Bitcoin is more than a currency. Bitcoin is a concept, an idea. The idea of peer-to-peer payment, with no middleman or central authority. This means less transaction fees, and faster transactions. Also, as there is no middle man, security is greatly increased. Anonymity is achieved by every user hidden behind long strings of digits.
Satoshi Nakamoto, the creator of Bitcoin, supposedly began working on the concept of Bitcoin in 2007. No one knows whom Satoshi is, or if Satoshi is a collective of several people (more on that later). The general consensus of the Bitcoin community is that ‘Satoshi’ is a person living in Japan, but that can be disputed as well.
According to Satoshi’s Bitcoin Foundation account, ‘Satoshi’ is in his 40s now and lives in Japan – however there is no way to validate that information. The anonymity behind ‘Satoshi’ exactly expresses what Bitcoin is attempting to create. An anonymous peer-to-peer currency that is tracked by no one, yet transparent enough for the public see at the same time.
Many people debate over who Satoshi Nakamoto actually is and disregarding Newsweek’s article that they found the real Satoshi Nakamot living in California in their notorious article ‘The Face Behind Bitcoin’. There are several theories that Satoshi could be a joint effort between Samsung, Toshiba, Nakamichi, and Motorola and that these companies together created Bitcoin.
On August 15, 2008 Three people filed a patent for encryption application; Neal Kin, Vladimir Oksman, and Charles Bry. One intrepid researcher, Adam Peneberg, cross-referenced phrases from the patent application and the Bitcoin white paper.
The phrase “computationally impractical to reverse” matched with both the patent application and the Bitcoin white paper. Furthermore, the domain name for Bitcoin’s official website, bitcoin.org, was registered 3 days after the patent application was filed. Additionally, the patent was registered in Finland, where one of the patent authors traveled to 6 months before the domain was registered.
Unsurprisingly, all 3 authors adamantly denied the accusations. In fact, all possible identities of Satoshi have been strongly denied. We may never know the true identity of “Satoshi Nakamoto”
A Bitcoin, is in essence, a chain of digital signatures. To send Bitcoins to another person, the owner of the coin is actually digitally signing a hash or a long string of numbers, that include the details of the previous transaction and the public key. Think of your public key or public address as a email address. The person being paid then verifies the signatures to authenticate the chain of ownership.
Common questions surrounding bitcoin include: “How does a person receive payment?” or “How does a user or a merchant make sure a coin wasn’t ‘double spent’ or used in another transaction before?”
In traditional financial systems, a trusted third-party is used to hold and verify transactions. That third party is usually a bank or a money transmitter who later takes a sizable fee from the transaction. Bitcoin was meant to be decentralized and to not put trust in a third-party organization. Bitcoin was meant to put trust in computers, cryptography and mathematics. To replace a third-party organization like a bank or a government, Satoshi implemented a transparent, timestamp server, which is the backbone of the blockchain.
A timestamp server, as previously mentioned, works by taking the hash of a block of items that need to be timestamped and publishes the hash worldwide. In doing so, timestamps verify that the data needed to make the hash did indeed exist at that time, therefore authenticating the transactions.
Each sequential timestamp includes the hash of the previous one, creating a chain that is strengthened with every timestamp. The question now is, “How do we make this timestamp server decentralized?” In Bitcoin, and many other cryptocurrencies, they use a “proof”.
You’re probably familiar with gold miners. Well, bitcoin has miners as well. These miners ‘mine’ bitcoin. How? Using ‘Mining Rigs’ to solve complex mathematical algorithms. If you have seen miners and their rigs, with usually several high end graphics cards on one motherboard, you are seeing proof of work going on. Otherwise known as “mining”, which will be discussed more in depth later on. Proof of work is the process of looking for a value that, when hashed with the correct algorithm, in this case SHA-256, that the hash begins with a number of zero bits.
For the timestamp network to work and verify transactions, Bitcoin has included a ‘nonce’ as well. A nonce a value that when included in the block, the hash of the block contains a certain number zeros somewhere in the hash.
When the block’s proof of work are correctly satisfied, they are then added to the chain. A blockchain is created as more and more blocks are chained together. The longer this blockchain is, more work is required for a malicious entity to reverse a transaction, as it must redo the work of all the blocks.
The blockchain is essentially, you guessed it, a chain of blocks. But is much more than that. To put something in the blockchain is a digital equivalent of setting it in stone and digitally recording it forever.
You see, as previously mentioned before, the longer the blockchain is, the more work a miner will be required to do in order to change a single transaction. This made a very attractive for people that want to store data long term, as it’s very unlikely that it will be altered or otherwise changed.
The blockchain isn’t just set to storing transaction records. The blockchain enables a user to store any digital files including artwork, contacts, images, etc. The blockchain authenticates that a certain user is indeed the owner of your work and cannot be disputed.
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