Bitcoin 101: What is Bitcoin?
Posted on March 30 2015
Bitcoin was invented as a peer-to-peer system for online payments that does not require a trusted central authority. Since its inception in 2008, Bitcoin has grown into a technology, a currency, an investment vehicle, and a community of users.
What is Bitcoin?
Since anything digital can be copied over and over again, the hard part about implementing a digital payment system is making sure that nobody spends the same money more than once. Traditionally, this is done by having a trusted central authority (like PayPal) that verifies all of the transactions. The core innovation that makes Bitcoin special is that it uses consensus in a massive peer-to-peer network to verify transactions. This results in a system where payments are non-reversible, accounts cannot be frozen, and transaction fees are much lower.
We understand that bitcoin can seem a little imposing at first, so if you want an explanation that even a five year old can understand, click here.
Where do bitcoins come from?
Although we don't want to go into the process of "mining" or how bitcoins are created, here is a simple explanation: Some users put their computers to work verifying transactions in the peer-to-peer network mentioned above. These users are rewarded with new bitcoins proportional to the amount of computing power they donate to the network.
Who controls Bitcoin?
As we mentioned above, there is no central person or central authority in charge of Bitcoin. Various programmers donate their time developing the open source Bitcoin software and can make changes subject to the approval of lead developer Gavin Andresen. The individual miners then choose whether to install the new version of the software or stick to the old one, essentially “voting” with their processing power. It is in the miners’ best interest to only accept changes that are good for the Bitcoin currency in the long run. These checks and balances make it difficult for anyone to manipulate Bitcoin.