Everything About Bitcoin
| — Bitcoin was launched in 2008 and is the world’s first decentralized digital currency – its network runs and maintains value autonomously, no state or central bank is involved|
— Bitcoin is powered by blockchain, a digital ledger that is available for anyone to read, and which cannot be changed – this allows the network to function without any central entity
— The consensus protocol for Bitcoin network is proof-of-work; this is the mechanism by which the nodes in the network validate transactions
— Because Bitcoin exists on a trustless blockchain network that does not need a central authority to reliably keep track of transactions, it revolutionized the way we transfer value by enabling peer-to-peer transactions
First outlined in Satoshi Nakamoto’s white paper in October of 2008, Bitcoin is the first successful cryptocurrency ever created. And to this day, it’s still by far the market leader. That’s what makes it worth a closer look. In the following, you’ll learn what Bitcoin is, how it works and some of its popular use cases. Let’s get facted!
Bitcoin’s Key Elements
You might remember in the previous article, we told you a bit about why Bitcoin was so significant, and the problems it solved.
As desired by its mysterious creator Satoshi Nakamoto, a key element of Bitcoin is its decentralized nature, which ensures that no one entity can control, throttle or limit access to its network. But it brings much more than that too.
Bitcoin possesses a unique combination of key attributes which makes it stand out against traditional money or other assets. Here is a simple and memorable way to go about explaining those attributes: the old-good yet effective acronym.
Ready? Aaaaand a one and a two and a…
Be your own bank
Bitcoin is the first financial system to successfully offer a fully peer-to-peer network. Thanks to blockchain technology, it was the first cryptocurrency which overcame the yet-insolvable double spending problem. It means that with BTC – and crypto in general – you don’t have to trust banks or other institutions with your money or transactions. You can freely and directly transact with anyone around the globe.
Impossible to hack
Decentralization is essential to the autonomy of blockchain networks (and Bitcoin) because it increases their security, and makes them more or less immune to interference.
Let’s take an example. In a centralized environment such as a bank or reserve, if a computer is hacked it could be game over, because the system has a central core where the crucial information is stored and managed.
But in a decentralized network like blockchain, control of the network is spread across many thousands of nodes globally, and impacting that network would mean taking more than 51% control of it. A hacker would need to attack so many different computers to take control that it’s practically impossible. As all the transactions are validated by the community network, there is no possible fraud. If there is a false transaction, it would be rejected. That’s how you can be sure it’s a safe way to transfer your money – it is quite simply impossible to hack.
Thick & fast
Bitcoin transactions can be sent near-instantaneously from anywhere in the world to any country, regardless of borders. National and international transactions take the same amount of time and fees. Plus, while traditional international transactions take between 1 to 4 working days, a BTC transaction takes about 10 minutes to be completed.
Bitcoin leverages transparency, by being completely open-source. This means that everyone can take a closer look at its code and verify how it works. All transactions are also publicly available on the blockchain, meaning you can verify all the data relating to your Bitcoin accounts and balances.
Own your money
With Bitcoin, there is no central authority that could tell you what you can and cannot do with your own money. Unlike the money you’ve left in the care of a financial institution, with Bitcoin you can be completely in control of your own funds while retaining complete ownership of your money. No abuse of authority. No breach of trust.
While Bitcoin’s transactions are fully public, you can still remain pseudonymous as you transact. The addresses used in Bitcoin are strings of data which, on their own, cannot point to a single individual. It’s worth nothing that when you buy your forst coins, you’ll normally have to give some real world ID, which could in theory be used to link ypu to the transactions emanating from that very first wallet. However, within the blockchain itself, you can transact to your heart’s content without any personal data being involved.
Not only for speculation
Bitcoin is not just a speculative asset. It has been designed first as a means of payment, like “digital cash”. Its popularity has led to more and more acceptance and use cases. Including the purchase of goods and services, from pizzas to Lamborghinis. The first-ever purchase using Bitcoin was for two pizzas! At the time, these two cost roughly $40. Today, they are worth over US$200,000,000.
In 2017 the phrase “Bitcoin Lambo” became popular street slang: it was a by-word for people wondering when they would be able to buy a Lamborghini with their Bitcoin, following a pretty meteoric rise in value around that time. So emerged the famous crypto slang, “When Lambo”.
Today, it is possible to buy luxury houses or tickets to space with Bitcoin, showing how it has become an acceptable means of settling large transactions and investments. And although it’s not for everyone yet, Bitcoin’s gradual rise to acceptance and mainstream adoption means the future sure is looking bright.
Bitcoin in action: how it works
Remember, we previously explained how blockchain transactions work. Allowing for transparent, secure and anonymous peer-to-peer exchange of value, free from the control of external parties. Well, Bitcoin – or BTC – works the same. Let’s review the steps:
Nothing new so far. But mastering Bitcoin requires understanding proof-of-work i.e. the process – or protocol – used by the Bitcoin network to verify and validate a transaction. This protocol can differ from one cryptocurrency to another, according to its blockchain rules.
The proof-of-work system validates new transactions by incentivizing miners to solve incredibly complex puzzles – like a giant Sudoku – to verify blocks before adding them to the blockchain. The miner who solves the puzzle fastest gets to add the new block to the chain, and is awarded with an amount of BTC for doing so. This process is called mining.
So why use this competitive system? Because in the process of competing to solve the new block, miners give their combined computing power to the Bitcoin network, which gives it stability, security and decentralization. Indeed, if one miner is acting maliciously or is compromised, all other participants in the network will still verify the correctness of the transactions and only permit accurate blocks to be added to the chain. Taking control of more than 50% of the network to override this consensus would require so much power that it’s more or less impossible for any hacker to do. This is the point of the proof-of-work system.
Now You’ve Got the Basics…the only way is forward
There you have it – you’re first crash course on Bitcoin basics! Sure, we didn’t cover everything, but you have enough to set you on course for further learning – and maybe even some Bitcoin of your own. You’re also in good shape to pursue your crypto journey with… the others cryptocurrencies! And of course, Ledger Academy can help you with that, so read on.
Knowledge is power.
So keep on learning! If you enjoy getting to grips with crypto and blockchain, check out our School of Block all about why Bitcoin is the word on everyone’s lips.