What is Bitcoin and who invented it?

Bitcoin, much like the internet in 1994, is not easily explained or understood. Its advocates compare the technical innovation with that of the World Wide Web. But while the internet changed the way people communicate, Bitcoin changes the way people view and use money.

Bitcoin was created to provide an alternative to the banking system. It is an open accounting system that allows thousands of computers from around the world to track ownership of digital tokens – the Bitcoin – as part of a purchase transaction.

All transactions are visible to Bitcoin users and, once verified, are logged in a public ledger called the “blockchain”. The “blockchain” records every Bitcoin transaction since the launch of the system and every user has a copy of the transactions.

This is the primary difference between Bitcoin and the current finance banking system. While physical currency is issued through a central authoritative agency, Bitcoin is a peer-to-peer system.

Bitcoins are awarded to “miners” – computers specialised in processing and verifying Bitcoin transactions – as a reward for their work. This is how new Bitcoins are released into circulation.

Satoshi Nakamoto is the founder of Bitcoin. An online profile with a currently unconfirmed physical identity, Nakamoto first announced the development of the Bitcoin system in an online forum in late 2008.

Despite his cryptic online presence, programmers and developers around the world immediately recognised the intelligence behind Nakamoto’s peer-to-peer design, and worked with him to further develop Bitcoin.

In October 2009, a first exchange rate was published, listing the value of 1,309 Bitcoins at $1. Bitcoins were cheap and throughout the following year they continued to trade for fractions of a cent.

The first known transaction with Bitcoin occurred in 2010 when a Florida resident offered 10,000 Bitcoins to anyone who would order him a pizza. One user in London agreed, making a long-distance phone call to a Papa John’s and cementing the first Bitcoin transaction in history.

Bitcoin was gaining momentum, but in order for it to thrive, the coins needed to be more widely accessible.

Tokyo-based Mt Gox was the first Bitcoin exchange on the market. By November 2010, four million Bitcoins had been mined. The exchange rate briefly spiked to 50 cents a coin. The market awoke and Bitcoin started to look as if it had real potential as a global currency.

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