Bitcoin is the first cryptocurrency to ever hit the market. It’s also the best-known, most widely traded cryptocurrency, and the one with the highest market cap.
Bitcoin first came to prominence in October 2008, when Satoshi Nakamoto published a white paper in which he explained how the trust underpinning our financial system could be replaced with mathematical proof. Shortly thereafter, in January 2009, the first Bitcoins entered circulation.
Unlike fiat currencies, Bitcoin isn’t issued by a central authority. It’s mined. Mining is a process in which computers solve complex mathematical problems in exchange for Bitcoin. This is called proof of work.
In theory, anyone can mine Bitcoin. But the process is expensive and resource-heavy. It’s estimated that mining consumes more electricity in one year than the entire Republic of Ireland, and five times more than is produced by the largest wind farm in Europe.
Proof of work is also difficult to produce (though easy to verify). So, someone’s mining efforts may result in very few Bitcoins or none at all. This is intentional. The aim is to prevent a single individual or group from being in a position where they can exercise undue influence on the system or corner the market.
Bitcoin transactions are made using public and private keys.
The public key is an address made up of random letters and numbers which you share with the person you want to transact with.
The private key is like a password which authorizes the transaction.
Transactions are recorded on the blockchain, which acts as a shared public ledger. Every transaction, or block in the chain, is time-stamped and has to be verified by the entire network.
Crucially, once a transaction is recorded, it can’t be modified. Any modifications would invalidate all subsequent blocks.
- One of the first purchases ever paid for in Bitcoin were two take-away pizzas. Developer Laszlo Hanyecz paid 10,000 Bitcoins for them. Today, those Bitcoins would be worth $100 million
- Bitcoin may be the first cryptocurrency, but it’s not the first attempt at creating one. The credit for that belongs to David Chaum, whose staunch views on privacy led him to invent ‘blinded cash’ — a system that anonymised transactions using cryptographic protocols.
Chaum’s company DigiCash made waves when it was founded in 1989. Sadly, the internet was still in its infancy, so DigiCash didn’t catch on. The company declared bankruptcy in 1998.
- It’s been more than a decade since the Bitcoin white paper was published, but Satoshi Nakamoto’s true identity remains a mystery.
Some of the people touted as being Bitcoin’s elusive inventor include:
- Physicist Dorian Nakamoto
- Scientist Craig Wright
- Computer engineer Nick Szabo
Interestingly, Szabo worked for DigiCash.
Want to know more?
Nakamoto’s white paper — Bitcoin: a peer-to-peer electronic cash system — explains in great detail the philosophy and mathematical formulas that underpin Bitcoin and the blockchain.
If you’re looking for a less technical introduction, this course on Khan Academy is endorsed by bitcoin.org, Bitcoin’s official site and the place where Nakamoto’s white paper was originally published.
The Metaco view
Bitcoin and the blockchain are the most transformative innovations of our time, because they can unlock financial sovereignty for everyone.
As someone who’s personally struggled to find financial backing for entrepreneurial projects, I feel very strongly about its potential. That’s why, at Metaco, we work hard to further the vision of a financial system in which there are no gatekeepers.
Nicolas Dorier, Founder and VP of Digital Currencies.