Bitcoin is what started it all. It was the first cryptocurrency to crack some of the fundamentals of creating digital money that can't be copied like normal files. But who invented it, and why was it so important? We'll explore this and more below.
What is Bitcoin?
Bitcoin is a peer-to-peer cryptocurrency. What does that mean? It's a new way to pay for goods and services, as well as store value online that doesn't rely on a centralized bank, government or credit provider to do so.
Built using blockchain, a fundamentally new way to transfer data and value over the internet, everything from sandwiches to houses can be bought using Bitcoin.
Did you know?
The first official purchase using Bitcoin was for pizza in May 2010. Two Papa John’s Pizzas were exchanged for 10,000 BTC. May 22 is now celebrated as Bitcoin Pizza Day.
Who invented Bitcoin?
No one really knows for sure. But the person, or persons most directly responsible refers to him/her/themselves as Satoshi Nakamoto.
The inventor, or inventors go by the name of Satoshi Nakamoto, a mysterious character (or characters) that many have tried to find, some more successfully than others.
A brief history
In November 2008, a paper called Bitcoin: A Peer-to-Peer Electronic Cash System was published on a small mailing list for cryptography fans. The author went by the name Satoshi Nakamoto and he/she/they explained how the currency would work.
A few months later, in January 2009, the software to create the currency was released, followed shortly by the first ever block to be mined on the network. This is typically referred to as the Genesis block.
The first identifiable person to get involved in Bitcoin was a programmer called Hal Finney, who downloaded the software needed to run it and received 10 bitcoin, making it the first ever bitcoin transaction, which took place on Janaury 12, 2009.
For a while, Satoshi Nakamoto and a few others mined currency on the network (read more about how mining works in our guide on mining) before mysteriously disappearing, handing over control to another programmer called Gavin Andresen.
What was so special about it?
Bitcoin did something that no one had been able to do before. It was:
- Decentralized - no-one person or group owned or controlled it.
- Trustless (peer-to-peer) - No more third parties were needed to conduct transactions.
- Borderless - money could be moved easily across the world without the need for exchanges.
- Immutabile - It can never be changed or reversed unlike today's financial systems.
- Prevented double-spending - it solved the problem many digital currencies had tried to crack before but failed to do so.
- It was the first proof-of-concept for a blockchain in action.
Did you know?
Around 25% of all Bitcoins have been lost. In November 13, an IT consultant accidentally threw away a hard drive with the private keys to 7,500 Bitcoins. That loss is worth somewhere between $15-$20 million today. Whoops.
How is Bitcoin produced?
Imagine gold under the ground. We know it’s there, but its value is hidden until a miner ‘digs’ it up. In the Bitcoin world, a miner discovers Bitcoin by creating ‘blocks’ of all the transactions going on in the network and adds them to the blockchain.
Want to know more about mining? Check out our guide to mining.
In Satoshi Nakamoto's white paper, he/she/they designated that there could only be 21 million bitcoins in existence - but not all have been unearthed yet. At the current rate of mining, all of them will be ‘dug up’ sometime in 2140.
How do you get hold of Bitcoins?
There are three main ways of getting hold of it:
- You can buy them using fiat currencies ($, £ of € for example) at exchanges. You’ll need a wallet and a set of keys to store and exchange them.
- You can become a miner and try to work out the secret puzzle for the current block, which will reward you with 12.5 BTC.
- You can win them! Gambling sites have popped up to help people spend and earn their Bitcoin.
Did you know?
Around 1,000 people own nearly 40% of all Bitcoins currently in circulation.
What can you do with Bitcoin?
- Buy things - everything from a Tesla, a house, a holiday, games, an education and even legal help can all be paid for using it.
- Gamble - if you’re feeling lucky there are a whole suite of gambling sites that accept it
- Digital Rights Management - Bitcoin - and blockchain, the protocol it’s built on - can be used to help musicians and artists control who has access to their IP.
- Identity - thanks to the unique double key system used in Bitcoin wallets, it could become the main way you identify yourself online.
Did you know?
In 2013, the FBI made $48 million by selling 144,000 Bitcoins it had seized from criminals using the currency.
What is a Bitcoin wallet?
Like a regular wallet, it’s a place to keep your valuables. When it comes to Bitcoin, those valuables are your keys held on a piece of software you can store on your phone, the web or a computer.
In order to buy and sell Bitcoin you need a private and a public key.
A public key is what you share with people to trade it.
Your private key is something you keep to yourself. When you trade, you send someone your public key, and your private key is used to authenticate that it’s you who is requesting to send or receive Bitcoin.
Find out more about wallets in our handy guide.
Did you know?
Bitcoin uses a lot of electricity. So much so that one transaction consumes nearly 4,000 times the energy used when processing a credit card transaction.
We know that all Bitcoins will be mined sometime in 2140. In the meantime, the future of Bitcoin and its value is uncertain.
The limitations of the cryptocurrency - has lead to the creation of dozens of other altcoins that are more specialized. We've done a whole article on it's limits.
There are some that argue it could become a store of value, like gold is in the real world. Others meanwhile, want to keep it as a way to buy goods and services and developers - find out more about that by reading our piece on the Lightning Network.
Bitcoin's future is uncertain. However, blockchain's potential is just getting started.