What Is Bitcoin?

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Sep

Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, and thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for the work done to verify transactions and can be purchased on several exchanges.

Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto.

It has since become the most well-known cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies. These competitors either attempt to replace it as a payment system or are used as utility or security tokens in other blockchains and emerging financial technologies.

In August 2008, the domain name Bitcoin.org was registered. Today, at least, this domain is WhoisGuard Protected, meaning the identity of the person who registered it is not public information.

In October 2008, a person or group using the name Satoshi Nakamoto announced the Cryptography Mailing List at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." This now-famous white paper published on Bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," would become the Magna Carta for how Bitcoin operates today.

On Jan. 3, 2009, the first Bitcoin block was mined—Block 0. This is also known as the "genesis block" and contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks," perhaps proof that the block was mined on or after that date, and maybe also as relevant political commentary.

Bitcoin rewards are halved every 210,000 blocks. For example, the block reward was 50 new bitcoins in 2009. On May 11, 2020, the third halving occurred, bringing the reward for each block discovery down to 6.25 bitcoins.

One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.

Bitcoin, as a form of currency, isn't too complicated to understand. For example, if you own a bitcoin, you can use your cryptocurrency wallet to send smaller portions of that bitcoin as payment for goods or services. However, it becomes very complex when you try to understand how it works.

Cryptocurrencies are part of a blockchain and the network required to power it. A blockchain is a distributed ledger, a shared database that stores data. Data within the blockchain are secured by encryption methods. When a transaction takes place on the blockchain, information from the previous block is copied to a new block with the new data, encrypted, and the transaction is verified by validators—called miners—in the network. When a transaction is verified, a new block is opened, and a Bitcoin is created and given as a reward to the miner(s) who verified the data within the block—they are then free to use it, hold it, or sell it.