1.1 What is Bitcoin

We kick off the first chapter by defining what bitcoin is and what it consists of.

  1. Bitcoin has been described as magic internet money and electronic moneyThe various forms of electronic money (or e-money) as we know it today are such as credit and debit cards, PayPal, Venmo, Apple Pay, Google Pay, Samsung Pay, Alipay, WeChat Pay and online banking. Bitcoin, as we will learn below, goes far beyond that.. While that is true only to a certain extent, it doesn’t fully describe what bitcoin really is.
  2. Bitcoin is a form of digital currency.
    • You can think of bitcoin as a token of value that you can send to another person, or rather, transfer the ownership of the token to another person.
    • Bitcoin is divisible to 8 decimal places. The smallest unit of bitcoin, i.e. a hundred millionth of a bitcoin (i.e. 0.00000001 BTC) is known as a satoshi (sat).
  3. Bitcoin can also be described as the following:

     
    A peer-to-peer cryptocurrency.

    • Bitcoin is peer-to-peer (P2P) i.e. transacted between one party and another, and therefore does not require the intervention of an intermediary such as a bank or clearinghouseA financial institution formed to facilitate the exchange of payments, securities, or derivatives transactions. The clearinghouse stands between two clearing firms. Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations..
    • It is a digital currency that relies on high-level cryptographya method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it to maintain its security and function in the real world, hence the term cryptocurrency.

    A system based on open-source code

    • Bitcoin is open-source, which means anyone can inspect, modify and improve upon the code that runs Bitcoin.
    • It also means no one single entity can control what and how bitcoin should run.

    A decentralised and distributed network

    • Bitcoin is decentraliseda network design that is driven by peer-to-peer interaction and isn’t managed or governed by a central party or authority and therefore cannot be controlled or shut down by any government or third party.
    • It is a distributed network located all over the world and not in one single location, and hence does not have a single point of failure.

    A transparent public ledger

    • Bitcoin also serves as an open and transparent public ledger known as the blockchainA system in which a record of transactions made in bitcoin are maintained as a public ledger across several computers connected to the Bitcoin network. that keeps a record of all bitcoin transactions that ever took place since its inception in 2009.
    • It is accessible by anyone via the internet 24 hours a day, 7 days a week.
    • The Bitcoin network never sleeps, and the blockchain is by virtue secure and immutable – it cannot be altered or modified.
  4. Bitcoin is more pseudonymousIdentities of the bitcoin sender and receiver are not made known on the network but are instead represented by their wallet addresses. than anonymousWithout any identity or name.. While the identity of the user may remain hidden, the transaction detailsAmount, date and time of transfer, current equivalent to the local fiat currency etc. and the wallet addressesAlso known as the public keys, which allow bitcoin to be sent and received. are publicly visible on the public ledger known as the blockchain.
  5. You may have noticed so far that Bitcoin is sometimes written with an uppercase B or a lowercase b. Here’s the difference:
    • An uppercase Bitcoin describes the software, the system and the network.
      The Bitcoin software was later renamed to Bitcoin Core to distinguish it from the Bitcoin network.
    • A lowercase bitcoin describes the token or its unit of currency.
    • Example: On the Bitcoin network, you can send 1 bitcoin to another person.
  6. Bitcoin as a currency is denoted by the symbol ₿, which is a combination of the letter B with the two strokes of the dollar sign.
    • The unit name BTC or btc is also commonly used to denote bitcoin.
    • Some currency exchange apps such as XE.com use XBTXBT is used instead of BTC as BT is the country code for Bhutan and this conflicts with the ISO 4217 code., which is the ISO 4217 currency codeISO 4217 is a standard first published by International Organization for Standardization in 1978, which delineates currency designators, country codes (alpha and numeric), and references to minor units. ISO 4217 codes such as USD, GBP, EUR, JPY etc. are used in banking and business globally. for bitcoin.

If you find the above still a little difficult to comprehend, fret not. Read the subsequent pages in this chapter, and then revisit this page and it will begin to make more sense. Bitcoin is a phenomenon that isn’t usually understood at the first go.

In the next section 1.2 Precursors to Bitcoin, we look at the many attempts made to create a digital currency prior to the advent of Bitcoin.

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Section 1.2 (next)
Precursors to Bitcoin

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