What is Bitcoin?
Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto. The name also refers both to the open source software he designed to make use of the currency and to the peer-to-peer network formed by running that software.
Unlike other digital currencies, Bitcoin avoids central authorities and issuers. Bitcoin uses a distributed database spread across nodes of a peer-to-peer network to journal transactions, and uses digital signatures and proof-of-work to provide basic security functions, such as ensuring that bitcoins can be spent only once per owner and only by the person who owns them.
Bitcoins can be saved on a personal computer in the form of a wallet file or kept with a third party wallet service, and in either case bitcoins can be sent over the Internet to anyone with a Bitcoin address. The peer-to-peer topology and lack of central administration are features that make it infeasible for any authority (governmental or otherwise) to manipulate the quantity of bitcoins in circulation, thereby mitigating inflation.
Bitcoins contain the current owner’s address. When a bitcoin belonging to user A is transferred to user B, then A’s ownership over that bitcoin is relinquished by adding B’s address to it and signing the result with the private key that is associated with A’s address.[13] Because of the asymmetric cryptographic method, nobody else can grant this signature, and the private key cannot be determined based on the signed bitcoin. The resulting bitcoin is broadcast in a message, the transaction, on the peer-to-peer network. The rest of the network nodes validate the cryptographic signatures and the amounts of the transaction before accepting it.
Because transactions are broadcast to the entire network, they are inherently public. Unlike regular banking, which preserves customer privacy by keeping transaction records private, transactional anonymity is accomplished in Bitcoin by keeping the ownership of addresses private, while at the same time publishing all transactions. As an example, if Alice sends 123.45 BTC to Bob, a public record is created that allows anyone to see that 123.45 was sent from one address to another. However, unless Alice or Bob make their ownership of these addresses publicly known in some way, it is difficult for anyone else to connect the transaction with them. However, if an address is connected to a user at any point it can be possible to follow back a series of transactions because each participant likely knows who paid them and may disclose that information on request or under duress. However, if used over an anonymization service like Tor, Bitcoin can provide anonymity that is weaker than cash transactions but stronger than other popular electronic transactions.
You can find out more about bitcoins and other surrounding aspects by visiting Bitcoin.org!
