Bitcoin Basics : Who created Bitcoin? How does it work? Story so far…

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Introduction to Satoshi Nakamoto – The Creator of Bitcoin

Bitcoin known nowadays as the digital gold a deflationary currency dates back to 3 January 2009 when it was mined for the first time, by someone known as “Satoshi Nakamoto”. He is considered to be the creator of Bitcoin and have authored the bitcoin white paper.

Nakamoto have never revealed any personal information about him there is not even a single picture of him in existence just widespread speculations about him some states he is a 37 year old male who lived in Japan, some considers Nakamoto to be a “team of people” or a “genius” as the coding of bitcoin seems to be too well structured for a single person to execute it.

Why was Bitcoin created?

Bitcoin credits its existence to the 2008 global recession when the popular US investment bank Lehman Brothers Holding Inc. filed bankruptcy, which was a hard blow to the faith in the banking system for most of the people. The impact of the blow was so powerful that a new asset class not backed by any financial institution came into existence now called as Bitcoin.

The reason behind the creation of Bitcoin was to not give the full control of the financial system in the hands of the few authorities and making the system completely decentralized so that an ordinary person also have a fair opportunity to participate in the financial system, thanks to the 2008 financial crisis which opened the eyes of the people to the truth that too much power in hands of a single system is highly risky and no one let it be one of the world’s biggest banks still can fail.

What is Bitcoin in layman terms?

Basically Bitcoin is a digital currency which in layman terms is a currency which does not have a physical presence like our usual Fiats but have all the functionality of the usual Fiats minus the presence of the intermediary to state an example:- If a person A needs to transfer some amount of money to B the money travels from A’s bank account to B’s bank account through an intermediary known as the so called Bank although in Bitcoin’s case there is no intermediary in between for the exchange of this digital currency.

Bitcoins can be sent from user to user on the Bitcoin network and all the transactions of this network are verified by network nodes through cryptography and gets recorded in a public distributed ledger called the Blockchain.

How does Bitcoin function?

Bitcoin functions on blockchain which is a publicly distributed ledger. Blockchain put simply is like a chain of data made up of units called blocks. This blocks contains all information about the transactions including the data about buyer, seller, time, date, total value and a unique code for each transaction in a chronological order. Each block on the blockchain can be publicly accessed and as it is completely decentralized no entity controls it. Its not owned by any person but anyone with a link can contribute to the blocks.

As different people makes changes to it all the copies on the block gets updated as well, Though anyone making edits to the blocks on the bitcoin blockchain seems like a nightmare and is worrisome but that is what makes Bitcoin more secure and trustworthy as any updates made on the blocks needs to be validated by the Bitcoin miners.

There are specific and very unique codes which are used to identify the users wallet and the transactions which follows a correct encryption pattern as a result duplicating them or making any fraudulent transaction is extremely difficult.

Bitcoin timeline and Major updates

There are lots of in detailed books and articles covering the history of Bitcoin in detail, this guide covers only the major moments in Bitcoin’s history.

  • November 8, 2008 – SourceForge¬†

Bitcoin was registered on the open source software development platform SourceForge.

  • January 3, 2009 – Genesis Block

The genesis block was mined by Satoshi Nakamoto. In this first block or the initial transaction the below message was included.

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

This note has been considered as a timestamp and a comment mocking on the instability caused by fractional-reserve banking.

  • May 22, 2010 – Bitcoin Pizza Day

The first official transaction of a buying of goods and service using Bitcoin happened on May 22, 2010 when a Florida based programmer Laszlo Hanyecz paid 10,000 BTC for two large Papa John’s pizzas which where worth around 30$ at the time of purchase. Those two pizzas tends to be the costliest pizza every bought if calculated at current prize 1 BTC stands at $54,788 at the time of writing of this article. This incident till date is known as Bitcoin Pizza Day.

 

  • November 27, 2010 – Mining Pool

The oldest mining pool was launched called the Slush pool which provided the miners the opportunity to pool in their computational resources to mine Bitcoin and share the block rewards which they received in form of Bitcoin for sharing their resource power for adding blocks to the bitcoin network.

  • February 2011 – Silk Road

Silk Road is one of the important parts of the history of Bitcoin. Launched in February 2011 by Ross Ulbricht was an online darknet market accessible only through Tor browsing service which used Bitcoin as the currency.

As the illegal drug trade and other sorts of criminal deeds took place through this Silk road, the federal authorities started snooping in which in turn lead to the arrest of Ross Ulbricht on October 2, 2013 who is still serving multiple life sentences with no parole.

  • April 26, 2011 – Satoshi Steps Out

Satoshi stepped out of the Bitcoin project on April 26, 2011 after handing over the network alert key and control of the Bitcoin Core code repository over to Gavin Andresen, who later became lead developer at the Bitcoin Foundation. Nakamoto disappeared from any involvement in bitcoin.

This stepping out was necessary as a creator of a decentralized, privacy protected alternative financial system he sure would have received a sentence not so harsh like Ulbricht but still it lead to Bitcoin remaining true to its core value completely decentralized resilient financial system.

  • February 7, 2014 – Mt. Gox

The first exchange of Bitcoin called the Mt. Gox launched in July 2010 by P2P software developer Jed McCaleb later on sold to Mark Karpeles, Magic. The exchange on February 7, 2014 went offline after a security breach leading to 849 900 bitcoins being stolen by hackers. There are still efforts going on to compensate the Mt. Gox users for their losses.

  • July 17, 2014 – BitLicense & Crypto regulations

The New York State Department of Financial services proposed the BitLicense a license which imposes restrictions on businesses dealing in digital currencies operating within New York. This license was heavily criticized due to the huge demands and the sheer costs of getting the license made it almost impossible for the small business to remain complaint.

When the BitLicense came into use in August 8, 2015 around 12 major cryptocurrency companies left New York which was described in the New York Business Journal called the “Great Bitcoin Exodus”.

  • January 14, 2016 – Lightning Network

As a decentralized financial alternative to the usual financial system and to compete with the global payment giants like Visa and Mastercard, Bitcoin should be able to handle a large number of day to day transactions.

In order to achieve the same on January 14, 2016¬† a white paper detailing the “Lightning Network” a layer two scaling solution for Bitcoin was proposed which allows the transactions to happen on the payment channels off-chain which can latter be settled and verified on chain which would in turn reduce the transaction load on the blockchain helping to increase the transaction speed.

Lightning network is live from March 2018 on the mainnet and facilitates fast blockchain payments.

  • August & October 2017 – Hard Forks

Since inception of Bitcoin many hard-forks have taken place on the network but the notable and the most famous ones which exist still are the Bitcoin Cash initiated on August 2017 and Bitcoin Gold initiated in October 2017.

Both hard-forks are launched to introduce some important updates on the Bitcoin mainnet.

As for Bitcoin Cash the fork was meant to avoid few protocol updates brought by the SegWit protocol whereas for Bitcoin Gold the aim was to restore the mining functionality with basic GPU.

Conclusion

Bitcoin has emerged nowadays to be more of an asset class and a store of value for money as compared to the historical value of it launched as a functional transactional currency.

With more and more institutional investing and widespread adoption of Bitcoin as an official currency for some countries Bitcoin’s future looks bright in the days to come.

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