What Bitcoin Is

Bitcoin Basics

Bitcoin is a currency unlike many of its predecesors. It exist only in the digital world and strives to make all transaction untrackable, its system secure, and distrubution of coins decentralized.

 

The idea for Bitcoin was first published in Satoshi Nakamoto's White Paper Bitcoin: A Peer-to-Peer Electronic Cash System in 2009. Since then, online communities have embraced the currency.

 

Bitcoin System

Unlike most economies that are centralized, the Bitcoin economy is a peer-to-peer (p2p) network that is partially governmened by predetermined algorithms. The creation of new currency is determined by an algorithm as opposed to a governing group like the Federal Reserve. As a result the Bitcoin network does not allow artificial inflation.

 

This p2p network consists of nodes. Nodes tend to be computers that are a part of the Bitcoin network. Each node contains computing power which can be used to power the Bitcoin network. Each time a new node is added to the network, the network, as a whole, grows more powerful. The nodes in the network also store a distributed database which keeps track transactions.

 

Bitcoin Users and Addresses

To become a user of Bitcoin a person can download Bitcoin software and join the Bitcoin network. This user is given a wallet with a Bitcoin address which is used to keep track of a person's funds. All transactions are done with Bitcoin addresses.

 

If a user feels the need they can easily create a new address and add it to their wallet. This helps preserve the users anonymity because transaction are done with between addresses as oppose to between users.

 

Bitcoin Ownership

In this system users do not own the Bitcoins in the same way that a user owns the money in a virtual bank account. Bitcoin are less like piece of gold and more like tiny safes that hold gold. The user owns addresses which act like keys. A Bitcoin is capable of being "unlocked" by a specific address. As a result the user holding that address has access to the gold inside the Bitcoin that address can unlock.

 

It is important to note that Bitcoins, like safes, do not know who owns them; they just know what keys will open them. This barrier between the coin and user is the main way that anonymity is obtained.

 

Bitcoin Transactions

Bitcoin are 100% digital and all transactions are done over the Bitcoin network. Although the users in system are anonymous, the transactions they make are public. This is opposite of most economies where the peopled are identifiable and the transitions they make are kept in private. Below is how a transaction completed in Bitcoin.

1. Alice has a bitcoin
2. Alice adds Bob's address to the coin, signs with her own private key
3. This action is propagated through network
4. Every other node verifies transaction.
5. Once enough nodes verify, Bob now owns the bitcoin

Alice and Bob never have to make contact or know who each person is. However the the actions of their addresses are recorded.

 

If Alice decided afterwards that she wanted her Bitcoin back but Bob didn't want to return it, she would be out of luck. Transactions are unreversable.

 

Summary

As we make our arguement in this website there are a few major take away you need to know about bitcoins

1. Bitcoins do not resemble United States tender or economy.
2. Bitcoin transactions are not reverseable
3. There is no mapping that connects Bitcions to users
4. Unless you have access to a person account you cannot map addresses to that user
5. There is no way to know who you are doing buisness with over the network