Welcome to Brave New Coin’s Bitcoin 101. First-timers, we’d like to introduce you to the wonderful world of cryptocurrency; where payment is frictionless, free and instantaneous, and pizza could cost you $5 million dollars (more on that later). Sections 1-6 will cover the essential things you need to know about Bitcoin.
To our experienced readers, welcome back. Sections 7-10 contain some more advanced ideas and fun trivia. Read up, get to know Bitcoin better, and discover how cryptocurrency could change the world. Let’s get started.
Bitcoin is a digital currency (or cryptocurrency) that was first proposed in 2008 and created in 2009 by Satoshi Nakamoto. Satoshi’s identity is still unknown, many theories exist trying to figure out who he really is. Bitcoin was not the first attempt at making digital money , but it was the first to use a “Blockchain” to keep tally of who-owns-what with Proof of Work to verify transactions.
Bitcoins are created by computers and exist on the blockchain. In the early days, a single bitcoin was worth less than one tenth of a US cent, and they could be easily “mined” by a laptop or home computer.
Bitcoin quickly became popular with people who disagreed with the power governments had to devalue their savings by recklessly printing money and the irresponsible behaviour of the financial sector. It gained media attention early on for its use on the “Deepweb” and the online drug marketplace Silk Road but has since been adopted by businessmen, entrepreneurs and charities around the world for its unique features. Bitcoin is changing the way we look at money, in ways similar to how the Internet changed communication 20 years ago.
Satoshi’s whitepaper: Bitcoin: A Peer-to-Peer Electronic Cash System
An Introduction to Mining
Bitcoins are “mined” by everyone participating in the Bitcoin network. The software is open source, and once connected, “miners” attempt to solve a complex math problem proposed by the algorithm, SHA256 (a cryptographic hash function). The key here is that the math problem’s difficulty changes. More computers mine bitcoin, the problem gets harder. Computers stop mining, and they become easier again, keeping the problem “10 minutes hard” and ensuring every ten minutes (on average), someone mining bitcoin solves a block, and receives the reward for doing so.
At time of writing, there are just over 13 million bitcoins in circulation. There will only ever be 21 million mined, with the last one scheduled to be mined in 2140.
What is Bitcoin Mining? Have you ever wondered how Bitcoin is generated? This short video is an animated introduction to Bitcoin Mining.
Meet The Blockchain
The Blockchain is a transparent, public ledger system shared by all the nodes participating in the Bitcoin network. Every transaction that has ever taken place is recorded into the Blockchain (forever) and anyone can check it at anytime. This data is recorded on files called blocks, with each new block representing recent bitcoin transactions that have not yet been recorded. Think of it as a giant record book on the internet, that keeps tally of everyone’s bitcoin.
The blockchain is the heart of the Bitcoin protocol, with each 10 minute confirmation time forming Bitcoin’s heartbeat. Each confirmation cements recorded transactions with more and more strength as more blocks are built on top of them. This is why merchants wait sometimes for a certain number of “confirmations” before they complete a transaction, because each confirmation added makes it significantly harder for an attacker to successfully commit fraud.
Here's a more technical video on the Blockchain: