Bitcoin is the first true digital peer to peer currency system that ushered in the era of cryptocurrency and related technologies. Bitcoin was announced by Satoshi Nakamoto in November 2008 and the first block was mined in January 2009. It’s code has been forked and used directly or indirectly for most of the other cryptocurrencies. Even when the code is not directly forked, Bitcoin has formed the basis of almost every other cryptocurrency in existence. Bitcoin is described in the original whitepaper as “A Peer-to-Peer Electronic Cash System”.
Today, Bitcoin is mostly used as a borderless currency mostly over the internet but also in retail stores. Several multi-billion dollar companies like Microsoft, Overstock and Dell have begun accepting Bitcoin for certain goods and services. Bitcoin payments are generally processed by payment processors like Coinbase or BitPay and converted into the merchant’s local currency to avoid volatility of exchange rates.
Bitcoin has found use as a microtransaction payment platform for online content, and a system with the ability to pay merchants and service providers across borders in an easy manner. Bitcoin is also used in certain new remittance platforms since it makes it easy to transfer Bitcoin from one wallet to another without regard to geography. Bitcoin remains the most dominant cryptocurrency today in terms of market capitalization, popularity, media and general awareness.
Bitcoin created a system to solve several problems that were associated with previous attempts at creating a decentralized monetary system. It’s use of proof of work for mining provides strong incentives for the players in the network to be honest and easily discard dishonest players. It has a consensus mechanism built in so that after a sufficiently long time, all nodes in the network will agree to the state of a given transaction. In addition, Bitcoin created a very good economic model that keeps the system from being overrun by bad actors.
Bitcoin also has an active team of core developers and many others contributing to the project directly or indirectly through open source applications. Companies like Blockstream fund development of the Bitcoin project through research and extending the Bitcoin protocol to add new features.
Bitcoin introduced the concept of mining for the network to reach consensus on whether a certain transaction was valid or not, essentially solving the problem of double-spend in a distributed system without introducing a trusted third party. Bitcoin uses SHA-256 hashing algorithm for its mining purposes.
Given the economic incentives around Bitcoin, mining became commercial and intensely competitive, moving from hobbyist desktops to data centers. Many companies today manufacture application specific integrated circuits (ASICs) for Bitcoin mining that make it faster and more efficient to perform SHA-256 hashes on a chip.
Bitcoin transaction fees varies depending on the size and priority of the transaction. The reference implementation of Bitcoin core has a default fees of 0.0001 BTC per KB of data. However, fees also depend on the priority of the transaction, which in turn depends on the size of the outputs and coinage of the inputs spent in the transaction. For example, if someone wants to transfer 100 BTC that haven’t moved in 5 years, the transaction will have a high priority and will likely be accepted by the miners without fees. However, in order to speed-up the processing, adding fees is advisable. During certain peak periods, it is possible that the default fees may result in large delays in the transaction getting confirmed. Several wallets are working towards a dynamic fee system that adjusts the transaction fees based on the number of pending transactions.
Bitcoin was first announced on the cypherpunk mailing list by Satoshi Nakamoto on November 1st 2008 under the subject “Bitcoin P2P e-cash paper” describing “…a new electronic cash system that’s fully peer-to-peer, with no trusted third party” along with a link to the original Bitcoin Whitepaper.
Bitcoin’s genesis block was mined on January 3rd 2009. In order to prove that Satoshi himself had not mined a bunch of blocks in advance of the public announcement, the genesis block contains a headline from the New York Times that was published on the same day. The message in the Genesis block is “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.
Community and Founders
Bitcoin was founded by Satoshi Nakamoto, an online pseudonym that remains unidentified in real world identity. Initially greeted with skepticism on the cypherpunk mailing list, Hal Finney, a noted computer scientist, early PGP developer and a regular poster on cypherpunk mailing list took interest in the project. The first Bitcoin transaction was from Satoshi Nakamoto to Hal Finney.
Satoshi made his last post in the Bitcointalk forums on December 12, 2010 and said he’s moved on to other things, leaving the Bitcoin project (and Bitcoin Core) in the hands of Gavin Andressen as the core developer.