“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
This is the first sentence from Satoshi Nakamoto’s famous white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Satoshi and Martti Malmi registered a domain in August 2008, bitcoin.org. Two months later, Satoshi released this document laying out the foundations for a new type of safe and secure digital currency that would never experience inflation and can never be counterfeited. In January 2009, Bitcoin was launched.
How Does It Work?
If you are new to Bitcoin and don’t have a clear understanding of the technical details, it is still easy to get started investing. But knowing the basics is helpful when making this decision. Below is a basic overview of what makes Bitcoin work.
- Blockchain– This is a public ledger that is shared along the entire Bitcoin network that confirms all transactions and places them in blocks. When the block becomes full, they are added to the previous one forming a blockchain.
- Private keys– This is a secret piece of data also called a “seed” that is used to sign transactions. This key also prevents transactions from being altered once issued. Within 10-20 minutes, the transaction is completed and broadcasted to the network of multiple computers using this private key.
- Mining– This is a distributed consensus system that is used to confirm transactions then adding them to the next block on the blockchain. It will also enforce the order in which it is placed and then confirmed by other computers along the network called “nodes” that keep an entire copy of the blockchain for verification. Mining also runs like a lottery that prevents anyone from adding new blocks consecutively. This is so no group or individual can control what is included in the blockchain or replace any part of it. People who mine also receive a reward for participating in the form of bitcoins.
You can not physically hold a Bitcoin in your hand because they in digital form only and only balances are kept on the public blockchain ledger that is transparent. This allows anyone to see it and along with every transaction ever made on it. Bitcoins are not backed or issued by any bank or government and are not considered legal tender.
Who Invented Bitcoin?
There has always been controversy surrounding the inventor of Bitcoin as nobody has stepped forward. Rumor has it that a solitary genius named Satoshi Nakamoto created the Bitcoin process on his own but this may not be true. Before 2009 when Bitcoin came to life, there were other attempts to create a digital currency by other people.
- Adam Back invented Hashcash in 1997. He used a proof-of-work method to help prevent spam emails. After a few minor changes, this proof-of-work method was integrated into the Bitcoin protocol.
- Computer scientist Wei Dai rolled out B-money in 1998. His aim was to have an anonymous distributed electronic cash system. Through cryptographic protocols, transactions are authenticated and stored on a ledger similar to the modern-day blockchain.
- In 2005, Nick Szabo proposed Bit Gold as a financial system that combines different elements of cryptography and mining that accomplished decentralization. Timestamped blocks are stored in a title registry using “proof-of-work”. Szabo proved that this function could be securely stored, transferred, and assayed with minimal trust.
- In 1996, Hal Finney built the first “reusable proof-of-work” system based on Adam Back’s Hashcash, with the intention of using it in a digital currency system.
It is widely believed that Satoshi Nakamoto is a pseudonym for a small group of individuals that would like to remain anonymous. One reason would to be able to maintain privacy. As Bitcoin has massively gained popularity, this person or group would have a hard time living a private life. Also, if Bitcoin were to gain mass adoption, it could start to surpass some nations’ fiat currencies which could motivate governments around the world to take legal action against the creator. Safety would be another reason to stay out of the limelight as the reward for mining was high in 2009 and someone holding millions of dollars worth of Bitcoin could become a target for extortion by criminals.