2025-02-23T10:18:03 Status: #moc Tags: #technology #softwaredevelopment #crypto #security #quantum #bitcoin Links: [[Cryptography]] | [[Society]] | [[Technology]] | [[Software Development]] | [[Quantum-Resistant Cryptography in Blockchain Wallets]] # Bitcoin **Bitcoin** is a decentralized digital currency (often referred to as a [cryptocurrency](https://en.wikipedia.org/wiki/Cryptocurrency)) introduced by an individual or group using the pseudonym **[Satoshi Nakamoto](https://en.wikipedia.org/wiki/Satoshi_Nakamoto)**. Launched in 2009, Bitcoin revolutionized the notion of financial transactions by eliminating the need for central authorities (such as banks or governments) to validate and manage the currency. Instead, it relies on peer-to-peer networking, a distributed ledger called the **[blockchain](https://en.wikipedia.org/wiki/Blockchain)**, and robust [[Cryptography|cryptographic]] techniques to ensure security and integrity. Bitcoin was the first cryptocurrency to effectively solve the double-spending problem. ![[BitcoinKB.png]] ## Brief History 1. **White Paper and Launch (2008–2009)** - *2008*: The seminal Bitcoin white paper — [Bitcoin: A Peer-to-Peer Electronic Cash System](https://bitcoin.org/bitcoin.pdf) — was published on October 31 by Satoshi Nakamoto. - *2009*: The Bitcoin network went live on January 3, 2009, with the mining of the [“Genesis Block” (Block #0)](https://www.blockchain.com/explorer/blocks/btc/0). This block contained a reference to a newspaper headline highlighting bank bailouts during the financial crisis, a subtle nod to the motivation behind Bitcoin’s creation. 2. **Early Adoption and “Bitcoin Pizza Day” (2010)** - In May 2010, the first known real-world Bitcoin transaction took place when [10,000 BTC were exchanged for two pizzas](https://www.coinbase.com/learn/crypto-glossary/what-is-bitcoin-pizza#:~:text=Bitcoin%20Pizza%20refers%20to%20the,annually%20as%20Bitcoin%20Pizza%20Day.). We can all agree that’s one expensive pizza by today’s standards—arguably the world’s costliest pepperoni slices. 3. **Growing Popularity (2011–2013)** - BTC began gaining traction among tech enthusiasts, libertarians, and early adopters. Its value slowly rose from a fraction of a cent to over $1 in early 2011. - By late 2013, its price had surged beyond $1,000, grabbing media attention worldwide. 4. **Mainstream Awareness and Regulation (2014–2017)** - As Bitcoin’s popularity climbed, so did calls for regulatory clarity. Governments and financial institutions started to release frameworks or statements about Bitcoin’s legal status. 5. **Rapid Price Fluctuations and Institutional Interest (2017–present)** - The price of Bitcoin reached nearly $20,000 in late 2017 before sharply correcting. Volatility is a hallmark of the cryptocurrency market; you may have heard a few stories about fortunes made or lost overnight. - In recent years, institutional investors, payment platforms, and large corporations have jumped on board, lending further legitimacy to Bitcoin. Notable are the creation of ETFs for Bitcoin as well as derivatives markets. ## The Technology Behind Bitcoin ### 1. The Blockchain Bitcoin operates on a distributed ledger called the **[blockchain](https://en.wikipedia.org/wiki/Blockchain)**. Here’s how it works: - **Blocks**: Data is stored in batches called [blocks](https://mempool.space/mempool-block/0). Each block contains several Bitcoin transactions and a reference (hash) to the previous block. - **Chain**: Linking these blocks together forms a chronological “chain.” This linkage makes tampering with transaction data next to impossible because any alteration in a previous block invalidates all subsequent blocks. - **Decentralization**: The full blockchain is replicated on nodes throughout the Bitcoin peer-to-peer network. This eliminates the need for a central authority. ### 2. Consensus Mechanism Bitcoin uses a **Proof-of-Work (PoW)** consensus mechanism: - **Mining**: Special nodes called [miners compete to solve complex cryptographic puzzles](https://cryptotesters.com/blog/what-is-bitcoin-mining-and-how-does-it-actually-work) by running high-powered computing hardware. - **Difficulty**: The difficulty of these puzzles is adjusted approximately every two weeks (or 2,016 blocks) to maintain a target block time of around 10 minutes. - **Block Rewards**: When a miner successfully solves a puzzle, it “mines” the next block, adds it to the blockchain, and is rewarded with newly minted Bitcoin (plus transaction fees). Every 210,000 blocks (about every four years), the block reward halves—an event aptly named the “[halving](https://watcher.guru/bitcoin-halving).” ### 3. Transactions and UTXO Model Bitcoin uses an **[Unspent Transaction Output (UTXO)](https://en.wikipedia.org/wiki/Unspent_transaction_output)** model: - Each transaction consumes existing UTXOs as inputs and creates new UTXOs as outputs. - A UTXO is a discrete chunk of Bitcoin that can be uniquely identified in the blockchain; when it is spent, it ceases to exist and is replaced by new UTXOs. - This model provides a transparent way to track funds and prevent double-spending. ## Cryptographic Algorithms Used 1. **Secure Hash Algorithm (SHA-256)** - [SHA-256](https://sha256algorithm.com/), designed by the NSA and published by the National Institute of Standards and Technology (NIST), is a one-way cryptographic [hash function](https://csrc.nist.gov/projects/hash-functions). It is part of the [SHA-2](https://en.wikipedia.org/wiki/SHA-2) family of cryptographic hash functions. - Bitcoin uses SHA-256 in several places: - **Mining**: The proof-of-work puzzle requires finding a block hash below a certain target. This hash is computed with SHA-256 used twice (double-SHA-256). - **Block Hashing**: Each block header is hashed with SHA-256, which links each block to its predecessor. 2. **Elliptic Curve Digital Signature Algorithm (ECDSA)** - Bitcoin employs the **[Elliptic Curve Digital Signature Algorithm](https://en.wikipedia.org/wiki/Elliptic_Curve_Digital_Signature_Algorithm)** over the **[secp256k1](https://en.bitcoin.it/wiki/Secp256k1)** curve to handle public/private key generation and transaction signing. - **Private Key**: A 256-bit number, kept secret by the owner. - **Public Key**: Derived from the private key using elliptic curve multiplication. It’s shared publicly. - **Digital Signatures**: ECDSA ensures that only the holder of the private key can authorize transactions spending specific Bitcoin. 3. **Base58Check Encoding** - While not strictly a cryptographic “algorithm,” Bitcoin uses Base58Check to represent addresses in a human-readable format. - Base58Check helps prevent errors in address transcription and includes a built-in checksum to detect typos. ## Security and Integrity - **Decentralized Nodes**: Thousands of full nodes around the globe run the [Bitcoin Core software](https://bitcoincore.org/en/download/) and maintain copies of the entire blockchain and validate new blocks. - **Immutability**: Once a block is added, altering its transactions would require redoing all subsequent blocks’ proof-of-work. This makes historical data extremely resistant to tampering. - **Encryption**: Although not all transaction data is “encrypted,” the use of cryptographic hashes and signatures secures transactions, ensuring ownership and legitimacy. ## Use Cases and Challenges 1. **Store of Value**: Many view [Bitcoin as “digital gold”](https://www.ark-invest.com/big-ideas-2023/bitcoin) due to its finite supply (capped at 21 million coins) and potential to serve as a hedge against inflation. 2. **Payments and Remittances**: Bitcoin’s borderless nature allows relatively quick (within 10 minutes on average) international transfers without traditional bank fees, although network fees and volatility remain factors. 3. **Volatility**: [Bitcoin’s price](https://www.blockchain.com/explorer/charts/market-price) can swing wildly—great if you’re looking for excitement, but not so pleasant if you need a stable form of exchange for your day-to-day transactions. This volatility is expected to decrease in the long-term as more and more participants start using Bitcoin as a store of value. 4. **Scalability**: The network can process only a limited number of transactions per block. Solutions like the **[Lightning Network](https://mempool.space/lightning)** aim to tackle this by processing smaller transactions off-chain on a secondary layer. 5. **Regulatory Environment**: Bitcoin’s legal status varies by jurisdiction, ranging from fully legal to restricted or banned. Regulatory clarity is still evolving in many parts of the world. ## Conclusion Bitcoin has come a long way from an obscure cryptographic curiosity to a global financial phenomenon. Fueled by blockchain technology and powered by SHA-256 and ECDSA, Bitcoin’s decentralized structure removes reliance on traditional banking systems. Its history is marked by rapid price fluctuations, enthusiastic evangelists, and a continuously growing network of miners and users. Whether it’s a long-term store of value or a means of facilitating quick cross-border transactions, Bitcoin has undeniably laid the foundation for a new era of digital currencies. --- # References - Original White Paper: [Bitcoin: A Peer-to-Peer Electronic Cash System](https://bitcoin.org/bitcoin.pdf) - Official Website: [bitcoin.org](https://bitcoin.org/) - Technical Documentation: Bitcoin Core code and documentation on [GitHub](https://github.com/bitcoin/bitcoin) - Mempool Visualization of the next mined block: [mempool.space](https://mempool.space)