Bitcoin, a decentralized, non-universal globally payable cryptographic digital currency, while most countries consider Bitcoin to be a virtual commodity and not a currency.
The concept of Bitcoin was born from a paper signed by Satoshi Nakamoto in 2008 and created on January 3, 2009, based on a borderless peer-to-peer network invented with consensus-active open source software.
Bitcoin is a collection of concepts and technologies that form the basis of the digital currency ecosystem. The unit of currency known as a bitcoin is used to store and transfer value between participants in the Bitcoin network. Bitcoin users communicate primarily over the Internet using the Bitcoin protocol, although other transmission networks may also be used. The Bitcoin protocol stack, which can be used as open source software, can run on a variety of computing devices, including laptops and smartphones, making the technology easily accessible.
Users can transfer bitcoins over the Internet and do anything as easily as regular currency, including buying and selling goods, sending money to other people or organizations, or extending credit. Bitcoins can be bought, sold and exchanged for other currencies in a dedicated currency exchange. Bitcoin is in a sense the perfect form of the internet because it is fast, secure and has no geographical boundaries.
Unlike traditional currencies, Bitcoin is completely virtual. There are no physical coins, or even the digital currency itself. This coin is implicit in the transactions that transfer value from the sender to the recipient. Bitcoin users have their own keys that allow them to prove ownership of bitcoins in the Bitcoin network. Using these keys, they can sign transactions to unlock the value and transfer it to a new owner to achieve spending. The keys are typically stored in a digital wallet on each user's computer or smartphone. Having the keys to sign transactions is the only prerequisite for spending bitcoins, and complete control is achieved by the keys for each user.
Bitcoin is a distributed peer-to-peer system. As such, there is no "central" server or control point. Bitcoins are created through a process called "mining", which involves competing to find solutions to mathematical problems while processing bitcoin transactions. Any participant in the Bitcoin network (i.e., anyone using a device running the full Bitcoin stack) can use the processing power of their computer as a miner to validate and record transactions. On average, every 10 minutes, someone can validate a transaction from the last 10 minutes and be rewarded with a brand new bitcoin. Basically, Bitcoin mining decentralizes the currency issuance and settlement functions of central banks, replacing the need for any central bank.
The Bitcoin protocol includes built-in algorithms for tuning the mining function of the entire network. On average, the difficulty of the processing tasks miners must perform at any given time, regardless of how many miners (and how much processing power) are competing, is dynamically adjusted to guarantee a successful mine every 10 minutes. The protocol also halves the rate of new bitcoin issuance every four years and limits the total number of bitcoins issued to a fixed total of less than 21 million coins. The result is that the number of bitcoins in circulation follows an easily predictable curve that will reach 21 million by 2140. As the issuance rate of bitcoins declines, the bitcoin currency is deflationary in the long run. Furthermore, bitcoin cannot be inflated by "printing" a new currency that exceeds the expected issue rate.
In other words, bitcoin is also synonymous with protocols, peer-to-peer networks and distributed computing innovations. The bitcoin currency is really just the first application of this invention. Bitcoin represents the culmination of decades of research in cryptography and distributed systems, and includes four key innovations that come together in a unique and powerful combination. These four innovations of Bitcoin include: a decentralized peer-to-peer network (Bitcoin protocol) a public transaction ledger (blockchain) a set of rules for independent transaction confirmation and currency issuance (consensus rules) a mechanism for achieving an effective blockchain global decentralized consensus (proof-of-work algorithm)
The emergence of viable digital currencies prior to Bitcoin is closely tied to the development of cryptography. The real challenge is when bits are used to represent values that can be exchanged for goods and services but are not taken for granted. The three basic questions for those who accept digital money are:
Can I trust that the money is real and not fake?
Can I trust that digital money can only be spent once (known as "double payment")?
Can I be sure that no one can claim that the money belongs to them and not to me?
Banknote issuers continue to combat the counterfeiting problem by using increasingly sophisticated paper and printing techniques. Physical money easily solves the problem of double payment, since the same bill cannot be in two places at once. Of course, traditional money is also often stored and transmitted digitally. In these cases, counterfeiting and double spending problems are handled by clearing all electronic transactions through a central authority, which has a globally oriented view of money. For digital currencies that cannot utilize esoteric ink technology or holographic barcodes, cryptography provides the basis for trusting the legitimacy of the user's rights to the value. Specifically, cryptographic digital signatures enable users to sign a digital asset or a transaction that proves ownership of that asset. With the proper architecture, digital signatures can also be used to address the problem of double spending.
When crypto began to become more widely available and understood in the late 1980s, many researchers began experimenting with cryptography to build digital currencies. These early digital currency projects issued digital currencies, often backed by national currencies or precious metals (such as gold).
While these early digital currencies were effective, they were centralized and therefore vulnerable to governments and hackers. Early digital currencies used a centralized note exchange to conduct all transactions on a regular basis, much like a traditional banking system. Unfortunately, in most cases, these emerging digital currencies were the target of government concerns and eventually faded from legal existence. Others fail due to when the parent company is suddenly liquidated. Both legitimate governments and criminals need decentralized digital currencies to avoid a single attack to avoid the intervention of antagonists. Bitcoin is one such system, decentralized by design and not subject to any central authority or control point that could be attacked or corrupted.
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