Bitcoin: What Is It and why Is It Important?

Who Developed Bitcoin?

The original Bitcoin code was designed by Satoshi Nakamoto under MIT open source license. In 2008 Nakamoto outlined the idea behind Bitcoin in his white paper, which scientifically described how the cryptocurrency would function. Bitcoin is the first successful digital currency designed with trust in cryptography over central authorities. Satoshi left the Bitcoin code in the hands of developers and the community in 2010. Thus far hundreds of developers have added to the open source code throughout the years.

What is the Blockchain?

Bitcoin is dependent on the blockchain that underlies and structures the system. The blockchain is the vertebrae of the protocol and the glue that holds the network together. It is simply a vast, distributed public ledger of account. It keeps track of every transaction ever made in the network, and all transactions are timestamped and verified by network miners. This is how it works: miners with specialized computers compete to solve mathematical puzzles with other computers, and once they solve a puzzle they are awarded with some Bitcoin, and they also add a “block” of completed transactions to the blockchain for future viewing and verifiability. Once a block is added to the chain the cycle repeats itself, and the computers continue to compete to solve these difficult problems. Every transaction on the blockchain is completely transparent and accounted for in its log. Anyone can see the public keys of any transaction they want (although there are no names associated with transactions). One could go all the way back and view the very first transactions ever made on the first block ever created; this block was called the Genesis Block.

What is Double Spending?

Double-Spending is the act of using the same bitcoins twice. There is only a 21 million set limit on the protocol and no more can be produced. So the network protects against double spend by the verification of each recorded transaction. The blockchain ledger ensures that the transactions are finalized by its inputs confirmed by miners. The confirmations make each unique Bitcoin and its subsequent transactions legitimate. If one tried to duplicate a transaction the original blocks deterministic functions would change showing the network that it is counterfeit and would not to be accepted.

How is the Blockchain Different from Banking Ledgers?

Why Bother with Bitcoin?

That’s the million dollar question, and there’s probably a ton of answers you could give yourself. Are you fascinated by money and technology? Do you want to push the boundaries of money itself and participate in one of the biggest economic experiments of the past century?

At some point you’ll hear people say “Bitcoin is great, but you’ll never use it to buy your coffee every morning”. It’s a sign they haven’t really sat down to think about what money is, or how different people around the world use it. In fact, people are already using Bitcoin to buy their morning coffee and merchants are using it to accept Bitcoin daily.

Are you unserved or underserved by the current international banking system because you or your family live in an emerging economy, or freelance for clients overseas? Are you under 18, or work in an industry the credit card companies or PayPal don’t approve of? Have you ever had an account frozen for some random irregularity, or had to pay over $20 in international money transfer fees just to send your funds to a friend or loved one? Bitcoin is the perfect solution to all of those issues.

If you’re a merchant – either online or brick-and-mortar – accepting Bitcoin is faster and cheaper than credit cards, and all payments are final. Fees are lower and there’s no risk of fraudulent chargebacks.

Perhaps you think the value of Bitcoin will increase in future and want to invest in it. Or maybe you’ve been reading about the existing fiat currency/central banking and international financial system, realize something’s not quite right with it and want to place control of your money back in your own hands. Bitcoin allows you to do this.

What is Bitcoin Mining?

Bitcoin mining is analogous to the mining of gold, but its digital form. The process involves specialized computers solving algorithmic equations or hash functions. These problems help miners to confirm blocks of transactions held within the network. Bitcoin mining provides a reward for miners by paying out in Bitcoin in turn the miners confirm transactions on the blockchain. Miners introduce new Bitcoin into the network and also secure the system with transaction confirmation. They are also rewarded network fees for when they harvest new coin and a time when the last bitcoin is found mining will continue.

How Can You Buy Bitcoin?

Bitcoins can be bought from various sources. You can purchase them online using an exchange or brokerage service that will enable you to buy Bitcoin with a bank transfer using fiat currency, a credit card, and some services also offer buying opportunities using Paypal. Bitcoin Cash can be purchased locally using Local Bitcoin, and from Bitcoin Teller Machines which are similar to cash ATMs that you find worldwide.

Bitcoin.com has a list of current online exchanges and brokers who sell bitcoins. You can also buy Bitcoins instantly using your credit card on Bitcoin.com (the service is provided by Simplex). Our aim is to provide the best quality services via our website so anyone can easily obtain the cryptocurrency from a wide array of Bitcoin buying/selling platforms.

Can You Sell Bitcoin?

Bitcoins can be sold in various ways. The currency can be sold online to an exchange or live in person locally. These same instances work similarly to the buying process. You can sell your Bitcoin to the exchange at the current price it's being sold for. More anonymously you can sell in person or use a localized 2-way ATM. ATMs can be found all over the world and these machines are mostly used for purchasing. 2-way ATMs can allow you to sell the currency. Most ATMs however only allow you to buy Bitcoin. There are also teller machines that require identification as well. Click here to to to see a list of verified exchanges.

Bitcoin payments are easy to make with a wallet application and addresses. You can use a standard desktop or smartphone to transact with an individual, merchant and exchange. Addresses can be used in number form, in a QR code and contactless technology. Transacting with Bitcoin offers lower fees than any known remittance provider and credit card service. No bank, no state, no third party can offer this low amount of fees.

Can stores accept Bitcoin?

Brick and mortar outlets can also accept Bitcoin. Services like Coinbase and BitPay offer applications and hardware for the convenience of the store owner. Most of these businesses offer invoicing and accounting with their services. However, third party services are not required by physical merchants to accept the currency. Individual users can also accept Bitcoin directly and handle the transactions and accounting themselves.

Why Trust Bitcoin?

Bitcoin is a network operating by the three foundational principles of technological freedom: Decentralization, open source code, and true peer-to-peer technology. Bitcoin’s trust is based on the subjective valuations of human faith in mathematical algorithms, encryption and numbers. With the three pillars of technological principles Bitcoin’s blockchain is a peer-reviewed system of integrity.

Is Bitcoin anonymous?

Participants in Bitcoin transactions are identified by public addresses – those are the long strings of around 30 characters you see in a person’s Bitcoin address, usually starting with the numerals ‘1’ or ‘3’. For every transaction, the sending and receiving addresses are publicly-viewable.

Since these numbers are virtually incomprehensible, difficult to remember without a computer and don’t contain a person’s name or identifying information, it is often claimed that Bitcoin is an “anonymous currency”. This is also often used as an argument to attack Bitcoin as a currency for example like with illegal transactions.

But it’s not as simple as that. If you publish your address anywhere, it can be linked to your real-life identity. Even if you don’t publish it, simply re-using the same address many times can show a pattern that an analyst with basic skills could link to your identity by looking at transaction times, amounts and regularity – and connecting it to other data sources like receipts, exchanges, and shipped items.

It’s recommended for privacy and security that you use a new address for every single transaction, and most modern wallet software is designed to do just that. But even though this increases the amount of effort and skill required to uncover your identity, it doesn’t make you 100% anonymous. Freely available blockchain explorers and analytical tools have been used to link addresses with only single transactions to other addresses, forming a chain or pattern that eventually reveals its owner. These have been useful in investigating cases of theft at companies like Mt. Gox and Bitcoinica, but can potentially be used to identify anyone.

Due to all of this, it’s more accurate to say Bitcoin is “pseudonymous” and not anonymous. Think of it as a less memorable email address or online handle. Even if it’s not your real name, someone out there can potentially find out who the real person behind the pseudonym is.

There are ways to make Bitcoin more private, but they come with risks. One is to use a “mixer” or “tumbler” which effectively takes your bitcoins and moves them around between a confusing array of addresses until it’s virtually impossible to trace. But do you trust the mixing service to spit your money out the other end, especially since most of them are run by anonymous entities themselves? Usually they do, sometimes they don’t.

Another way is to trade Bitcoin for a digital currency designed to have greater anonymity, like Monero or DASH – effectively making your own mixer. Trade Bitcoin for the other currency, perform one or more transactions to break the link, and trade back into Bitcoin. These transactions increase the complexity, though, and probably require an online exchange, which increases the potential to identify users. Price volatility of all digital currencies may affect how much comes out the other end. And finally – like mixers – if the destination Bitcoin address is one that can be linked to you somehow, the entire process has been pointless.

“Blockchain forensics” is a growing industry with increasing levels of expertise and tool technology. The Bitcoin blockchain is public and permanent record. Your current OPSEC (Operational Security) may beat all methods of investigation available now, but will it stand up to scrutiny in 30 years’ time? How likely is anyone to look? If private transactions are something you care strongly about your operational security should stay as ahead of the curve as possible.

What Can Bitcoin Do?

The Bitcoin protocol can change the financial landscape we see today. The protocol can act as a currency, voting mechanism, global identification and reputation application, a micro-tipper, crowdfunding platform, initiate trusts, wills and contracts, decentralized domain names, future markets, and basically everything the financial system of today can handle plus so much more. The currency application is just the beginning of this evolution of world's finances.

What Happens if I lose my Bitcoins?

Unfortunately, since unique private keys are associated with individual Bitcoin wallets, if the keys are lost, there is ultimately no way to retrieve that key without a passcode seed or other retrieval system; and that key is required to spend those coins. However, most modern wallets have wallet and key backups that you can build prior to storing money. This will allow you to create a new private key so that you may restore your private key on a new wallet if lost.

Who Is In Charge Of Bitcoin?

Nobody is "in charge" of Bitcoin – at least in the sense that Bitcoin is not a company or organization, has no governing body and no organizational structure. Bitcoin is simply a software protocol, like HTTP (aka the Internet and SMTP (aka email). This has been the case since Bitcoin’s creator, the person (or persons) calling themselves Satoshi Nakamoto, released their creation into the wild in 2009. There are, however, certain groups who can exert influence over the way Bitcoin functions through various means. Again, though, there are no individuals who can claim to speak for these groups and they contain a plethora of opinions and incentives within. Examples of such groups are: Developers: These are the people who write and maintain the software the Bitcoin network runs on. Although Satoshi Nakamoto released the first version of Bitcoin himself in 2009, the code has since been re-written and updated by subsequent programmers. The developers choose what updates to make to the protocol, and consider ways it can be improved. Miners: These are the people (and companies) that own the machines that generate new bitcoins and keep the network secure by validating transactions. As a result, they have the power to "vote" with their hardware and choose which Bitcoin software to support. Developers may create and release radical revisions to the Bitcoin protocol, but they'll have no effect unless the Bitcoin miners choose to adopt them. Users: That's you. At the end of the day, if regular users decide Bitcoin no longer fulfils their needs, then it will have no value. You can see the user effect in action just by looking at alternative cryptocurrencies collectively known as ‘altcoins' – there are currently about 700 different altcoins of varying degrees of popularity. They have risen and fallen in favor as users decided whether to buy, hold, sell, or simply abandon. Merchants have made individual decisions as to whether to accept them as payment or not. Bitcoin faces the same market conditions, and there's no shortage of new projects claiming their protocol is superior. So far none have knocked Bitcoin from its position as the most popular cryptocurrency, but there's no guarantee this will always be the case. Large holders, venture capitalists and influential figures in the "Bitcoin community" could also affect Bitcoin's future path, though their influence is less direct. And again, there is rarely a consensus of vision among them.