Back to Basics: What Is Bitcoin

Basic information about Bitcoin, the history of its creation and mistery of Satoshi Nakamoto, its working principle as well as the revolutionary creation of blockchain

Finrazor.com has prepared a series of short articles to provide readers with a good understanding of what cryptocurrency is all about.These guidelines are useful mostly for beginners as they give an understanding of the crypto industry and the basics of blockchain in general, but can be a point of interest for more sophisticated people in order to refresh their knowledge, as well.

Bitcoin is an electronic payment system. It enables easy transactions to anyone in the world over the Internet. Using Bitcoin, people can send money directly to each other without a bank or a middleman taking a cut from the transaction. Bitcoin works much like cash in real life.

Bitcoin is a decentralized peer-to-peer (P2P) network. This means that there is no central authority. The community manages transactions and issues new money. Any Bitcoin user can view the entire history of transactions since the beginning.

Bitcoin is the first digital cryptocurrency. It uses cryptography to secure the network and to provide pseudonymity. Bitcoin transactions are trustless, meaning people do not need to rely on third parties to ensure security. Sending money over Bitcoin does not require identity verification because people use pseudonyms, or addresses.

Who created Bitcoin?

Bitcoin was created by Satoshi Nakamoto in 2008. We still do not know who this person is. It may even be an entire team of developers. In his profile on P2P Foundation website, he says that he is from Japan. However, some people believe that he is American due to his excellent proficiency in English.

But they say, that Satoshi Nakamoto 'is alive'. Repeatedly :-)

He is completely unknown outside Bitcoin as his online activity only relates to it. In one of his earliest posts, he described Bitcoin as an ‘open-source P2P e-cash system’ and posted links to official Bitcoin website and Bitcoin whitepaper, a special document explaining what Bitcoin is for and how it works.

The Bitcoin Whitepaper is pretty available and possible to read: it is 9 pages long, including the Reference page

Satoshi Nakamoto also created a forum, Bitcointalk, dedicated to discussions about Bitcoin and other cryptocurrencies. Under the username ‘satoshi’, he posted his welcome message on November 22, 2009.

There are 162 comments in this thread, the last one dated December 20, 2015

Though it is believed that Satoshi’s involvement with Bitcoin ended in 2010, people still keep sending bitcoins (BTC) to the first Bitcoin address to thank Satoshi for his invention. We can only assume that the first addresses belong to Satoshi and, as far as we can tell, he never spent any of the bitcoins associated with those addresses.

People still keep sending bitcoins to the first Bitcoin address to thank Satoshi for his invention

How does Bitcoin work?

At its core, Bitcoin is simply a collection of all confirmed transactions. Bitcoin stores all these data on an open distributed ledger called a blockchain. Blockchain is a way of storing and adding data based on a collective decision.

A blockchain organizes data in blocks in a chain (hence, blockchain). Blockchain is a very safe place to store data because it uses various cryptographic elements, such as digital signatures and hash functions, which prevent the data from being deleted or changed.

It is the invention of blockchain that makes the creation of Bitcoin revolutionary. The blockchain technology can be applied in many ways, other than cryptocurrencies.

Inspired by Satoshi’s Bitcoin, the programmer Vitalik Buterin co-created Ethereum, a blockchain-based platform for decentralized applications, or dapps. These dapps operate using special programs called ‘smart contracts’. As Ethereum does not rely on servers to run, these applications can theoretically work forever.

This is only one of many applications the blockchain technology has to offer. Many people believe that blockchain can move the Internet from the outdated server-client structure to a decentralized one. For now, it is too early to say what more we can expect from blockchain.

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