software needed to run it and received 10 Bitcoins on January 12, 2009, making it the first Bitcoin transaction.
For a time, Satoshi Nakamoto and a few others mined money on the network before mysteriously disappearing, handing over control to another programmer named Gavin Andresen.
What was so special about Bitcoin?
Bitcoin had qualities that no other form of digital cash had achieved in the past:
- Decentralized: No one person or group-owned or controlled it.
- Peer-to-peer: No third party (such as a bank) is needed to confirm and approve transactions.
- Borderless: Bitcoin can be easily moved worldwide, with smaller fees and faster speeds than traditional money transfers.
- Immutable: It is almost impossible to change or manipulate blockchain transactions.
- Avoid double-spending – This was a problem that many previous digital currencies had tried to solve before.
did you know
Around 25% of all Bitcoins have been lost by people who have lost their “keys”, which you can think of as access codes. In November 2013, an IT consultant accidentally dropped a hard drive with the private keys for 7,500 Bitcoins. That loss is worth about $350 million today. Whoops!
How is Bitcoin created?
Imagine the gold under the ground. We know it’s there, but its value is hidden until a miner digs it up. In the world of Bitcoin, a miner unearths Bitcoins using expensive computers to solve real-time cryptographic puzzles that “mine” packets of transaction records (“blocks”) onto the blockchain.
Satoshi Nakamoto’s white paper noted that only 21 million Bitcoins could be created, but we haven’t reached that limit yet.
Miners are rewarded for their efforts with a small number of new Bitcoins, and the mining reward is halved every four years as a measure to slow down the creation of new Bitcoins. At the current rate of mining, all Bitcoins will be mined around 2140.
How do you get Bitcoins?
There are two ways to acquire Bitcoin:
- You can buy some using fiat currencies ($, £, or €, for example) on cryptocurrency exchanges. You will need a digital wallet, and you will get a set of keys that you will use to access your holdings.
- You can become a miner by buying a mining rig, although the equipment is very expensive and it takes a while to become profitable.
did you know
According to Glass node, just 2,000 entities (“whales”) own almost 35% of all Bitcoins currently in circulation.
What are some of the things you can do with Bitcoin?
- Make purchases – Buy anything from a Tesla to a house; an increasing number of mainstream merchant sites accept payments in Bitcoin.
- Gamble – If you’re feeling lucky, a large number of gambling sites accept Bitcoin.
- Digital rights management – Bitcoin, and the blockchain protocol it is based on, can be used to help musicians and artists control who has access to their IP.
- Identity – Thanks to the unique double-key system used in Bitcoin wallets, the Bitcoin blockchain can be used as a way to verify your identity online.
did you know
In 2013, the FBI made $48 million by selling 144,000 Bitcoins that it had seized from criminals using the currency.
What is a Bitcoin wallet?
Like a regular wallet, it’s a place to store your valuables, but digital. When it comes to Bitcoin, those valuables are your keys (strings of numbers and letters), stored in software that you can store on your phone, the web, or a computer. Or, to be on the safer side, you can write your keys somewhere completely offline; this is called “cold storage. “
To buy and sell Bitcoin, you need a public key and a private key.
Your public key is what you share with other people so they can send you Bitcoin. Think of it as your address; it’s good for people to know.
Your private key is something you keep to yourself. When you trade, you use your private key to authenticate that you are the one requesting to send or receive Bitcoin.
did you know
Bitcoin mining uses a lot of electricity. So much so that a transaction consumes almost 4,000 times the energy used when processing a credit card transaction.
We know that all Bitcoins will be mined sometime around 2140. Meanwhile, the future of Bitcoin and its value is uncertain and fluctuates. The broader debate about the best use case for Bitcoin also continues. Will it become an everyday currency or just an investment store of value, like digital gold?
The future of Bitcoin is uncertain. But the potential for a whole world of useful blockchain applications is just beginning.