To enjoy the history of Bitcoin, you only need a rough idea of what it is. This chapter skips the hard technical details and uses everyday analogies to give you the big picture. The finer points will fall into place as you read the story.
In one sentence: money on the internet that nobody owns
The dollars, euros or yen you use every day are issued by a country's central bank, and your balance is kept by a bank. The bank knows how much you have, and when you send money, the bank sits in the middle.
Bitcoin has no issuer and no company running it. Instead, computers all over the world keep identical copies of the same ledger and check each other's work. That shared ledger is called the blockchain.
Imagine a village where every payment is written into a notebook, and every villager holds an identical copy. If one person secretly alters their copy, it no longer matches everyone else's and the cheat is obvious. Bitcoin is that shared notebook, scaled up to the whole internet.
The blockchain
A new page every ten minutes,
chained to the one before.
Each block records the fingerprint (hash) of the one before it. Change anything, and every fingerprint after it stops matching.
Four things worth knowing
1. There will only ever be 21 million
Governments can create as much of their currency as they like. Bitcoin's original program caps the total at 21 million coins, and nobody can change that. This fixed supply is why Bitcoin is often called "digital gold."
2. New coins are created by "mining"
The computers that add new pages (blocks) to the ledger are doing mining, and their operators are called miners. Roughly every ten minutes, miners compete in a computational race and the winner receives new bitcoin. That reward is cut in half about every four years (the halving), which is how the supply eventually stops at 21 million.
3. Ownership is decided by a private key
Instead of accounts, Bitcoin has addresses. The coins at an address can only be moved by whoever knows its private key. The app or device that stores your keys is called a wallet. Unlike a bank, there is no "forgot my password" button. That unforgiving rule will cause a lot of drama in the chapters ahead.
4. Anyone can join, and nobody can switch it off
Bitcoin's software is open source. Anyone can read it, and anyone can run a node that holds a copy of the ledger. No company or government can announce that Bitcoin is shutting down tomorrow.
The halving
Every four years, the reward halves.
Mining reward per block, in BTC. New bitcoin arrives more and more slowly.
Common misunderstandings
- "Bitcoins are physical coins." They are not. Bitcoin exists only as entries in the ledger. The shiny gold coins in news photos are props.
- "Bitcoin is completely anonymous." Almost the opposite: every transaction is public. Addresses simply aren't labelled with names, so it is hard, not impossible, to tell who is behind them.
- "Bitcoin and crypto are the same thing." Bitcoin was the first and is still the largest cryptocurrency, but thousands of others have been created since. This site is about Bitcoin only.
The unit is "BTC." One bitcoin can be divided into 100 million pieces, and the smallest piece is called a satoshi, after its creator. You never need to buy a whole coin.
Chapter summary
- Bitcoin is internet money that no government or company controls.
- It works because computers worldwide keep identical copies of one ledger, the blockchain.
- The supply is capped at 21 million. New coins come from mining, and the reward halves about every four years.
- Ownership is decided by private keys. Lose them and the coins are gone.
So where did such a strange kind of money come from? In the next chapter we go back to the decades before Bitcoin existed.