Bitcoin

Bitcoin was originally proposed in a white paper published on October 31, 2008, under the pseudonym “Satoshi Nakamoto”. No one knows the true identity of the creator of bitcoin, although many have falsely claimed the title. The first sentence of the bitcoin white paper states that Bitcoin was conceptualized to be “a purely peer to peer version of electronic cash [to] allow online payments to be sent directly from one party to another without going through a financial institution”. 

In order words, Bitcoin was created to decentralize money. It’s a decentralized digital currency, and operates on a decentralized system which records transactions in a distributed ledger – also called a blockchain. We can think of this network as a giant publicly viewable “spreadsheet”, containing every bitcoin transaction that has been made since the first block was mined on January 3, 2009.

For Bitcoin, this “spreadsheet” is updated with the newest validated transactions every 10 minutes (on average) in the form of new blocks added to the blockchain. These blocks that contain the latest transactions are added to the blockchain by “miners”, through the process of “mining”. Each block also includes a transaction that issues new bitcoin, which is given to the miner as a reward for maintaining the network.

Contrary to popular beliefs, Bitcoin is not anonymous. The date, time, amount, and the counterparties to every transaction is publicly viewable. The counterparties are represented by addresses – a long string of alpha-numeric characters that is unique for every user. Similar to sending an email, if a user wants to send bitcoin to their friend, they would need their friend to provide them with their Bitcoin address. These addresses, however, do not include any personal identifiable information. Names, residential addresses, date of birth, email addresses, etc, are not attached to any cryptocurrency address. This is why it is more accurate to label Bitcoin, and the majority of other cryptocurrencies, as pseudonymous.

Users are able to obtain bitcoin through various ways: mining, purchasing bitcoin through a VASP (Virtual Asset Service Provider) such as centralized/decentralized/peer to peer exchanges, bitcoin ATMs (BitATMs), or by receiving bitcoin as a payment for goods and services. Due to the decentralized nature of Bitcoin, transactions cannot be blocked, and wallets cannot be frozen or seized (this is not true when discussing users holding their funds with a centralized exchange). 

Transactions conducted on the blockchain are immutable – meaning they cannot be altered. Transactions also ignore distance – a user located in Florida, US, can send bitcoin to their friend in Japan in the same amount of time that it would take to make the same transfer to their next door neighbor. Although this creates potential risks for sanctions violations, it also allows many individuals in underdeveloped nations to participate in the global market, as no information or documents are required to create a bitcoin wallet.

Further Read

Bitcoin 101, CoinDesk, 2020.

Legality of Bitcoin Around the World, Library of Congress, 2018.