What is Bitcoin? Part 2: Technology

As we discussed in our 1st ‘What is Bitcoin’ post, Bitcoin is the product of a decade’s long technological trial and error process. Numerous innovators and philosophers had an obvious and significant impact on the product that launched in 2009. 

Here is a link to the original Bitcoin whitepaper, written by Satoshi Nakamoto, that outlines Bitcoin’s concept and framework: https://bitcoin.org/bitcoin.pdf

For other languages click here: https://bitcoin.org/en/bitcoin-paper

Below is a great graphic (created by Dan Held) showing the history of the philosophers and technological breakthroughs required for Bitcoin. 

Bitcoin is open-source, alien technology that has unlimited potential and possibilities. Because of this, Bitcoin can be very hard to understand and become comfortable with. This post aims to quell some of those concerns by explaining the technology, at a very high level, that drives the Bitcoin protocol. 

It is also important to note that you don’t have to be a software developer to buy or use Bitcoin! Very few Bitcoiners have read every line of code or understand the equations behind Proof of Work. You can be a part of the movement in many, many different ways that don’t include understanding how to read or write C++ (the language Bitcoin was written in). 

One of the best ways to be involved is to simply HODL (Hold On for Dear Life). HODLing gets your foot in the door and helps to stabilize the price. Everyone starts somewhere – and this is a great place to start! Whether you’re here for the technology, revolution, or the gains it’s important to learn, make a plan, and get off zero. Your first Bitcoin or crypto purchase will be your most stressful, but we’re here to lessen that stress and help you make an informed decision.

What are Public and Private Keys?

What is a Public Key?

As stated before, you can use Bitcoin without understanding the technical details. Anyone can download a Bitcoin wallet (where you can store your Bitcoin) on a computer or mobile phone that will generate your first Bitcoin address. Congrats! You can create more at any time.

Here is an example of one (this is a fake public key – do not send any funds to this address): 

1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2

You can disclose this address to friends, family, or anyone you want to transact with so they can pay you. This concept is similar to having an email address. If you give out your email address to a friend they can send you as many emails as they want, but they never have the ability to send an email to someone else FROM you, or read your other emails.

What is a Private Key?

Bitcoin wallets keep a secret piece of data called a private key, or seed, which is used to sign transactions. Think of this signature (or private key) as someone signing the front of a check for a transaction. This is a secret and unique signature that proves, and then unlocks, the transfer of value.

All transactions are broadcast to the network and usually begin to be confirmed within 10-20 minutes, through a process called mining (we’ll talk about that in a sec!). There are 2nd layer scaling solutions, like the Lightning Network, to send and receive Bitcoin that have close to instantaneous confirmation times.

What is The Blockchain?

The blockchain is a distributed and shared public ledger that tracks every single Bitcoin transaction ever processed. For my accounting friends – this is triple entry bookkeeping in cyberspace. 

This robust bookkeeping allows all Bitcoin wallets to calculate their spendable balance so that new transactions can be verified, thereby ensuring they’re correctly owned by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography. The blockchain solved one of the largest obstacles in digital currencies: the ‘Byzantine General’s Problem’ (double-spend problem).

How Bitcoin Mining Works

Mining is a distributed consensus process that is used to confirm pending transactions by adding them to the blockchain. It enforces a chronological order in the blockchain, protects the neutral nature of the network, and allows distributed computers from all over the world to agree on the status of the system. Transactions must be added to a block that meets strict cryptographic rules to be verified by the network.

These rules prevent earlier blocks from being changed because doing so would invalidate all subsequent blocks. Mining also creates a competitive lottery that prevents anyone from adding new blocks consecutively to the blockchain. Because of this, no group or individuals can control what is included in the blockchain or edit parts of the blockchain to roll back their own spends.

How Bitcoin Nodes Work

A node is a computer that is connected to the rest of the Bitcoin network and follows rules and shares information. A ‘full node’ is a computer in Bitcoin’s peer-to-peer network which hosts and synchronises a copy of the entire Bitcoin blockchain. The full transaction history of Bitcoin, from inception to just a few minutes ago, is included in each full node.

An important component of nodes is that it gives each user the same ability to audit the network, transact, and hold their own money (be their own bank). This is truly revolutionary. Bitcoin needs layer 2 scaling solutions for speed and to keep fees low, but the ability for anyone, anywhere in the world to run a Bitcoin node is revolutionary. This is what true empowerment and decentralization looks like.

Bitcoin has never been hacked. Bitcoin exchanges have been hacked, but the Bitcoin network has never been hacked and the blockchain, miners, and nodes are all to thank for that.

Bitcoin Technology Summary

Hopefully you now have a better idea of the technology and history that back Bitcoin. Not so scary, is it? If we’ve convinced you that this is the future – today is the day to get off zero. Join the revolution. We’re here to help!

If you still need convincing make sure you read our post: 3. What is Bitcoin – Principles of Money (link).

If you are a developer and want a deeper dive into the technology behind Bitcoin or want to get involved we recommend visiting: https://developer.bitcoin.org/

If you want to see how this all works together (along with some more in-depth education) check out this video: