1 - Introduction: Bitcoin beginnings

Summary

Satoshi Nakamoto published the paper, “The Peer-to-Peer Electronic Cash System” in October 2008 and in 2009 he mined the first Bitcoin on the Bitcoin blockchain, now known as the Genesis Block. Bitcoin's aim was to replace banks with a new currency without financial intermediaries of any kind. It was launched at a time when trust in the traditional banking system and central banks had been sorely tested after the global financial crisis. This “new” form of money created great excitement. It promised a way forward that escaped the dominance of the central banks over the supply of money, and of transferring value from one person to another person without expensive intermediaries.

The use of the word “coin” is misleading in the case of Bitcoin, as it is completely digital. It does not represent notes, bills or coins. A person who owns Bitcoins has a long series of numbers, the “private” key, which is the key to the place where Bitcoin is stored in the one and only Bitcoin “bank”. Using that key, a person can transfer Bitcoin to another person, that is, to the key known to that person. The transactions are recorded in an ever-growing ledger, holding all the Bitcoins ever created and all the transactions which have ever taken place. The many transactions are stored in a block and all the blocks are linked together in a chain, with the first block, the “root block”, holding the first Bitcoin ever created. The ever-lengthening chain of transaction-holding blocks, the blockchain, are stored on many computers, all networked, so that even the loss of dozens of computers would not cause a problem. A block is only added to the chain when most of the computers agree that everything about the new transactions in the block is correct, after which all the computers store the newly lengthened chain of blocks. The miners are paid with newly minted Bitcoins in exchange for their work.

Nakamoto announced that his electronic transfer system does not rely on trust in any intermediary.