Most people struggle to answer the question,
"What is Bitcoin?," because there are so many different ways to respond.
First, Bitcoin is considered the first and the most widely used cryptocurrency.
A cryptocurrency is a completely digital, decentralized currency that is built using
principles of computer science, cryptography, and economics.
The term "Bitcoin" refers to the protocol governing this currency.
Second, bitcoin lowercase refers to the actual units of currency.
A Bitcoin user will say that they have a certain amount of bitcoins, similar to how we say
we have a certain amount of dollars when referring to the US Dollar.
Third, Bitcoin is the inspiration for the blockchain, which is the underlying data structure
of this cryptocurrency.
A data structure is a virtual format for organizing, retrieving, and storing information.
The Bitcoin blockchain in particular stores a permanent history of all transactions to
ever occur in the history of Bitcoin.
It is an append-only ledger, meaning that any information added to the ledger cannot
be deleted.
But most importantly, Bitcoin is a cultural revolution.
Rooted in ideals from Cypherpunks and libertarians, Bitcoin represents a shift towards privacy
and decentralization.
This cryptocurrency is not backed by any central organization, government, or company.
Instead, Bitcoin is built by the users, for the users.
As we said, Bitcoin was inspired by the Cypherpunk Movement
of the late 80s.
Cypherpunks advocate for the protection of privacy using cryptography.
They don't trust governments, corporations, or large organizations to respect privacy.
These points of centralization accumulate a great deal of power over society by collecting
unimaginable amounts of information from millions of users.
And the Cypherpunks were some of the first to be concerned about central entities stripping
away the freedom of the general public.
One massive point of centralization in modern day society is the financial system, where:
banks govern the economies of entire countries.
Several different companies and researchers attempted to make a decentralized or anonymous
currency, but all of them failed.
Bitcoin was the first technology to succeed as a cryptocurrency.
The Bitcoin whitepaper, or research paper, was published in October 2008 by Satoshi Nakamoto.
The whitepaper was a 9-page, concise proposal for the structure and function of a peer-to-peer
electronic currency.
Satoshi Nakamoto is a pseudonym, or a false identity, of an individual or a group of individuals.
No one knows their real identity. However, what's important is that
this whitepaper envisioned a currency where users do not rely on financial intermediaries
or trust anyone in order to make transactions with each other.
In Bitcoin, users do not need to use their real world identities; instead, they are represented
by addresses, strings of random letters and numbers.
Bitcoin takes control out of the hands of third parties and gives users the freedom
to transact while protecting their privacy.
So how does Bitcoin do it? On a high level, the Bitcoin network validates transactions and stores the entire transaction history.
The Bitcoin network is a group of users communicating with each other as part of the Bitcoin protocol.
This network serves as the substitute for the central bank and must have certain properties
to function correctly.
Bitcoin is trying to create an open, accessible
cryptocurrency not subject to censorship or centralization.
But what are the problems?
Keep in mind the problems of trying to create an open, accessible cryptocurrency not subject
to censorship or centralization:
there are no central parties to ask for information about user accounts, and there are no central
parties to kick out or censor malicious users.
Decentralized networks generally suffer from these problems, leading to inconsistencies
between parties and malicious messages infecting the network.
The most popular attack is known as the double spending attack, an attack where some value
is used for more than it i's worth.
In real life, it's easy to prevent double spending: since dollar bills can't be copied
and pasted.
However, in digital currencies, there needs to be assurance that the virtual tokens have
not been promised to more than one person.
Bitcoin as a technology is trying to solve a very specific problem in the realm of distributed
systems: when any "node," or computer within the network, can come and leave as
it pleases and behave however it likes.
There are enormous possibilities for failures given the complete removal of centralization,
which is why there were so so many Bitcoin's predecessors to Bitcoin which failed.
So how does bitcoin solve these problems?
Bitcoin solves these problem through two things:
First, the blockchain, and the Proof-of-Work consensus protocol, both of which are Satoshi
Nakamoto's most popular and influential innovations.
Because of these two things, anyone with access to internet and a computer can join the Bitcoin
Network.
There are no banks or any equivalent of the Federal Reserve on the Bitcoin Network.
Instead, everyone can verify and audit the transaction history on their own.
And even the creation of money is decided not by a central authority, but through the
process of mining, of Proof-of-Work.
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