What is Bitcoin?

Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency. Its conception is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.

To cut through some of the confusion surrounding bitcoin, we need to separate it into two components. On the one hand, you have bitcoin-the-token, a snippet of code that represents ownership of a digital concept – sort of like a virtual IOU. On the other hand, you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token. Both are referred to as “bitcoin.”
The system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway. It is created and held electronically. Bitcoins aren’t printed, like dollars or euros – they’re produced by computers all around the world, using free software.
It was the first example of what we today call cryptocurrencies, a growing asset class that shares some characteristics of traditional currencies, with verification based on cryptography.

How does bitcoin work?

Bitcoin is a network that runs on a protocol known as the blockchain. A 2008 paper by a person or people calling themselves Satoshi Nakamoto first described both the blockchain and bitcoin, and for a while the two terms were all but synonymous. The blockchain has since been conceptually divorced from its first application, and thousands of blockchains have been created using similar cryptographic techniques. This history can make the nomenclature confusing. “Blockchain” sometimes refers to the original, bitcoin blockchain; other times it refers to blockchain technology in general, or to any other specific blockchain, such as the one that powers Ethereum.
The basics of blockchain technology are mercifully straightforward. Any given blockchain consists of a single chain of discrete blocks of information, arranged chronologically. In principle this information can be any string of 1s and 0s – emails, contracts, land titles, marriage certificates, bond trades – and this versatility has caught the eye of governments and private corporations. In bitcoin’s case, though, the information is mostly transactions.
Bitcoin is really just a list. Person A sent X bitcoin to person B, who sent Y bitcoin to person C, etc. By tallying these transactions up, everyone knows where individual users stand. Another name for a blockchain is a “distributed ledger,” which emphasizes the key difference between this technology and a well-kept Word doc. Bitcoin’s blockchain is public. Anyone can download it in its entirety or head to any number of sites that parse it. You can see, for example, that 15N3yGu3UFHeyUNdzQ5sS3aRFRzu5Ae7EZ sent 0.01718427 bitcoin to 1JHG2qjdk5Khiq7X5xQrr1wfigepJEK3t on August 14, 2017, between 11:10 and 11:20 a.m. If you were law enforcement or otherwise very sophisticated, you could probably figure out who controlled these addresses (the long strings of numbers and letters). Bitcoin’s network is not totally anonymous, in other words, though taking certain precautions can make it very hard to link individuals to transactions.

Post-Trust

Despite being absolutely public – or rather because of it – bitcoin is extremely difficult to tamper with. It has no physical presence, so you can’t protect your bitcoin by locking it in a safe or burying it in the Canadian wilderness. In theory, all a thief would need to do to take it from you would be to add a line to the ledger, you paid me everything you have. A related worry is double spending . If a bad actor could spend some bitcoin, then spend it again, confidence in the currency’s value would quickly evaporate.
To prevent either from happening, you need trust. In this case, the accustomed solution would be to transact through a central, neutral arbiter. A bank. Bitcoin has made that unnecessary, however. (It is probably not a coincidence Satoshi’s original description was published in October 2008, when trust in banks was at a multigenerational low.) Rather than having a reliable authority keep the ledger and preside over the network, the bitcoin network is decentralized – everyone keeps an eye on everyone else. No one needs to know or trust anyone; assuming everything is working as intended, the cryptographic protocols ensure that each block of transactions is bolted onto the last in a long, immutable chain.

“Bitcoin is technologically tour de force” — Bill Gates