bitcoin genesis block

Bitcoin is officially ten years old. On this day ten years ago, Bitcoin’s elusive creator Satoshi Nakamoto mined the first Bitcoin block. Known as the “genesis block” or Block#0, it marks the very start of the Bitcoin blockchain.

A decade later, there are now more than half a million blocks on the Bitcoin blockchain. And the price of one bitcoin has soared from almost zero to $3,900.

Genesis Block

The very first block was mined by Satoshi on January 3rd, 2009. You can actually see it here on our Block Explorer.

The block contains just one transaction: the 50 BTC reward for mining it. 

The block also contains a pointed message about the existing banking system with a message written into the code:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

The message refers to the headline in The Times newspaper on that day. You could argue it’s a simple time stamp. However, it’s more likely a comment on the failing banking system. British Chancellor Alistair Darling was considering a bailout for the banks after the financial crisis in 2008.

It’s no coincidence that Satoshi included this message as he ushered in a radical new monetary system of his own.

Satoshi was rewarded with 50 bitcoins for mining the first block. However, due to the way the bitcoin blockchain is coded, the reward for the first block cannot be spent. Over time, people have donated additional BTC to the block.

Even today, the Genesis block received a gift from the following address:

1HappyTenthBirthdayBitcoinxvYeM9e

“Thanks Satoshi”

To celebrate the anniversary, crypto exchange BitMex took out an advert on the front page of The Times. It reads: “Thanks Satoshi. We owe you one. Happy 10th Birthday, Bitcoin.”

It’s a subtle nod to Satoshi’s hidden message on the genesis block which referenced The Times newspaper headline.

Happy birthday, Bitcoin!

Further reading: 24 Clues About Satoshi Nakamoto’s Identity (Bitcoin’s Mysterious Creator)

bitcoin history

The Bitcoin timeline has been updated for 2019.

It’s been over ten years since the beginning of Bitcoin (BTC). Here are some notable events, both good and bad, that tell the story of Bitcoin and other major cryptocurrencies. 

Before Bitcoin: B-Money and BitGold (1998)

Bitcoin is often called the first cryptocurrency, but that’s not exactly true. To understand bitcoin’s history, we need to go further back in time. 

Ten years before bitcoin was launched, a cryptographer called Wei Dai came up with b-money; an “anonymous, distributed electronic cash system.” Bitcoin’s founder Satoshi Nakamoto even referenced b-money in the famous bitcoin whitepaper.

Nick Szabo came up with a similar idea – Bit Gold – which lay the groundwork for blockchain: the technology underlying bitcoin.

Bitcoin Whitepaper Release (October 31, 2008)

Satoshi Nakamoto published the Bitcoin whitepaper on an obscure cryptography mailing list in 2008. The whitepaper proposed a new system for finance that replaced the role of banks and third-party payment processors:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Bitcoin Genesis Block Mined (January 3, 2009)

Satoshi Nakamoto mined the original Genesis Block (also referred to as Block 0) on a modest computer without any competition from other miners. The original block contained 50 BTC that can’t be spent. It’s unknown whether this was by design or a programming accident. 

The Genesis Block also contained a message written by Satoshi: “The Times 03/Jan/2009 Chancellor on brink of the second bailout for banks.” The message is a timestamp, referring to a newspaper headline on January 3rd. It’s also a hint at Satoshi’s mistrust of the financial system.

To this day, people send donations to the Genesis Address: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa. 

The next block, Block 1, wasn’t mined until six days later, on January 9. Today, each block only takes around ten minutes to mine.

Bitcoin Pizza (May 22, 2010)

Yes, Laszlo Hanyecz is the man who once paid 10,000 BTC for two Papa John’s pizzas. He arranged the deal via Bitcoin Talk, a popular online forum for discussing blockchain and cryptocurrencies. 

Sure, BTC didn’t have much value back then, but prices skyrocketed afterward. What if Hanyecz had kept the BTC and decided not to buy the pizza with it? At BTC’s all-time high, Hanyecz would have had the equivalent of almost $200 million. Now, Bitcoin Pizza Day has become an annual celebration.

Mt. Gox Established (July 2010) and Hacked (2011 to 2013)

Mt. Gox was one of the world’s first cryptocurrency exchanges. At one point, it handled more than 70% of all BTC transactions making it the biggest in the world. In 2011, though, it made headlines for a large-scale hack. Experts believe this was probably caused by a compromised computer belonging to an auditor of the company. Mt. Gox’s hot wallet private keys were stolen from a wallet.dat file. 

By the time of its collapse in 2014, an estimated 850,000 BTC had been stolen from Mt. Gox. This massive failure demonstrated the need to improving wallet and exchange security. Major improvements would be made in the coming years to prevent such issues from happening on other exchanges, but we have also seen much larger hacks since then.

The Silk Road Launches (February 2011)

The Silk Road was an infamous marketplace on the dark web. It was created by Ross Ulbricht with a utopian vision: “People should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.” But it quickly descended into a hub for criminals and drug dealers. Users could buy drugs, fake documents, and all sorts of things with BTC. 

In June 2011, Gawker published an article about Silk Road, drawing mainstream attention to the site. A major investigation launched in a bid to shut it down.

Further reading: The Silk Road: A Story of Bitcoin, Drugs, and the Dark Web

The First Bitcoin Fork – Litecoin is Born (October 2011)

Today, Bitcoin forks are abundant. However, this wasn’t always the case. Back in 2011, Litecoin became the first fork of the Bitcoin core client. Various forks have been created since then in order to improve upon the design of Bitcoin. 

Many argued (and still argue) that BTC wasn’t scalable and had become a digital asset, losing the initial goal of becoming a truly global digital currency.

The trend of using “Bitcoin” in the name of Bitcoin-forked cryptocurrencies didn’t really take off until after the launch of Bitcoin Classic in February 2016. Even though Bitcoin Classic ultimately failed and ceased operations, several new forks with the name “Bitcoin” would soon follow. Bitcoin Classic, Bitcoin Gold, Bitcoin Private, and Bitcoin SV are just a few examples.

Coinbase Launches (June 2012)

When Coinbase first launched, there were very few options for trading fiat-to-crypto on the market. By working with legislative officials in various jurisdictions throughout the world, Coinbase helped the growth of cryptocurrency and turn around its negative reputation. The company also established a number of partnerships and integrations with banks, making it one of the most accessible cryptocurrency exchanges in the world. 

The company does still use centralized technologies, but some view it as an essential on-ramp to a decentralized ecosystem. In 2017, the company earned $1 billion in revenue. As of October 2018, Coinbase has a valuation of $8 billion. This is a massive upward trajectory, considering that the exchange was only valued at around $1.7 billion back in mid-2017 after Series D funding.

Ripple Founded (September 2012)

While Bitcoin remains the largest and most well-known cryptocurrency, others began to emerge in 2011 and 2012. One such project was Ripple, founded when Jed McCaleb, Chris Larsen, and Arthur Britto took over Ryan Fugger’s RipplePay project.

Ripple was founded to revolutionize the global remittances industry in order to replace older systems like SWIFT. Compared to Bitcoin, Ripple is more centralized. However, it also showed the capabilities of a more scalable blockchain. 

Ripple has since partnered with major banks like the Bank of America Merrill Lynch, Canadian Imperial Bank of Commerce, Mitsubishi UFJ Financial Group, Royal Bank of Canada, Commonwealth Bank of Australia, and more. As of December 2018, XRP is the second-ranked cryptocurrency by market cap and can handle 1,500 transactions per second.

First Bitcoin Halving Event (November 2012)

Bitcoin miners are rewarded with BTC for processing transactions and keeping the network running. When Bitcoin launched, miners were rewarded 50 BTC for every block. But after every 210,000 blocks are mined, there is a halving event. As the name suggests, the mining reward is reduced by half. 

The first of these occurred in November 2012, cutting the reward from 50 BTC to 25 BTC. The second halving event occurred in July 2016. The third event is scheduled for May 2020, barring any major changes in the mining hash rate. 

At that time, the reward will drop from 12.5 BTC to 6.25 BTC. Will this discourage miners from mining BTC? So far the answer has been “no”, but it will be interesting to see what happens in 2020.

Cyprus Bail-in (March 2013)

When banks confiscated people’s funds in wake of the Cyprus financial crisis of 2013, bitcoin gained a lot of momentum. This event also helped spark new interest in cryptocurrencies, in general, as a way to safeguard against corruption and economic downturns. 

Since then, Bitcoin and other cryptocurrencies have gained adoption in similar events. One example is the massive Venezuelan bolívar hyperinflation, which began in November 2016. 

Silk Road Shut Down, Founder Jailed for Life (October 2013)

After two years of investigation, the FBI shut down Silk Road in 2013. Founder Ross Ulbricht was arrested in a San Francisco library. He was later sentenced to a double life sentence, plus 40 years, without parole.

Soon after, Silk Road 2.0 emerged. That, too, was shut down in November 2014 by the FBI and Europol. The US government sold the BTC seized during the 2013 shutdown at a price of an estimated $334 each in a series of auctions in 2014 and 2015, making a total of around $48 million in profits.

Vitalik Buterin Writes Ethereum Whitepaper (November 2013)

Ethereum’s blockchain introduced new functionalities, previously unavailable with Bitcoin. For example, the project was the first to implement smart contracts. It also introduced a platform for other blockchain projects to create their own tokens and build additional functionalities on top of the Ethereum blockchain. This led to the rise of token sales, and a new generation of fundraising. In late 2018, ETH is the third-ranked cryptocurrency by market cap.

Satoshi Nakamoto Found? (March 2014)

Newsweek published a huge expose, claiming Dorian Nakamoto – an elderly computer engineer in California – was Bitcoin’s elusive creator. Nakamoto denies any knowledge of bitcoin. The hunt continues.

Read more: 24 Clues About Satoshi Nakamoto’s Identity

Microsoft Adopts Crypto (December 11, 2014)

Nowadays, a slew of major companies accept BTC and other cryptocurrencies as forms of payment. When Microsoft decided to start accepting BTC back in 2014, though, this wasn’t the case. The fact that one of the largest companies in the world made this move helped drive mass adoption a step forward and show that crypto had the potential to be used for major transactions. When the company added this possibility it was a surprise to nearly everyone. Since that time, Microsoft customers have been able to use BTC to buy apps, games and videos from its Windows, Windows Phone and Xbox platforms.

BitLicense Established (June 2015)

When it comes to cryptocurrency regulations, the establishment of BitLicense has been one of the most impactful to date. The New York State Department of Financial Services (NYDFS) gave companies only 45 days to apply and required them to pay a $5,000 non-refundable application fee.

With the passage of this law, crypto-related companies operating in New York state are now required to complete balance sheet updates, cash flow statements, data on profit and loss, earnings and asset holdings. They also must pass annual audits. As a result of these regulations, some crypto-related businesses (i.e. Kraken and ShapeShift) shut down operations in the state of New York and haven’t returned since.

Mt. Gox CEO Arrested (August 1, 2015)

Mark Karpeles, CEO of the disgraced Mt. Gox exchange was arrested on suspicion of embezzlement and fraud. He was charged with personally handling funds of the exchange’s client’s accounts. 

Winklevoss Twins Launch Gemini Exchange (October 2015)

The Winklevoss twins, who are rumored to own 1% of all bitcoin supply, launch a regulated bitcoin exchange, complete with FDIC insurance. The twins were among the first to take a cautious and regulatory approach to cryptocurrency trading.

Bitfinex Hacked (August 2016)

Almost 120,000 bitcoins were stolen in the hack. At the time, Bitfinex was the largest cryptocurrency exchange by volume. It triggered a 20% drop in bitcoin price. 

The DAO Fails (2016)

The DAO (decentralized autonomous organization) aimed to create a new type of organization without the need for a board of directors. In 2018 and beyond, many projects have implemented their own DAOs to realize the original vision of this project. 

However, The DAO is quite possibly the most disappointing endeavor in the history of crypto. Launching a crowd-sale that began in April 2016, The DAO suffered from a major hack caused by a security vulnerability during that summer. Around one-third of the ether that had been committed to the project was stolen. To make matters worse, the SEC ruled that DAO tokens were securities in 2017. 

First Bitcoin Exchange-Traded Fund (ETF) Rejected (March 2017)

The Winklevoss twins return, this time with an ETF proposal. An ETF is an investment tool used by millions of traders that would make it easy to get exposure to bitcoin without buying or storing the cryptocurrency directly.

It marked the first in a long string of ETF rejections. 

Bitcoin Cash Launched (August 1, 2017)

Bitcoin Cash is the biggest and most high-profile Bitcoin fork in history. It came about after years of debate over how to scale Bitcoin which has suffered with speed and congestion issues. Unable to come to a compromise, the community splintered into two and a new cryptocurrency was born.

Bitcoin Futures Launch, Gain Regulatory Approval (December 2017)

A futures contract is a trading tool used by institutional traders. It allows them to “bet” on the future price of an asset – usually stocks, bonds or commodities. 

In December 2017, the first bitcoin futures contracts were launched by CBOE Global Markets (CBOE) and the Chicago Mercantile Exchange (CME). It was the first major sign of institutional interest in cryptocurrencies and a new way to increase mainstream crypto trading. 

With the bear market of 2018, however, people began to question whether these new products had a positive or negative impact.

Either way, there are plans in the works for additional futures contracts. For example, Intercontinental Exchange (ICE) which owns the NYSE’, plans to launch bitcoin futures contracts with physical delivery in January 2019. The Vice President of Nasdaq’s media and communications department has confirmed that the company will also launch futures contracts by the first half of 2019.

Bitcoin hits (almost) $20,000 (December 2017)

Bitcoin reaches an all-time-high of $19,498, doubling in its value in little over a month.

Coincheck Exchange Hack (January 2018)

With the equivalent of over $530 million of NEM stolen, the Coincheck hack marked the largest cryptocurrency exchange hack of all time (in terms of equivalent value lost at the time of hack). Yes, there have been earlier hacks where the values of funds lost back then would be much higher than $530 million today. Nevertheless, this story is significant for a few reasons. 

For example, after this event occurred, the Japanese government began to put a lot of effort toward regulating crypto exchanges to avoid another repeat scenario. After all, Mt. Gox was another Japan-based exchange that had failed and shook up the entire industry. 

Second, it also put more emphasis on the lack of available cryptocurrency insurance options. Finally, it reminded investors yet again that, while crypto fund security had improved, there was (and is) still a lot of concerns surrounding this topic.

Facebook ban cryptocurrency adverts, Google follows (January 2018)

Nervous about scams and the unregulated rise of initial coin offerings (ICOs), Facebook bans all cryptocurrency-related adverts on its platform. Google and Twitter followed a few months later.

Facebook has since relaxed the ban, but ICOs remain off limits.

Consensus Debates (Ongoing)

It’s difficult to tell when the first debate over consensus algorithms began, but it’s something that is important for the current and future outlook of cryptocurrency. For instance, BTC uses a consensus mechanism called Proof-of-Work as its method of verifying the accuracy and legitimacy of transactions.

While the vast majority of cryptos use Proof-of-Work in 2018, this is beginning to change. For example, Ethereum is transitioning from Proof-of-Work to Proof-of-Stake. There are also a variety of unique, lesser-known consensus mechanisms specific to various cryptocurrencies. These could also emerge as mainstream solutions.

There are a number of debates within communities about how certain consensus mechanisms should work. While these debates existed before, they seemed to heat up dramatically in the first half of 2018. For example, cryptocurrencies that utilize Proof-of-Work have an ongoing decision on whether to embrace ASIC miners that allow for faster transaction completions or to resist them in order to keep crypto supplies more decentralized. 

The consensus debate and other debates are interesting because many people are looking to stick with Satoshi Nakamoto’s original principles of decentralization. However, since Nakamoto is missing, it’s difficult to know who exactly will help determine how digital currencies should move forward into the future.

Crypto Curious? Subscribe to the Block Explorer newsletter to get exclusive crypto insights before they appear on the site.

bitcoin cover

You’ve probably heard the stories about bitcoin…

The Norwegian student who bought 5,000 bitcoins for $26 in 2009. Four years later, he was a millionaire.

Or the early adopter who bought two pizzas for 10,000 bitcoins (worth $70 million at today’s prices).

But what is bitcoin, exactly? How does it work? How do you buy bitcoin? Where should you store it? And is it safe? This guide will take you through it step-by-step (without any confusing jargon).

Contents

PART 1: What Is Bitcoin, the Digital Currency?
PART 2: What Is Blockchain, the System That Makes It All Work?
PART 3: How to Buy, Store, and Spend Bitcoin
PART 4: Should I Be Worried about Hacks and Scams?
PART 5: What’s Next for Bitcoin?

PART 1: What Is Bitcoin, the Digital Currency?

Before we dive in, you need to know that bitcoin is actually two things:

1. bitcoin (with a small b)

This is the cryptocurrency; digital tokens sent back and forth to one another (or used to buy pizza). When people talk about bitcoin, this is what they’re usually talking about.

2. Bitcoin (with a capital B)

This is the revolutionary network on which the currency runs. It’s also known as the Bitcoin blockchain.

Let’s start with the cryptocurrency.

bitcoin infographic - what is bitcoin and who invented it?

Infographic courtesy of Kriptomat

Bitcoin Basics

 peter thiel bitcoin“I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.” Peter Thiel, Co-Founder of Paypal

 

The basic concept of bitcoin is to make payments as easy as sending an email, without a central middleman getting in the way. Here’s how it works:

No banks

Bitcoin exists outside the traditional banking system. Anyone with a digital wallet can buy bitcoin and send it to anyone else in the world (so long as they, too, have a wallet). There is no middleman.

No government control

Most currencies around the world are controlled by their respective governments. For example, the US Federal Reserve controls the dollar’s interest rate and supply. Not bitcoin. No single person, bank or government owns the bitcoin system.

This is what we mean when we say bitcoin is ‘decentralized.’ Bitcoin and all its transactions are powered by its users. We’ll explain more in the ‘blockchain’ section below.

Securely locked with cryptography

Every bitcoin transaction is encrypted with public and private key encryption. Here’s a quick video to explain how that works:

‘Pseudonymous’

You might have heard that bitcoin is anonymous, but that’s not strictly true. Every bitcoin transaction is tagged with your public key address. It’s a long number that looks something like:

1GsOmhLr0FbBpNco1NDar6sSV8tsHaKF6kd

Although this transaction doesn’t contain your name, if someone knows your wallet address, they can see the payments you’ve made or received. In other words, it’s pseudonymous.

Irreversible

Bitcoin transactions absolutely cannot be reversed. If you make a payment by accident or send it to the wrong address, it can’t be retrieved. It’s a blessing and a curse. It means payments cannot be altered making it secure against fraud, but if you get it wrong, your money is lost forever.

Prefer to Read This Guide as an eBook?

If you’d like a hard-copy of this guide (or just want to come back to it later), download the free pdf version here, no email signup required.

bitcoin ebook

Who Created Bitcoin?

Bitcoin was created by the elusive Satoshi Nakamoto. His name, however, is a pseudonym. The real creator remains a complete mystery.

In October 2008, Nakamoto published the famous bitcoin white paper on a cryptography mailing list. It outlined the vision and technology for the Bitcoin system:

satoshi nakamoto“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

 

In January 2009, he created the first 50 bitcoins in a process called “bitcoin mining.”

Who Is Satoshi Nakamoto?

The identity of Satoshi Nakamoto is one of the tech world’s biggest secrets. Countless journalists have tried to reveal his identity by analyzing his writing style, his coding, and various other scattered clues.

He writes in British English, for example, and codes in C++.

Newsweek famously published a front-page splash outing the bitcoin founder as Dorian Satoshi Nakamoto – an elderly Japanese American. Despite his computer-engineering background, it was later revealed that Dorian Nakamoto had never even heard of the cryptocurrency. (He apparently referred to it as ‘Bitcom’ in a later interview!)

More likely theories point to the likes of Nick Szabo and Hal Finney, who were involved in Bitcoin’s development and have been active in the cryptography community for decades. Some have even pointed the finger at Elon Musk. All have denied it.

Further reading: 24 Clues About Satoshi Nakamoto’s Identity

One thing is for sure, Satoshi Nakamoto is a genius with meticulous attention to privacy and anonymity.

He’s also a billionaire.

By tracking Satoshi’s transactions, we can see that he never sold his original bitcoins (other than a few test transactions). He owns about one million coins. At the time of December’s record prices, he was the 44th richest person in the world, worth over $19 billion.

There Will Only Ever Be 21 Million Bitcoins

One of the most interesting features of bitcoin is that its supply is capped. There will only ever be 21 million coins. Unlike dollars, which are created at will by the Federal Reserve, the creation of bitcoins will steadily diminish until 2140, when it will stop entirely.

There are currently 16.7 million bitcoins out there, which leaves just 4.3 million bitcoins left to be created.

Read more: How Many Bitcoins Are There? (Hint: Not That Many)

In other words, the supply is incredibly limited.

Even the existing bitcoins are in short supply. As we’ve mentioned, Satoshi probably owns about one million. The Winklevoss Twins own roughly 1% of the bitcoins in circulation. And the FBI holds at least 144,000 bitcoins after seizing them from illegal activity.

It’s also guessed that up to 30% of bitcoins are lost forever (on broken hard drives and forgotten keys).

The 21 million bitcoin cap is partly why the price has skyrocketed. When there is a finite amount of something, the price tends to rise because everyone wants a piece (like gold or diamonds).

The finite supply is also why bitcoin is often likened to gold rather than traditional currency. There is only so much gold on the planet, just like there are only so many bitcoins.

chart depicting the bitcoin halving rate

Chart source

Luckily, each bitcoin can be split into smaller units denominations, right down to one hundred millionth of a bitcoin.

Bitcoin Price: Why Is It so Volatile?

When it was launched in 2009, the first exchange valued one bitcoin at eight-hundredths of a cent.

Flash forward to January 2018, and that price soared to $20,000.

Along the way, bitcoin has experienced some heart-stopping swings in value. Since January 2018, bitcoin has dropped 60%. Bitcoin is much more volatile than traditional investments like bonds or stocks. It’s why many investors are nervous about getting involved.

bitcoin price chart
Chart: CoinMarketCap

Why? The simple fact is that bitcoin is brand new. It’s still less than a decade old. Compare that to traditional markets like gold, oil or the stock market. It takes time for a new market to settle and find a stable price.

Bitcoin also goes through ‘hype cycles.’ Every so often, bitcoin attracts mainstream attention (usually when there’s a new technology breakthrough). Excited investors flood in, which pushes the price up. When the excitement dies down, we see big drops in price.

Investing in bitcoin means bracing yourself for big, volatile movements.

Don’t Confuse Bitcoin with ‘Bitcoin Cash’ or ‘Bitcoin Gold’

Bitcoin is altogether separate from other cryptocurrencies you might have heard of, like bitcoin cash (BCH) or bitcoin gold (BTG).

These alternative currencies were created when they split off from bitcoin (known as “forking”). This happened because there was a dispute in the bitcoin community about how to go forward.

Read more: What Is a Hard Fork in Cryptocurrency?

When users disagree about the technology or the ethos of a particular coin, they may split off and create a new cryptocurrency using different tech and ideals.

To understand why, we need to know how bitcoin works.

——————————————————————————————–



——————————————————————————————–

PART 2: What Is Blockchain, the System That Makes Bitcoin Work?

Satoshi’s most impressive feat is not actually bitcoin-the-currency. It’s the system on which it runs: blockchain.

Also known as the Bitcoin protocol, this is what makes bitcoin transactions possible.

An infographic explaining how the bitcoin blockchain works

What Is Blockchain?

In the simplest possible terms, blockchain is exactly what it sounds like: a chain of blocks.

When you make a transaction with bitcoin, it is bundled into a “block.” That block is processed, verified, and approved before being added to the long chain of blocks that came before it.

That’s the short version. In practice, it’s more complex than that.

Imagine an Excel spreadsheet that everyone in the world can access.

Every bitcoin transaction ever made is written down in this Excel spreadsheet.

Scroll right to the beginning, and you’ll see Satoshi’s very first entry (the ‘genesis block’), preserved forever. You can also see the most recent transactions, logged in real-time, and everything in between.

In simple terms, blockchain is a completely public, transparent way of logging payments and transactions.

This is why you often see blockchain referred to as a ‘digital ledger.’

Of course, it’s not really a spreadsheet; it’s a chain. Every time a bitcoin transaction is made, it’s logged in a 1MB ‘block’ of data. The block is then added to the one that came before it.

Hence, blockchain.

(FYI, you can look for transactions on the bitcoin blockchain using our block explorer).

Blockchain Is Not Stored in One Place

No single person or entity owns the blockchain. It exists on a network of millions of computers all at once.

Using the spreadsheet analogy again, it’s almost like a Google doc. With Google docs, anyone can log in and make edits to the same spreadsheet. The changes are public and everyone with access can see (and approve) those changes in real-time.

This is a huge change in the way we do things. In the past, for example, you’d write a spreadsheet in private, then send it to someone via email. The other person would save it to their computer, make their changes in private before sending it back.

Using this old method, there are two different spreadsheets on different servers. One person can claim theirs is the superior document or make fraudulent changes.

Or a hacker can steal one of the documents.

Now think about it in terms of banks. Banks keep their own private spreadsheets and log their own transactions, all stored in one central location. It’s less transparent, not to mention easier to hack.

With blockchain, everything is transparent. Bitcoin transactions are 100% visible, traceable and accountable.

(Note: the Google docs analogy isn’t 100% accurate since the Google document is still stored on Google’s servers. The bitcoin blockchain is not hosted by any one central server. Thousands of copies are stored on servers all around the world, all at once).

What Is Bitcoin Mining?

Bitcoin mining is how we create bitcoins.

It’s also how we keep the blockchain running.

In very simple terms, miners are rewarded in bitcoins for creating the blocks and validating the transactions.

It a self-regulating system. Miners maintain the blockchain. In return, they get bitcoins.

Anyone can mine bitcoins. However, due to the competition, it now requires an immense amount of computing power. To illustrate the point, giant bitcoin mining facilities are located in Iceland just to keep the temperatures of their hardware down.

In the past, Satoshi mined the very first block with his reportedly modest home computer. He was rewarded with 50 bitcoins for doing so.

How Exactly Does Bitcoin Mining Work?

Bitcoin miners are responsible for producing the 1MB ‘blocks’ that become part of the blockchain.

To create this block, they must solve a mathematical puzzle. This is not literal. The miner is not solving puzzles on a piece of paper. Instead, their computer is trying to ‘guess’ a pre-set 64-digit number, or “hash.”

The first miner to get ‘less than or equal to’ the hash, mines the block and is rewarded with bitcoin.

The current reward is 12.5 BTC per block.

The Bitcoin Halving

Remember we explained that bitcoin supply is capped at 21 million? That’s because the reward for mining is halved every four years.

The mining reward has been halved twice so far. The reward began at 50 BTC per block. It is now 12.5 BTC.

At this rate, we’ll hit the 21 million supply cap in 2140, after 64 halvings.

PART 3: How to Buy, Store, and Spend Bitcoin

How to Buy Bitcoin

Bitcoin is typically bought and sold on an ‘exchange.’

There are hundreds of bitcoin exchanges out there so it’s important to choose wisely. Many exchanges have been hacked over the years, and investors have lost their money, so do your due diligence to find a reputable exchange in your country.

Among the largest and most reputable exchanges are Coinbase and Gemini in the US. (Others are available and this should not be considered a recommendation).

To set up an account at these exchanges, you’re often required to upload a picture of your photo ID and proof of address. This is to ensure they comply with anti-money laundering (AML) laws and know-your-client (KYC) laws.

Can you buy bitcoin anonymously? Yes, some exchanges don’t require ID or proof-of-address. BitMEX is one example where you only need an email address. You can also buy in cash (see below).

Once registered with an exchange, you can link a bank account, or – occasionally for smaller amounts – a credit card or PayPal account.

Now, you can buy bitcoin with USD or your local currency.

Buying bitcoin on the coinbase exchange screenshot

Whichever exchange you choose, your bitcoins are stored in a wallet on their platform. We highly recommend you now transfer your bitcoin to a private wallet where you control the encryption keys (this is not as complicated as it sounds, and we’ll look at this in the next section).

How to Buy Bitcoin with Cash

If you’d rather not link your bank account to a bitcoin exchange, you can pay cash. Localbitcoins connects you with local cryptocurrency sellers who accept cash for bitcoin.

To make this transaction, however, you will definitely need a private wallet and address. We’ll look at how to set this up in our next section:

How to Store Bitcoin

You store your bitcoin and all cryptocurrencies in a ‘wallet.’

However, choosing the right wallet is perhaps the most important part of this entire guide.

You’ve probably heard that bitcoin is vulnerable to hacks and thieves. There are countless scare stories of people losing thousands.

But it’s important to know that these hacks are not related to the bitcoin system itself (or blockchain). Instead, the hacks usually target exchanges and poorly-maintained wallets.

Storing bitcoin can be safe and secure, but only if you do it correctly.

Recommended reading: 8 Cryptocurrency Best Practices (Keep Your Crypto Safe!)

infographic explaining bitcoin wallets - cold storage and hot wallets

Explaining Bitcoin Wallets and Encryption Keys

As we explained earlier, there are two aspects to storing and transferring bitcoin:

Public key – your wallet address that everyone can see (people need your public key to send you bitcoins)

Private key – a second key that only you have access to. This allows you to unlock the wallet.

When you keep your bitcoins on an exchange (like Coinbase), they hold the private key for you. This is called an ‘online wallet.’ While they are convenient and user-friendly, they are less secure.

Why? Because if the private key is on their servers, it can be stolen by hackers, who are more likely to target a large exchange.

So it’s important to make sure you hold the private key. That means moving your bitcoin off the exchange and into a private wallet.

Hardware Wallets (Cold Storage)

Hardware wallets are your most secure option. Think of them like an external hard drive or USB stick for bitcoin. For the vast majority of time they are offline, so cannot be hacked (except for the short periods when you connect to transfer bitcoin). This is known as “cold storage.”

Read More: What is Cold Storage for Bitcoin?

Of course, there is the risk of losing the hardware wallet, which is why some people keep them locked in secure bank vaults.

The most popular hardware wallets are Ledger and Trezor.

ledger nano cold storage bitcoin wallet plugged into a laptop

Desktop Wallet

With a desktop wallet, your private key is stored as a file on your computer.

The main advantage here is that you control the private key. They are usually free and easy-to-use, too.

However, your bitcoins are lost forever if your computer is lost, stolen or destroyed (unless you backed them up elsewhere). A hacker can also access your computer and take them.

In the past, using a desktop wallet meant downloading the entire bitcoin blockchain. Nowadays, light wallets are available which makes it a little easier. Some of the most popular wallets include Exodus and Electrum.

Paper Wallet

A paper wallet is simply a piece of paper with your private and public key written on them.

They are incredibly secure since they are never connected to the internet. You cannot hack a piece of paper.

However, you can lose a piece of paper very easily. So make sure you keep it somewhere safe.

Just don’t be this guy who showed his paper wallet to everyone watching Bloomberg TV. Within seconds, his account was empty (although the culprit offered to give it back after proving their point).

a man accidentally reveals his bitcoin paper wallet on Bloomberg TV and has his bitcoins stolen

‘Cold’ Software Storage

Some electronic and software wallets now facilitate offline or ‘cold’ storage options. This is a best-of-both-worlds option. Like electric wallets, they are easy to use, but they are also stored offline for additional security. Electrum, mentioned previously, offers this functionality.

Mobile Wallets

lastly, you can choose a mobile wallet. These are handy if you plan to store small amounts of bitcoin and spend them from time-to-time. Some are designed with spending in mind, such as Samourai for Android and Edge for iPhone.

None of the wallets mentioned here should be considered recommendations and many other options are out there. Do you own research and due diligence before using any of the services listed here.

Where Can I Spend Bitcoin?

The number of shops and businesses accepting bitcoin is increasing rapidly. Here are just some of the things you can buy with bitcoin:

Even if you can’t pay directly with bitcoin, there is often a workaround.

You can buy gift cards using bitcoin from eGifter or Gyft, which you can then spend at Nike, Starbucks, Whole Foods, eBay, and Wal-Mart, among others.

A new platform called Bakkt, powered by the New York Stock Exchange and Microsoft, aims to provide a system to convert bitcoin to dollars. So you could theoretically buy a coffee at Starbucks.

You can even pay for tuition at Lucerne University in Switzerland.

And, in the bitcoin tradition, you can buy pizza through pizzaforcoins.com.

PART 4: Should I Be Worried about Scams and Hacks?

Bitcoin has a reputation for its connection to hacking and scams.

There is, of course, some truth to this.

In 2014, hackers successfully targetted the world’s largest bitcoin exchange, Mt. Gox . The hackers stole 850,000 bitcoins from the exchange (worth about $473 million at the time).

Even in 2018, hackers stole $35 million worth of bitcoin from the South Korean exchange Coinrail.

Again, however, this reaffirms the importance of storing bitcoins safely in a hard wallet and not on an exchange.

Bitcoin has also been connected to numerous scams and Ponzi schemes.

Fake exchanges, fakes bitcoins, and fake crowdfunding campaigns (known as ICOs – initial coin offerings) are still out there.

Until bitcoin exchanges are regulated by government authorities, more will pop up. Here are some of the worst offenders to look out for:

1. Scam wallets – these are the most common scams. They’ll look like a legitimate online wallet, but you’ll know they’re nefarious because they ask how much you’re depositing. They’ll  set up an address for you, but it will link to their wallets, not yours

2. Dodgy miners – these scammers claim to mine bitcoin for you. You pay them money and never see it again.

3. Exchange scams – these exchanges look like legitimate bitcoin exchange websites. The giveaway is that they accept  credit card payments for large amounts of crypto, or offer better-than-usual exchange rates.

The best way to avoid these dodgy schemes is to do your due diligence. Research every exchange before you sign up. Make sure they are trusted and make sure you are on the correct website.

Ignore anything that seems too good to be true. It probably is.

PART 5: The Future of Bitcoin

Although bitcoin is less than a decade old, we are just at the beginning.

Bitcoin, and its revolutionary blockchain technology, has opened the floodgates.

There are now almost 2,000 cryptocurrencies out there. Some aim to compete directly with bitcoin. Others are expanding on the idea and branching out into new territories (see ethereum).

Bitcoin itself is constantly evolving.

Right now, its biggest hurdle is scalability. Without getting too technical, Bitcoin is slow compared to many of its peers.

a chart comparing the transaction speeds of bitcoin vs ethereum, ripple, litecoin, paypal and visa

Source

Bitcoin can currently handle seven transactions per second. Compare that to Visa which handles 24,000.

It also takes ten minutes to confirm a bitcoin transaction. At peak times, like during the ‘gold rush’ in December 2017, it takes days to process bitcoin payments.

If bitcoin aims to become a day-to-day cash system, it needs to be faster.

However, there’s a huge disagreement in the community about how to do this. In fact, this is why bitcoin cash ‘forked’ (but that’s a whole other story. Read about bitcoin cash here.)

Bitcoin developers are now working on the Lightning Network, which will help settle small amounts fast on the bitcoin blockchain.

Is Bitcoin the Future of Money?

It’s perhaps too early to call bitcoin the future. It has some big hurdles to overcome including speed, reputation, and mainstream adoption.

One thing’s for sure, however. Bitcoin triggered a revolution. Cryptocurrencies and blockchain are here to stay. Countries like Venezuela and Iran are even copying the idea by creating their own national cryptocurrencies.

As for blockchain, a huge 84% of companies are now experimenting with the technology.

The future of money might not be bitcoin, but it will be cryptocurrency. Get ready for it.

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Where to Go Next?

  1. Ethereum – Loved this bitcoin guide? Learn about the second-biggest cryptocurrency
  2. Guides – Dive into more guides about bitcoin, blockchain and all things crypto.
  3. News – Keep up to date with the bitcoin world.
  4. Market – See up-to-date price movements for the top 20 coins and more.
  5. Block Explorers – Our block explorers let you dive into the blockchain and find any bitcoin transaction.

dorian nakamoto

Ten years ago, on October 31st, 2008, Bitcoin quietly emerged on an obscure cryptography mailing list.

A user known simply as Satoshi Nakamoto wrote:

“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”

Satoshi Nakamoto followed it with a link to the now-famous Bitcoin White Paper.

Bitcoin was born.

But Satoshi Nakamoto kept his identity fiercely secret. To this day, no-one truly knows who he/she is. We don’t even know if it’s a single person or a group.

So who is Satoshi Nakamoto?

We’ve put together 24 clues or bits of information that we do know about Satoshi Nakamoto, the elusive creator of Bitcoin.

1. Satoshi Nakamoto writes in British English

The first strange clue is that Nakamoto uses British English spellings. In his forum posts, he uses words like “colour,” “organise,” “defence,” and “analyse.” He also posted: “writing a description of Bitcoin for general audiences is bloody hard.” The phrase “bloody hard” is a very British way of speaking.

2. He almost never made a spelling mistake

We know that Satoshi Nakamoto was incredibly detailed and thorough, but that also extended to his writing. You can count on one hand the number of spelling mistakes he made in his forum posts, suggesting that he thought very carefully about everything he posted.

In other words, if he wanted us to believe he was British, he may have done it on purpose.

3. He was part of an obscure cryptography mailing list

The Bitcoin White Paper was first posted on a cryptography mailing list originally called metzdowd. You can see a preserved version of Nakamoto’s post here. The niche nature of the mailing list means there are only a small handful of cryptography pioneers that could realistically be Satoshi Nakamoto.

satoshi bitcoin cryptography mailing list

4. He claims to be a 43-year-old Japanese man

According to his P2P Foundation profile, Satoshi is Japanese and born in 1975.

5. But he probably doesn’t live in Japan…

Satoshi Nakamoto almost never communicated between 2pm-8pm Japanese time. One Swiss coder, Stefan Thomas, who was active in the early bitcoin development, looked through all Nakamoto’s posts to come up with this information. It suggests he doesn’t live in Japan or he slept very strange hours (not completely unreasonable in the developer world).

6. He codes in C++ language

Some people have tried to identify Satoshi Nakamoto by analyzing his coding style. Just like a writing style, every coder has their own flair and style. Nakamoto coded Bitcoin in C++, which isn’t unusual, but it does dismiss a number of potential candidates who code in C or other languages.

7. He was suspicious of the banking system

On January 3rd, 2009, Satoshi Nakamoto mined the very first Bitcoin block, known as the “genesis block.” Written into the code was a secret message:

“03/Jan/2009 Chancellor on brink of second bailout for banks.”

It could be argued that he included the message as a simple timestamp. This was the headline of The Times newspaper on the 3rd January. However, it’s no coincidence that Bitcoin emerged in the fallout of the banking crisis. The message is not-so-subtle dig at the banking system.

As a further clue, the message refers to a British newspaper.

Times bitcoin genesis block

8. He owns more than one million BTC

As a prolific early miner, Satoshi Nakamoto amassed more than one million bitcoins. At today’s price, that’s more than $6 billion. At the peak of bitcoin’s popularity in December 2017, it made Nakamoto the 44th richest person on the planet.

9. He hasn’t moved the bitcoins since…

Other than a few small transactions to prove bitcoin’s functionality, Satoshi Nakamoto has never moved his bitcoins. All one million remain in his wallet.

Further reading: What is Bitcoin? Absolutely Everything You Need To Know (Beginner’s Guide)

10. Satoshi Nakamoto was weird, paranoid, and bossy

Laszlo Hanyecz was one of the early developers who worked on Bitcoin with Nakamoto. You might also know him as the man who ordered two pizzas with bitcoin (at a cost of 10,000 BTC, or $7 million at today’s prices). 

Hanyecz has since described Nakamoto as weird, paranoid, and bossy. Although Hanyecz worked on bitcoin on a voluntary basis, he claimed that Nakamoto treated him like an employee.

Laszlo Hanyecz
Laszlo Hanyecz and this first pizzas bought with bitcoin

11. “He” could actually be a group of people

Although Satoshi Nakamoto is usually referred to as a man, there’s no proof that’s the case. In fact, it could be a pseudonym for a group of developers. As Laszlo Hanyecz explained, “Bitcoin seems awfully well designed for one person to crank out.”

12. Or a group of companies…

One (admittedly far-fetched) conspiracy theory claims that Satoshi Nakamoto is actually a group of four major technology companies: Samsung, Toshiba, Nakamichi, and Motorola.

If you look closely, their letters spell out Satoshi Nakamoto:

Samsung

Toshiba

Nakamichi

Motorola

13. Or the CIA…

An even more bizarre conspiracy claims that bitcoin was actually created by the CIA. The theory posits that Satoshi Nakamoto’s name translates to “Central Intelligent.” Motherboard journalist Daniel Oberhaus even filed a Freedom of Information Act request to the CIA for documents about Satoshi Nakamoto. The CIA replied saying they could “neither confirm nor deny” the documents existed.

14. It *might* be Nick Szabo

Of all the wild theories and sensible guesses, this one is generally considered closest to the mark. Nick Szabo has been involved in the cryptography community for over a decade. He invented the “smart contract,” which is now the defining feature of Ethereum.

Is Nick Szabo Satoshi Nakamoto?
Credit: 101Blockchains

Perhaps most important though, Szabo invented BitGold, a form of digital currency that came before bitcoin. BitGold shared a lot of technology with Bitcoin and the ideas were shared among the same community.

Lastly, Szabo’s writing style is very similar to Satoshi Nakamoto’s. “It’s uncanny,” said researcher Jack Grieve.

Nick Szabo has always denied the claim.

15. It’s definitely not Dorian Nakamoto

The most high-profile hunt for Satoshi’s identity came from Newsweek. After months of investigation, Newsweek announced they had found the real Satoshi: an elderly Japanese man named Dorian Nakamoto.

For proof, Newsweek pointed to his true birth name (Satoshi Nakamoto) and his background as a computer engineer. The media descended on Dorian Nakamoto’s home, but it all unraveled from there. Nakamoto said he’d never heard of it, and reportedly referred to it as “Bitcom.”

dorian nakamoto
Credit: Business Insider

16. It’s probably not Hal Finney

Another good theory points to Hal Finney. Finney worked on the early development of Bitcoin and shared many emails with Satoshi Nakamoto. He was also on the same mailing list as Nakamoto and even has a similar writing style.

Finney was so influential to Bitcoin’s development that the community now refers to a small denomination of BTC as a “Finney.”

However, the biggest evidence against Hal Finney is that he coded in C, a different language to Nakamoto’s C++.

17. It’s not Craig Wright

Craig Wright is one of the few candidates to publicly “out himself” as Satoshi Nakamoto. He said he was part of a team that created Bitcoin and was the true Satoshi.

Wired and Gizmodo both reported the story, but Wright eventually admitted it was not him.

18. It’s probably not Shinichi Mochizuki

Other have pointed to Japanese mathematician Shinichi Mochizuki. The evidence is only circumstantial (that Mochizuki is capable of creating bitcoin).

19. Is it Gavin Anderson?

Gavin Anderson took over Bitcoin development when Satoshi Nakamoto disappeared in 2011. At least one source has named him at Satoshi based on stylistic programming similarities.

20. Or Jed McCaleb?

Jed McCaleb is a serial crypto entrepreneur. He was among the co-founders of Ripple before moving on to Stellar. He was also the founder of the infamous Mt. Gox exchange (he left well before the hack and subsequent bankruptcy).

21. What about Dustin Trammel?

Dustin Trammel is a security researcher who exchanged a number of emails with Satoshi Nakamoto in the early days of Bitcoin. He reportedly fixed bugs and made suggestions about the system. However, he publicly denied the claim on his blog.

22. Ross Ulbricht?

Ross Ulbricht is the man behind the infamous Silk Road – a dark-web, black marketplace used to sell drugs and weapons using bitcoin.

Researched believe they have found a transaction made from the earliest days of bitcoin (January 2009) to Ross Ulbricht, fueling speculation that he was actually Satoshi Nakamoto. But the exact identity of that early bitcoin account has never been proven. Ross Ulbricht is currently in prison on charges related to the Silk Road.

ross ulbricht

23. No, it’s probably not Elon Musk

People often point to Elon Musk (without any real evidence) as the Bitcoin creator. Musk has denied the claim and says he actually lost any cryptocurrency he had.

24. Satoshi Nakamoto disappeared in 2011

Satoshi Nakamoto was last seen or heard seven years ago. His final email read: “I’ve moved on to other things. It’s in good hands with Gavin [Anderson] and everyone.”

Conclusion

We may never discover Satoshi Nakamoto’s true identity, and maybe that’s a good thing. Nakamoto gifted us one of the most powerful, controversial, and talked-about technologies in history. And it’s only ten years old. Here’s to the next ten!

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woman holding lots of gold bitcoin units

With one bitcoin currently worth more than $6,000, we need smaller bitcoin units and denominations to make it work as a day-to-day currency. We explain the units, from one bitcoin down to one “satoshi” (or 1 hundred millionth of a bitcoin).

Let’s picture a future where you walk into Starbucks and buy a coffee with bitcoin. You can’t exactly pay with one full bitcoin. It would be like paying with a $10,000 note or handing over a gold bar.

For bitcoin to become a viable cash system, we need to break it down into smaller units and denominations.

Those denominations already exist, but they’re not yet widely used. Here’s how it breaks down, at a glance:

Bitcoin – 1 BTC
DeciBit – 0.1 BTC
CentiBit – 0.01 BTC
MilliBit – 0.001 BTC
MicroBit – 0.000001 BTC
“Finney” – 0.0000001 BTC
“Satoshi” – 0.00000001 BTC

A “Satoshi” is 1 Hundred Millionth of a Bitcoin

The smallest bitcoin unit is called a Satoshi (or a “Sat,” for short). It’s named after Bitcoin’s mysterious founder, Satoshi Nakamoto. At the time of writing, 160 satoshis are worth about one cent.

But why would such a tiny denomination exist?

Well, it gives you a sense of how big the bitcoin community expects the cryptocurrency to grow. One satoshi is expected to be a usable form of currency one day, perhaps similar to a penny.

Only 21 Million Bitcoins Will Ever Exist

We also need to break bitcoins into tiny units because there will only ever be 21 million of them.

Compare that to the 10 trillion dollars in existence and you start to see why bitcoin needs many denominations.

There simply aren’t enough full bitcoins for each person to own 1 BTC. (In fact, there are more people living in Shanghai than there are bitcoins).

In other words, if bitcoin becomes a true global currency, only a very small group of people will own a full bitcoin. The rest will own and spend much smaller units and denominations.

The “Finney” is a Nod to Hal Finney

Hal Finney was one of the first people to work on Bitcoin besides Satoshi Nakamoto. In fact, many have claimed that Hal Finney is Satoshi Nakamoto, but he has always denied the claim.

Although the finney is not an official denomination, it’s often used by the community as a nod to his work on the project.

Should We Stop Using the Term Bitcoin?

Some have argued that “one bitcoin” is an intimidating way to introduce new people to the cryptocurrency.

Buying one bitcoin at more than $6,000 sounds pretty overwhelming to most people.

At the same time, pricing a coffee at 0.001 BTC (roughly the cost right now) is ridiculous. Instead, you might say that one coffee costs a milliBit, or colloquially an “emBit”.

Or you might feel more comfortable investing in a deciBit (about $600) or even a centiBit ($60).

How Much is Each Bitcoin Unit Worth?

At today’s price, the denominations are worth the following:

Bitcoin – $6,340
DeciBit – $634
CentiBit – $63.40
MilliBit – $6.34
MicroBit – $0.06
“Finney”  ~ half a penny
“Satoshi” ~ 160 satoshis to a penny.

Prices correct at September 19th, 2018.