What is bitcoin
Is it a currency? Is it a computer program?
Short answer: Bit coin is a way to send, receive, and store value on the internet without the involvement or permission of banks, payment processors, or other third parties. If you’re thinking this sounds a lot like cash, you’re right. Bitcoin is, among other things, cash for the internet.
Long Answer: When someone says the word “Bitcoin” they could be referring to one of several related concepts. Yes, Bitcoin (BTC) is a currency much like the US Dollar (USD) or the Euro (EUR). You can spend it. You can save it.
However, there are some interesting and substantial differences between Bitcoin and these other currencies, and we’ll discuss some of those throughout the book.
Bitcoin is also a method for tracking ownership of currency by updating globally distributed ledger. There’s a lot of meaning in that last sentence, so let’s break it down. If you have a bank account, the bank is keeping track of how much money you have in it. They keep the ledger. You’re probably keeping own ledger as well, but the bank has your money, so theirs is the one that matters in this example.
When you buy something for ten dollars with your debit card, your bank removes ten dollars from their ledger and the merchant’s bank adds ten dollars to theirs. Now imagine that instead of multiple banks with multiple ledgers, there was only one bank with one ledger. When you buy something, the one bank that both you and the merchant share updates its one ledger, showing that ten dollars have changed ownership from you to the merchant. Now erase the bank and replace it with a network of computers communicating over the internet. Instead of representing Dollars or Euros, values in the ledger are called bitcoins. That is the Bitcoin network.
Note: Since the same word refers to both the currency and the computer network, I will use “Bitcoin” (note the capital “B”) when referring
to the network, and “bitcoin” (lowercase) when talking about the unit of currency.
Also, the abbreviation “BTC” always refers to the currency, never to the network.
What Is The Blockchain?
The ledger mentioned above has a name: the Blockchain. The name comes from the way it is maintained. Transactions are not written individually, but in blocks or collections of many transactions. The Bitcoin blockchain is:
Complete. It contains every Bitcoin transaction ever made, all the way back to the very first one.
Unchangeable. I hesitate to use the word “impossible”, but it is extremely difficult to modify a Bitcoin transaction once it has been written to the ledger. Not only that, but every block of transactions makes harder to change the blocks that came before it. If a transaction has over six blocks written on top of it, it is essentially unchangeable.
Public. The Blockchain is not secret; anyone can view it and its contents online. Does this mean that people can view your Bitcoin transactions? Yes. You can look up any Bitcoin transaction (even ones that aren’t yours) and see related transactions which came before and after it.
However, the only information in the ledger is Bitcoin addresses (consider them to be like account numbers for now), transaction IDs, timestamps and amounts. You do not see names or items purchased. You do not see information that would allow you to assume someone’s identity or conduct transactions using their money.
You just see a record of BTC moving from one set of addresses to another.
Distributed. There isn’t just one copy of the Bitcoin ledger tucked away on a server. There are thousands of copies, each identical (and kept that way by the network).