WHAT IS BITCOIN?
Bitcoin is a collection of concepts and technologies that form the basis of a digital money
ecosystem. Units of currency called bitcoins are used to store and transmit value among
participants in the bitcoin network. Bitcoin users communicate with each other using
the bitcoin protocol primarily via the Internet, although other transport networks can
also be used. The bitcoin protocol stack, available as open source software, can be run
on a wide range of computing devices, including laptops and smartphones, making the
technology easily accessible.
Users can transfer bitcoin over the network to do just about anything that can be done
with conventional currencies, such as buy and sell goods, send money to people or
organizations, or extend credit. Bitcoin technology includes features that are based on
encryption and digital signatures to ensure the security of the bitcoin network. Bitcoins
can be purchased, sold and exchanged for other currencies at specialized currency ex‐
changes. Bitcoin in a sense is the perfect form of money for the Internet because it is
fast, secure, and borderless.
Unlike traditional currencies, bitcoins are entirely virtual. There are no physical coins
or even digital coins per se. The coins are implied in transactions which transfer value
from sender to recipient. Users of bitcoin own keys which allow them to prove owner‐
ship of transactions in the bitcoin network, unlocking the value to spend it and transfer
it to a new recipient. Those keys are often stored in a digital wallet on each user’s com‐
puter. Possession of the key that unlocks a transaction is the only prerequisite to spend‐
ing bitcoins, putting the control entirely in the hands of each user.
Bitcoin is a fully-distributed, peer-to-peer system. As such there is no “central” server
or point of control. Bitcoins are created through a process called “mining”, which in‐
volves looking for a solution to a difficult problem. Any participant in the bitcoin net‐
work (i.e., any device running the full bitcoin protocol stack) may operate as a miner,
using their computer’s processing power to attempt to find solutions to this problem.
Every 10 minutes on average, a new solution is found by someone who then is able to
validate the transactions of the past 10 minutes and is rewarded with brand new bitcoins.
Essentially, bitcoin mining de-centralizes the currency-issuance and clearing functions
of a central bank and replaces the need for any central bank with this global competition.
Bitcoin was invented in 2008 by Satoshi Nakamoto with the publication of a paper titled
“Bitcoin: A Peer-to-Peer Electronic Cash System”. Satoshi Nakamoto created a completely de-centralized
electronic cash system that does not rely on a central authority for currency issuance or
settlement and validation of transactions. The key innovation was to use a distributed
computation system (called a “Proof-Of-Work” algorithm) to conduct a global “elec‐
tion” every 10 minutes, allowing the de-centralized network to arrive at consensus about
the state of transactions. This elegantly solves the issue of double-spend where a single
currency unit can be spent twice. Previously, the double-spend problem was a weakness
of digital currency and was addressed by clearing all transactions through a central
TRANSACTIOS, BLOCKS, MINING, AND THE BLOCKCHAIN
The bitcoin system, unlike traditional banking and payment systems, is based on decentralized trust. Instead of a central trusted authority, in bitcoin, trust is achieved as
an emergent property from the interactions of different participants in the bitcoin sys‐