- It's Subjective
- It's Software
- It's a Platform
- It's an Idea
- It's Sound Money
- It's a Payment SystemIt's a DatabaseIt's a Consensus NetworkEnd Goal
Bitcoin is difficult to define because it's not just one thing. There are layers to Bitcoin and that's what makes it so captivating. Bitcoin is whatever characteristics resonate with you most. For example, some characteristics that may resonate are the digital money, store of value, censorship resistant or programability aspects. We'll discuss all the different layers that help define Bitcoin throughout this page.
- Bitcoin Wikipedia
Each user that runs the software downloads the entire transaction history of the Bitcoin network from other online users running the software. But one of the most important aspect of using the software is that it verifies all transactions, including those that you make.
- Bitcoin GitHub
Bitcoin is a protocol just as TCP/IP is of the internet. It's a platform of which apps, tools, protocols and networks are built upon.
Similarly to the internet, Bitcoin has spurred a torrent of innovation from all walks of life around the globe for the past decade and will continue to for the next. Like a blank canvas, tens of thousands of artists around the world painted and continue to paint their visions of a better future.
You need not ask permission to innovate on Bitcoin, it's open to everyone.
Bitcoin is an idea that some things are better off without needing to trust or rely on a person, group or company for the truth:
Bitcoin was born from the ashes of the 2008 financial crisis with the creator embedding the message: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." in the Bitcoin blockchain. Perhaps a hint of why Bitcoin was created because the 2008 financial crisis was not the first time the flaws in our financial system crippled the economy and it certainly won't be the last.
In essence, Bitcoin brings control over the money back to you. It does this by removing the need for third parties. It is no longer required for people to need to trust a central entity to tell them that the money you see on the screen is actually there, how much of your own money you're allowed to take out or that "everything is fine, you don't need to worry - trust me". The bitcoin that you hold is 100% verifiably yours without a central entity telling you so.
Bitcoin was born in an era of increasing corruption and visible flaws in central entities causing people to lose trust in them. Bitcoin is gaining trust by the poor, middle class and rich alike each day because of it's attractive features. Bitcoin is growing into the soundest money on the planet and if you think about it, it may be the only truely sound money there is.
Bitcoin is sound money because it has:
- a predictable supply issuance schedule that cannot be maliciously altered
- a fixed supply that cannot not be changed by a central entity
- a system and value that has the least amount of correlation with traditional financial markets.
- value that cannot be endlessly inflated or devalued into oblivion
- value that is shielded from inflation, negative interest rates and other future corrupt human interventions.
- value that is easily verifiable and auditable.
- value that is resistant to confiscation
- value that is extremely portable
- payments that are censorship-resistant and irreversible
- a network that can function completely independent of 3rd parties
- WTF Happened in 1971?
Bitcoin is a payment system because value can be easily transferred directly from person A to B.
BUT, the Bitcoin protocol is better suited for the settlement of transactions, particularly higher valued transactions and this will become more evident in the coming decade. This is because a blockchain is not designed for global instant coffee payments. It's designed for a very special usecase: digital immutability.
Global instant coffee payments will be facilitated by technologies built on top of Bitcoin. In fact, technologies built on Bitcoin will take payments to the next level by enabling super tiny fractions of a cent micro transactions at a near limitless rate - not just for people but for machine too. Coffee payments don't need digital immutability.
Bitcoin uses a special database called a blockchain that records every transaction done on the Bitcoin network. The records express the current and past statuses of what bitcoin addresses owns how many bitcoin.
The database is special because everyone can see, audit and connect to it but no one can alter the data. The database is designed for a very limited but highly valued usecase: digital immutability.
For central entities like a company, decisions are ultimiately approved by a leader. But how would a decision be made for a global network that has no leaders? In short, it's through consensus.
Bitcoin uses consensus to form an agreement on the current status of the network. Ultimately, consensus is achieved on the network through users running the Bitcoin software which in and of itself are the rules of the Bitcoin network. Users include anyone participating in the Bitcoin network. Let's go through an example of trying to change the Bitcoin protocol:
Let's say that a group of miners, exchanges and developers wanted to change the rules of Bitcoin to have a limit of 100 million bitcoin instead of 21 million.
Developers will have to code the change then release the new bitcoin software. Fortunately, this is the easy part. The hard part is convincing users on the network to come to a consensus on adopting the new change (by downloading the updated Bitcoin software) and that's a whole other beast:
The consensus mechanism in Bitcoin is organic, genius and beautiful. Yet the process can be full of debate, arguing, gridlock and constant explaining that can go on for years. There is even game theory involved. But this is a feature and certainly not a bug. This is by design so that no bad actor(s) can ever waltz in and change Bitcoin's code base willy-nilly.
If consensus cannot be achieved, no change is adopted and the network continues as normal. The minority (whether legitimate or ill-intentioned) have the freedom to "fork off" and create their new version of Bitcoin that ultimately, almost no one will use and will trend towards zero. This is a non-event now as this has occurred hundreds of times by scammers. If the network comes to consensus, a high percentage of users download and install the updated Bitcoin software.
There are two methods that have been used to update Bitcoin thus far (we won't go into the deep details):
1) Soft fork: this software update is backwards compatible with all previous versions of the bitcoin software. This method involves miner participation.
2) Hard fork: this software update isn't backwards compatible with previous versions of the bitcoin software. If a user doesn't update by a specific trigger time, they are using a different network than those who did update. Users will have bitcoin on both networks.
There are four stages that all monetary goods pass through to become money - the collectible, store of value, medium of exchange and unit of account stage.
Bitcoin is currently at the end of the collectible stage and now beginning the store of value phase.
When the store of value market is more or less saturated and volatility is minimized, Bitcoin can fully adopt the medium of exchange stage, followed by the final stage; becoming a unit of account. Until the store of value phase is well off, there is simply not enough demand for Bitcoin as a payment system to pay for coffees today especially when the price of a bitcoin is so volatile and in 10 years a bitcoin could be worth hundreds of thousands or millions of dollars. Simply put, many Bitcoin holders aren't willing to give up this future potential and just buy and hold bitcoin. That's not to say demand to shop using bitcoin won't increase as time passes on, which it is - it'll just be slower to take off and be facilitated by technologies built on top of Bitcoin. Currently, there are existing central payment systems like VISA that conduct every day payments "good enough", for now.
- WTF Happened in 1971?
- Trust Minimized
- Fixed Supply
- More facts
Bitcoin is decentralized meaning the network has no central point of control.
The decentralization of the network is mostly measured by the number of people running the Bitcoin software and to a lesser extent, by those that are mining. Ultimately, Bitcoin is controlled by all of us - the individuals. This means Bitcoin cannot be controlled or shutdown because it does not depend on any particular person, group, miner, company or central server to make a decision on behalf of the whole network.
Something drastic would have to occur to temporarily disrupt Bitcoin such as turning off the electricity for the entire planet! Not even shutting down the internet could shutdown the network because of technologies such as satellites, mesh networks and radios can be used to run Bitcoin.
Bitcoin is a trust minimized network meaning it greatly minimizes the amount of trust that users need to place in third parties. No central powers such as banks or Visa/PayPal like systems are required for the system to function. Central systems can still be built on top of Bitcoin but it's up the users to use them or not.
People no longer need to rely on a third party to act in good faith for some important usecases like money. Trust is completely removed from the equation. In Bitcoin, only you own your money in the purest sense that can exist.
Bitcoin's programming code is open source meaning anyone can view or audit the code. Anyone can download it and view the code, line by line.
This also means that any developer can copy & paste the code and make their own coin. They could also experiment and improve the functionality of Bitcoin and potentially have the changes implemented into Bitcoin by having users agree with the changes and running the updated software.
Bitcoin is a protocol and it doesn't know what a border is. This means any person or machine can connect to the network at any location.
After connecting to the Bitcoin network, the global network is in your grasp. You can now transact with anyone, anywhere at any time.
In addition, the pace at which innovation is built is dramatically increased because it's not dependent or dictated by just one group or company to innovate.
Bitcoin is permissionless meaning no person or machine has to ask permission to connect to the network. Anyone can build on Bitcin further increasing the pace of innovation.
No permission is required from a government, bank, authority, regulatory body or company. It does not matter how old you are, where you live, who your leaders are, if you have legal documents, what gender, what religion or what color you are - Bitcoin is a protocol and it does not care.
Additionally, the permissionless state of Bitcoin enables a machine to be its own bank. As we all know, machines cannot have a bank account using our current banking system. This will unlock future potential usecases.
Bitcoin's blockchain is digital data, yet it's immutable meaning once the digital data is recorded, it can never be changed. This is an extremly important characteristic of Bitcoin and has some very special usecases for things like money.
On a technical level, this immutability is achieved through Bitcoin's decentralized network and an algorithm called proof-of-work. The combination eliminates the ability of someone altering "the past". Immutability is not a native feature of a blockchain.
Bitcoin utilizes a peer-to-peer broadcast network for any user or machine to send value across the globe without permission or risk of the transaction being tampered with.
Bitcoin is clone-proof both in that a bitcoin cannot be duplicated out of thin air causing an increase in supply and that the network effects of Bitcoin cannot be cloned. Bitcoin's code can be cloned to create a different coin because it is open source but you can't copy and paste the security, value, organic growth, collective mining power, etc.
A bitcoin can theoretically be double spent meaning that the same bitcoin can be spent more than once but the bitcoin itself cannot be cloned / duplicated to inflate the 21 million supply limit of Bitcoin. To avoid being a victim of a rare double spend attack, the receiver just needs to wait roughly 10 minutes for the transaction to be settled.
Bitcoin is a network that is not controlled by any person, group, company or organization. It is not created by or belong to any country or government. It cannot be controlled or shut down and it does not care who you are, where you are from or how powerful you think you are. It is neutral.
Bitcoin uses a public ledger called the blockchain. The blockchain is a list of every transaction ever made in the Bitcoin network and everyone can see and track each individual transaction real-time. The blockchain offers an un-matched level of transparency that was never available before. In addition, the blockchain allows Bitcoin to be used for other applications beyond transfer of value.
The functionality and rules that make up Bitcoin is just code. Thus, Bitcoin can adopt brilliant features from new discoveries on altcoins if they have been tested thoroughly over a period of time. But to our knowledge, this has never occurred because all the innovation is already being built and tested on Bitcoin by the best developers. Other altcoins haven't offered anyything worth implementing, just broken experiments or scams. However, all other altcoins have taken from Bitcoin's innovation(s).
Think about it:
Is the entire network going restart at square one and throw away all of our time, money, growth, etc. each time someone comes up with a new experimental "improvement"?
If you think yes, then that's going to be an endless cycle of restarting to a new network every month - something, by the way, isn't possible to replicate in a fair, organic and honest manner like Bitcoin did. People know too much now - restarting means the new system will be centralized, bound to the creator(s)/leader(s), manipulated, gamed and the tokens will be grossly distributed to the creators / investors in a non-organic manner. The proof is in the thousands of altcoins that have already exploited this due to greed.
Bitcoin has a fixed supply of less than 21,000,000 bitcoin that is slowly added to circulation until year ~2140. This is hard-coded into the DNA of Bitcoin and cannot be changed by any central entity.
The system is designed so that everyone knows:
1) how often new Bitcoin are added to circulation (every ~10 minutes)
2) how many Bitcoin are created every ~10 minutes (6.25 btc for years 2120 to 2124)
3) when the issuance rate will be halved, a.k.a quantatative hardening / halving event (every 210,000 blocks or every ~4 years)
4) when new Bitcoin stop getting issued (year ~2140)
1. A bitcoin is divisible up to the eighth decimal place: 0.00000001 is the smallest amount of bitcoin you can own. This is called a "satoshi". 1 bitcoin can be broken down into 100, 000, 000 individual satoshi.
2. As of May 2020, over 87.5% of the 21,000,000 bitcoin have been issued. There is less than 12.5% left to issue.
3. A bitcoin cannot be deleted but access to them can be lost permanently.
4. Bitcoin is not anonymous. All transactions are recorded on the public Bitcoin blockchain. Bitcoin is pseudonymous. The transactions don't have names attached to them but they can be tracked back to you if you used any service attached to your name or IP address. There are methods of increasing your privacy.
You have complete control over your money. This allows us to avoid the human corruption, human error, and human greed factors in our current financial system. Bitcoin is the epitome of freedom for the people. It is cheaper, faster and more secure than conventional payment methods. Bitcoin eliminates credit card and identity fraud and the need to trust a 3rd party. Indisputably, the greatest benefits that Bitcoin currently offers the people is sound money that cannot be inflated, counterfeited, censored or confiscated. Especially in a time when confidence in banks and central authorities are at an all time low-because they have proven time after time to be untrustworthy due to the human tendencies of greed, power and corruption.
Avoid fraudulent charge backs because Bitcoin payments are irreversible. Payment processor fees are eliminated or reduced significantly, therefore increasing profit margins. Bitcoin also protects customers if the database is hacked because it will not be storing customers' private information such as credit card numbers. Accepting bitcoin opens your business to global opportunities.
Bitcoin is not only a global and universal money but it is also neutral meaning it is not a biased towards a central entity. No country owns or controls the Bitcoin system. Imagine travelling and never encountering exchange rates if Bitcoin is globally adopted.
Add true transparency through the public ledger that is audited by anyone at any time. Companies can become accountable to provide proof of payments, reserves or ownership of their finances. Avoid risking customer's personal information because the database will not be storing private information such as credit card numbers.
Minuscule resources are required to keep Bitcoin running compared to traditional systems such as fiat and gold. Think of all the accumulated resources that bank buildings, financial offices, entire skyscrapers, bank vaults, millions of ATMS, massive central servers, thousands of computers, fiat printing factories, millions of paper and plastic bills, millions of metal coins, armored vehicles, gold security, gold mining machinery, gold vaults, gold factories, gold transportation and gold storage consumes.
Gold mining destroys the habitat and digs up mountains, hillsides, and river banks to find mere ounces of gold.
Bitcoin mining does not dig into our planet and over 70% of the energy consumed by miners comes from renewable resources, surplus energy that would otherwise be wasted and byproducts such as natural gas flares. In fact, Bitcoin miners are now being used to reduce or eliminate natural gas flares that would otherwise be released into the air. Bitcoin does not require physical transportation or protection and most of the infrastructure for Bitcoin is pre-existing like the internet, personal computers and phones. There is no physical representation of bitcoin so there is no need for massive amounts of paper, plastic and metals for bills and coins like our current fiat system does. The only additional energy consuming infrastructure that Bitcoin requires are the miners and the electricity consumed provides global network security, immutability and sound money. Bitcoin will become more energy efficient as mining technology and technology in general advances. Perhaps solar powered bitcoin miners will be a thing in the future as well - if it is not already happening.
- Bitcoin Doesn't Waste Electricity (Article)
- POW is Efficient (Article)
- Bitcoin doesn't have an energy problem. It's an energy solution (Twitter)
- Op Ed: Bitcoin’s Energy Consumption Is Neither Frivolous Nor Excessive (Article)
- SLP12 – Bitcoin Mining and Energy, with Hass McCook (Podcast)
- Bitcoin mining is efficient (Twitter)
- Effects of Gold Mining on the Environment (Article)
This new booming industry will continue to create new career opportunities to support the Bitcoin infrastructure. Tens of thousands of jobs have been created and it is only the beginning.
New jobs include the obvious software engineers, security professionals etc.
But this new ecosystem requires work and development in all areas such as law, finance, venture and business startups, adapting companies, education and other industries.
Bitcoin is global, so what may be occurring in your country, will be occurring in other countries. Bitcoin is the hottest, most talked about topic today. It brings together the brightest and most innovative minds to discuss this most exciting innovation that has ever been invented since the internet.
The Bitcoin whitepaper was published on Halloween day, October 31, 2008 by Satoshi Nakamoto on the cryptography mailing list at metzdowd.com. This is regarded as Bitcoin's birthday. Intentional or not, the Bitcoin whitepaper was released to the world from the ashes of the 2008 financial crisis. The first block a.k.a. "the genesis block", was mined on January 03, 2009. This is when Bitcoin learned to crawl.
On January 12, 2009 - Satoshi sent 10 bitcoin to Hal Finney which is the first bitcoin transaction in history. On may 22, 2010 - the first publicized bitcoin purchase for something physical made its mark in history when Laszlo Hanyecz paid Jercos 10,000 bitcoin to purchase and deliver 2 Papa John's pizzas to his house. At Bitcoin's 2017 peak, these pizzas cost just under $200,000,000 USD.
From 2009-2012, Bitcoin was completely unknown to most - only to be accepted for payment by a handful of visionaries. Starting from 2013, Bitcoin slowly gained traction and legitimacy as more visionaries and entrepreneurs discovered Bitcoin's advantages and it's huge potential. Now, the world cannot go 1 day without talking about Bitcoin.
Bitcoin was created by a mysterious person or group that went by the pseudonym of Satoshi Nakamoto on bitcointalk.org and other forms of communication. 2011 was the last time Satoshi communicated with anyone but before he disappeared he encouraged the former lead bitcoin core developer Gavin Andresen to continue working on Bitcoin. But now there is no "leader" due to the radical decentralization that the network went through since then.
Fortunately for us, Bitcoin’s platform is open-source and decentralized which means anyone in the world can audit the code and it is not reliant on the trust of any central entity, rather in the trust of mathematics and cryptography.
P.S: No one knows who Satoshi is. Providing proof is straight-forward but even then, does not 100% prove they are Satoshi. So, until solid proof is provided and verified by qualified entities - Satoshi's identity remains unknown. Quite frankly, the identity has no significance and he/she/they no longer have influence on the Bitcoin protocol. Bitcoin has evolved far, far beyond Satoshi Nakamoto and that is a good thing.
In the first few years of existence, a handful of non-technical users mistakenly pitched Bitcoin as an instant and virtually free payment system. It had this persona because not many people used Bitcoin during that period.
In reality it was just a cute sounding sales pitch. Limitations, trade-offs and use-cases of the "blockchain technology" were not well defined or tested yet because it was so new to many people. A blockchain is ineffecient and cannot scale for instant global coffee payments. It has a limited but very special use-case: digital immutability. Because of how a blockchain works, global coffee payments on a blockchain means that the system naturally centralizes and if the system is centralized it no longer has the digital immutability feature.
Coffee payments don't need digital immutability and most can agree that fast and cheap payments aren't new or special.
Bitcoin uses a process referred to as "mining" to process transactions. This is an over-simplified term because the process is much more complex.
Miners are ingeniously rewarded bitcoin for being the first to solve a work-intensive mathematical puzzle using special hardware - a process that both secures previous transactions and processes the current ones. Mining rewards newly issued bitcoin and transaction fees in a predictable time-frame. It's so predictable that we know when new bitcoin are added to circulation, how many were added and when the issuance of new bitcoin will halt.
When Bitcoin started, anyone could mine with a device that had a CPU, such as a laptop or desktop. Since then, mining has evolved and now it's only profitable to mine with specialized hardware called an ASIC.
Mining is a technically complicated process to explain, so we'll leave it at that.
- Everything you need to know about Bitcoin mining
- Mining (Bitcoin wiki)
Nothing physical backs Bitcoin - just like nothing backs the dollar or gold except belief. Instead, Bitcoin is backed by the laws of mathematics that 2+2 is always equal to 4. In this system, we go by the motto, "Don't trust. Verify." which means that the system runs on undeniable facts that are publicly verifiable using the truth of mathematics, the proven security of cryptography, the transparent ledger and open-source code. The system is not in control by the few and avoids influence from our human flaws and natural human tendencies towards corruption.
Besides, the intrinsic value of anything is technically incalculable or non-existent. Intrinsic value is a fictional and subjective value that is created by the opinion of a human made standard.
For example, before people considered gold valuable, gold was worthless. In other words, something is worthless until it is not - nothing started off with value; it was eventually given a value by human subjectivity. If gold was not widely recognized by older generations as a store of value, the market value in dollars would be much less than it is today since it has only a few diminishing usecases that could be replaced by cheaper and more plentiful resources.
“Bitcoin may be the TCP/IP of money.”