What is Bitcoin?

Bitcoin (BTC) is the pioneer of cryptocurrencies. It is a decentralized, digital currency based on blockchain technology. It is not regulated by any state or central bank. It is inflation-proof, as the inventor Satoshi Nakamoto has limited the absolute amount to 21 million.

Pioneer of cryptocurrencies

Bitcoin is the oldest cryptocurrency and defines to this day the essential aspects of the whole topic. No cryptocurrency has more users, none has generated more profit. In public perception, Bitcoin is still the digital currency, and the name is representative of the overall concept. Cryptocurrencies as a theoretical concept date back to the 1990s. But only with the development of Bitcoin the essential ideas were brought together and implemented as a real existing (and functioning) system. This makes Bitcoin not only the grandfather, but almost the prototype of cryptographic currency systems. It is the standard to which all later systems can be traced and measured. The origins of the system are surrounded by a certain mystery, because until today no one knows exactly who invented Bitcoin.

The originator is a person (or group) named Satoshi Nakamoto, but it is completely unknown who this person is or whether it is possibly a group using that collective pseudonym. Dozens of theories compete on the Internet as to who this spiritual father might be, and a number of well-known individuals have already been awarded that honor. But at the moment the question of the actual inventor of Bitcoin remains open.

What is certain is that Bitcoin hit the scene in 2009 and has since dominated the digital currency market with millions of users, billions of transactions and a blockchain now over 160 gigabytes in size.

Is Bitcoin anonymous?

The originally frequent use as anonymous means of payment in the Darknet hardly occurs anymore. This is due to the structure of the Bitcoin Blockchain, in which each transaction is stored transparently forever. Although no clear names are displayed there, it is now technically possible to assign the Bitcoin address to the real name. Many (central) stock exchanges and shops now require a comprehensive KYC process (KYC = know your customer) by which Bitcoin only pseudo-anonymity and no complete anonymity exists. Researchers have now repeatedly managed to assign Bitcoin addresses to a person. Therefore, the Bitcoin is not suitable for illegal activities (for example, weapons and drug trafficking, money laundering) and is therefore hardly used for it. There are currencies that offer a much higher degree of anonymity due to their technical architecture. The most popular anonymous currencies are Monero, Zcash, and Dash.

How does Bitcoin work?

As already mentioned, Bitcoin is technically the reference for cryptocurrencies, and all successors are at best extensions or variations of the blockchain principle.

Access to the Bitcoin network is via a client (the Bitcoin Wallet). The default implementation of the wallet is called Bitcoin Core and is the template for a number of other clients dar. Users open an account that is equipped with a unique identifier and a cryptographic key pair. Many subscribers also use multiple accounts concurrently managed with the wallet, and indeed it is also possible to generate a separate account for each individual transaction. The account identifiers are not associated with the real identity of their owner, so they act as pseudonyms. In this sense Bitcoin is an anonymous system. However, this also has the disadvantage that a once lost (or forgotten) private key (private key) makes the corresponding account useless.

The hash function used by Bitcoin for the proof of work is SHA-256, more specifically SHA-2 with a word length of 256 bits, which is considered to be very secure.

In principle, anyone can implement a cryptocurrency: with a peer-to-peer network and some algorithms, a blockchain can be managed, and then all that’s left for a working currency is users. So it is not surprising that, in the meantime, literally thousands of cryptocurrencies have been created and traded. Many are looking to expand and generalize the principles of Bitcoin, but in essence, they are still very similar to the prototype: a network, a blockchain, and a greater or lesser number of subscribers.

“You have to trust the central bank that it does not devalue the currency – but in the history of central bank money, that trust has been constantly disappointed. You have to trust banks that keep our money and send it electronically – but they lend it multiple times, creating credit bubbles because only a fraction of the loans is covered by savings. ”

Satoshi Nakamoto, inventor of Bitcoin

Official links about Bitcoin

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