Bitcoin Overview

Since 2009, Bitcoin has been the most recognized form of cryptocurrency. Bitcoin was also responsible for popularizing a form of ledger system known as a blockchain. This is what facilitates the peer-to-peer system and permits Bitcoin to function as a fully digital currency. There are no repositories in which tangible Bitcoin is contained in contrast to other forms of tangible currency.

The History of Bitcoin

Bitcoin was invented by Satoshi Nakamoto. This name is a pseudonym given to either a single unknown programmer or a group of them. Most individuals assume that the creation of the Bitcoin cryptocurrency was the work of multiple programmers. The name itself seems to have appeared first in a white paper by Nakamoto that describes the currency and is a combination of the words bit and coin to reflect its digital nature.

Many believe that Bitcoin was the first cryptocurrency but this is incorrect. There were several digital currency predecessors, none of which were designed to be used or managed to succeed in the same fashion. Examples of these predecessors would include David Chaum’s eCash protocols, Adam Back’s Hashcash, and Nick Szabo’s Bit Gold. Szabo also researched methods of tracking transactions, work that would ultimately contribute in some small part to the creation of a blockchain.

Nakamoto published the white paper in November of 2008. It was originally distributed to a mailing list of individuals with an interest in cryptography. Nakamoto described the currency and how it was created through a process known as mining.

Bitcoin Mining

Bitcoin is digitally created through a process known as mining. This term is actually reflective of the record-keeping service which is the blockchain. Those who mine Bitcoin are essentially tasked with keeping the blockchain accurately maintained. They do this by verifying transactions which are collectively known as a block. As a reward for mining Bitcoin, the miner receives newly created Bitcoin.

The first individual or group of individuals to successfully mine a block was Nakamoto. This first block is referred to as the Genesis Block and is believed to have rewarded Nakamoto with 50 Bitcoins. It is estimated that Nakamoto may have mined as many as 1 million Bitcoins before the further development of the cryptocurrency was assumed by Gavin Andresen. There has never been a centralized or official public entity associated with Bitcoin, but Andresen presided over the Bitcoin Foundation.

A block is precisely defined as a cryptographic hash. Each block contains a record of the previous hash. These hashes are continuously linked together which is why the record-keeping system is referred to as a blockchain. A specific algorithm for creating hashes known as SHA-256 is used. Each block also contains a proof-of-work which substantiates the work of Bitcoin miners. To obtain the proof-of-work, miners must find a nonce. A nonce is a number relating to a difficulty target in generating the hash.

It is the complexity of the blockchain system and hashes which creates and helps to maintain Bitcoin security. If an attempt were made to modify any of the blocks, this would require the modification of all other blocks as well.

Bitcoin Use and Acceptance

The use and acceptance of Bitcoin has risen substantially since the currency was introduced. As of 2017, it is estimated that 3-6 million individual users have a Bitcoin wallet. Many of these individuals do not actually possess any of the currency but only created wallets as a fad. The actual number of individuals who use and trade Bitcoin is likely far less.

In order to maintain and use Bitcoin, individuals must create a wallet. A wallet is similar to a bank account specifically for storing Bitcoins. The wallet is what permits an individual user to receive Bitcoins and transfer them for purchases.

There are two primary wallet types. One of these is a piece of software installed on a computer or mobile device. These wallets allow complete control over a user’s Bitcoins. The downside is that there can be a difficulty installing them, and maintaining them involves a bit of a learning curve.

The other type of wallet is hosted on the Internet by a third party. These wallets can be easier to use. Their downside is that the user is dependent upon those who host the wallet to provide security and prevent the loss of Bitcoins.

A vast number of merchants are now accepting Bitcoin as a form of payment. There are estimated to be over 100,000 Bitcoin merchants. Among the most recognized of these are PayPal, Microsoft, and Dell. It has also become popular for some non-profit organizations to accept Bitcoins as donations. Greenpeace is one such organization.

A health clinic in Texas made news headlines by announcing in 2014 that they would accept Bitcoin, and it is now common to find Bitcoin ATMs in many parts of the world. 

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