Bitcoin Basics

Bitcoin is a form of electronic cash.  It is the original digital cryptocurrency underpinned by a blockchain technology network.  

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Every time any bitcoin changes hands, all the nodes in the network simultaneously receive the information needed to verify and record the transaction, ensuring that even if one of the nodes fails, the record is updated. 

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A bitcoin is created (or “mined”) when a computer calculates the solution to a specific mathematical challenge.  As opposed to traditional currencies, the Bitcoin network operates independently of a central bank and is not subject to national fiscal or monetary policies. 

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When the Bitcoin network was conceived in 2008, its creator Nakamoto Satoshi defined it as “A purely peer-to-peer form of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution”.

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Traditionally, the quickest and most private way to make a payment is in cash.  Transacting in cash, however,  requires either that the sides be together or entrust a go-between to move the money.

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Bitcoin (with capital “B”) is a network that retains the privacy and immediacy of cash and avoids having to entrust a third party.  Transactions in this network are made in a form of currency called bitcoin (with lower case “b”), which can be accepted everywhere.  

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Bitcoin is an electronic coin defined as a chain of digital signatures.  The record of a transaction validated by the nodes is referred to as a block which confirms that a certain bitcoin is owned by a certain party.  When the owner transfers this bitcoin to another party, thereby creating another block, that new block is linked to the previous block, creating a “blockchain”.  By keeping a record of the blockchain, an unbroken record of the bitcoin is kept, making duplicate transactions impossible.

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The Bitcoin network is made up of computers, or “nodes”,  distributed throughout the world simultaneously receiving all transaction information that needs to be updated, ensuring all records are consistent.  Every new transaction is validated by the nodes. just like a bank would register a cash deposit in its  ledger, but rather than a single ledger held in one bank, it is a distributed ledger held by many nodes.

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