3. February 2024

Bitcoin (BTC)

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For the past years financial markets, banks, politicians and others have expressed their anger over the awefullness that has popped up, from what seems like nothing, and redifined what they believed to be a fundamental part of how business and financial transactions are handled and processed. A new method of transacting valuables between persons had come out of the woodworks, the first real decentralized cryptocurrency was beginning to proof its worth, and it did that without a bank or an intermediary had control of the transaction. This was Bitcoin, and its first transactions wasnt big, or valuable. The first recorded purchase by Bitcoin was when 2 pizzas were bought for 10.000 BTC. Slowly but surely people started to reckognize the potential and value of this new technology and the value of Bitcoin started to grow substantially. Today you can buy at a minimum 1.000 pizzas for a single BTC, and it is not only computer geeks that are paying attention, but whole countries starting to get a piece of the pie.

Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on a peer-to-peer network without the need for intermediaries. It was created in 2009 by an unknown person or group of people using the pseudonym Satoshi Nakamoto. Bitcoin operates on a public ledger called the blockchain, which records all transactions made with the currency. Bitcoin is designed to be scarce, with a maximum limit of 21 million bitcoins that can ever be created. It is also highly divisible, with each bitcoin being divided into 100 million smaller units called satoshis. Bitcoin has been the subject of significant controversy and speculation, and its value has fluctuated greatly since its inception.

How does Bitcoin work?

Easiest way to describe Bitcoin is to use the words of one of its founders, Hal Finney, who described it in two easy steps. Following text is from a blog postmade by Hal Finney 11th February in 2011:

How are bitcoins created?

Everyone on the network competes to be the first to solve a computationally hard puzzle. The winner is rewarded with 50 new bitcoins. Puzzle difficulty is automatically adjusted so it takes about ten minutes to get a solution, creating a slow, manageable increase in the supply of bitcoins. The 50 bitcoin reward gets halved every four years, so the total number of bitcoins that will ever be created stays inder 21 million.

How are bitcoins transferred?

Bitcoins are associated with cryptographic public keys controlled by the person who owns them. To transfer them to someone else (i.e. to make a payment) he broadcasts on the Bitcoin network a digital signature identifying the bitcoins he is transferring, along with the public key of the new owner. This information is stored in a distributed database matinained by the Bitcoin network that records the public keys that own every bitcoin. Bitcoin software validates the digital signature and updates the database to record the new owner of the bitcoins. He will then be able to transfer them to someone else in the future.

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