If your friends make fun of you for being interested in Bitcoin and your mom worries that you're a hustler, learn what Bitcoin is and finally explain it to them. Our guide will help you with this.
Story of Bitcoin's Mysterious Developer(s)
In 2008, on Halloween, 31 October, a user or group of users named Satoshi Nakamoto published a Bitcoin whitepaper on the forum. Two months later, they created the first block (the “genesis block”) with a hidden message inside: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”, pointing to the article in Times with the same title. In this way, they hinted at the instability of traditional financial systems and marked the date the first block was created.
The team communicated with other developers via emails and forum posts, periodically giving updates about the technology. In 2010, after sending one simple message: "I have moved on to other things," they disappeared forever.
Since then, Satoshi's stash – about 1,096,354 bitcoins – has never been moved. At today’s prices, that's worth over $108 billion. Maybe he, as a decent developer, decided not to sell his bitcoins to be able to rescue them in case of a falling price.
The main thing about Bitcoin, according to its Whitepaper
What is Bitcoin?
Bitcoin is an electronic coin. It's essentially a long chain of transactions, similar to a ledger. Network participants confirm each transaction and ensure its reliability. See the chain of all ever-made transactions here: Blockchain Explorer.
How does it work?
All network participants verify transactions using cryptographic signatures based on public and private keys. The public key is like an email address – visible to all, and it allows others to send you funds or view your balance. The private key is like a password and creates a digital signature that proves ownership of the coins.
Miners verify the block of transactions and ensure they are valid by checking the digital signatures and previous history.
How is double-spending prevented?
When you pay with cash, you hand over your bill and no longer have it. The sum in your bank account also goes down with a transaction. However, with Bitcoin, since it's digital, it could be duplicated like a file and spent twice.
To prevent this, first, network participants determine which transaction came first using timestamps. Second, the network ensures each transaction is unique and added only once to the ledger.
To make a fake transaction, a user would have to fake the ledger, which is practically impossible because the legitimate blockchain grows faster through the Proof of Work process of creating new blocks.
How are new Bitcoins mined?
Mining is the separate process by which new blocks are created. Miners repeatedly change a value called a nonce (a number used only once) to find a hash that starts with a specific number of zeros. You can’t just add zeros manually because the hash output must result naturally from the input data; changing even one small part of the input changes the entire hash.
The only way to find a correct hash is through trial and error, and this is exactly what miners spend energy on. This process is called Proof of Work, meaning: Hey! I've found the correct nonce! I win the right to add a block! It's proof of my work!
We can summarize this process in the table:
How to prevent Bitcoin hacking
It's more profitable to earn a block reward than to try to create a fake Ledger. To hack Bitcoin, you'd need to control more than 50% of global mining power, which is economically and technically unfeasible. The real ledger keeps growing faster through continuous Proof of Work, so a fake version would always lag behind and be rejected by the network.
The most useful Bitcoin features
- Availability. Bitcoin is the world's first globally accessible public money. It's available for anyone regardless of their nationality, race, religion, gender, sex, or creditworthiness. You can create a Bitcoin address for free and without providing documents.
- No single point of failure. The network doesn't depend on a single participant but relies on the community, while in a traditional payment system, everything depends on a particular bank. If something happens to it (it gets hacked or goes bankrupt), a lot of people lose their finances.
- All power is in the community's hands. Blockchain gives people power and control over assets and the network in which they are located. And this is the difference between Bitcoin and Web2. Peter Van Valkenburgh, Director of Research at Coin Center, said:
"Now people in my hometown, Pueblo, Colorado, can own the Ethereum network, but they can’t own the internet, which belongs to Google and a few other companies.”
The first experiments with Bitcoin
In 2010, the first purchase with Bitcoin was realized. Developer Laszlo Hanyecz bought two Papa John’s pizzas for 10,000 BTC or $41. For now, it would be over $966 million.
Since the asset was worth just a few cents, developers gave it away to users to help it grow and become popular. This is how the first allocation in history happened, called Bitcoin Faucet. Developers give away 5 (!) bitcoins to people for solving a simple CAPTCHA. If some of them decide to save them and not sell, they are happy people.
Of course, the decentralized payment system, where payments can be made anonymously, was expectedly to be used by criminal groups. So, Bitcoin became the perfect tool for Silk Road – an underground online marketplace for drugs and other illicit goods. In 2013, it was busted by the FBI.
What's going on with Bitcoin right now?
Its price is around $105,000. Central banks across the world intend to take it as a reserve. People who sold it earlier are biting their elbows. But more people will bite their elbows if they don't finally start taking it seriously.
As Satoshi wrote: "It might make sense just to get some in case it catches on."
Kataryna Habeliia
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