Published on July 24, 2024

Bitcoin is an innovative payment network that leverages peer-to-peer transactions to remove the need for a central bank. Bitcoin has revolutionized the core principles of value exchange by showing that a network of fully independent nodes can operate payments in a trustless and secure way.

This article explores the basic concepts of Bitcoin and answers some of the common questions people often have when learning about Bitcoin for the first time.

Understanding Bitcoin Is Bitcoin money? Who created Bitcoin? Who controls Bitcoin? Is Bitcoin anonymous? Is Bitcoin secure? Is Bitcoin legal? How can you use Bitcoin? The world Bitcoin is trying to build

Understanding Bitcoin

Bitcoin, often abbreviated as BTC, is a digital currency. (We use the lower-case bitcoin to refer to the currency and Bitcoin when referring to the network underpinning it.)

Unlike traditional currencies issued by governments, bitcoin exists as a global network of nodes, which are computers whose job is to check the validity of transactions sent by users and record them on a public ledger called blockchain.

The strength of Bitcoin is that anybody with a computer can run a node and take part in the protocol, thus checking that other nodes behave legitimately. This means no single entity controls it — neither governments nor banks nor large corporations.

Registering transactions on the blockchain is an irreversible operation. Nobody can tamper with the historical data to cheat, which makes the Bitcoin protocol very secure.

Is Bitcoin money?

To understand Bitcoin’s role as money, we need to consider its functions:

• Medium of exchange: Bitcoin can be used to buy goods and services from a growing list of merchants and service providers. This includes everything from online retailers to local shops accepting bitcoin as a form of payment.
• Store of value: Many see bitcoin as digital gold, holding value over time and providing a hedge against inflation. Despite its digital nature, creating new bitcoins is a lengthy and expensive process. Together with the fact that the total supply is limited by the protocol, this contributes to bitcoin’s value retention.
• Unit of account: While less common, bitcoin is sometimes used to price goods and services, particularly in digital and tech-savvy markets. This means prices can be denominated in bitcoin instead of traditional currencies.

Who created Bitcoin?

Bitcoin was created by a pseudonymous person (or group of people) known as Satoshi Nakamoto. The concept of Bitcoin draws from earlier work by cryptographers like Wei Dai and the cypherpunks, a group advocating for the use of cryptography to enhance privacy and security in the digital age. Satoshi Nakamoto published the Bitcoin whitepaper in 2008 and launched the Bitcoin network in 2009. Since then, bitcoin’s price and adoption have grown significantly, attracting attention from both individual and institutional investors.

Who controls Bitcoin?

One of the most compelling aspects of Bitcoin is its decentralized nature. Unlike traditional currencies, bitcoin is not controlled by any central authority. Instead, it is based on an open-source protocol maintained and run by a global network of developers and contributors. This decentralized network ensures that Bitcoin remains open, secure, and free from central control.

The heart of the protocol is a consensus mechanism, an algorithm allowing the network of peers to decide on which transactions are valid and can be recorded on the blockchain. The whole process is transparent and verifiable, so that peers are disincentivized from acting maliciously.