(I’ve asked Pete Dushenski, of Contravex mild fame and arguing-on-this-site minor fame, to give our readers a sort of primer/polemic on cryptocurrency in general and Bitcoin in particular. We are starting with an introductory piece he’s written to get you up to speed. This afternoon I’ll be running a piece of my own to help you understand “hashes”, which are a big part of Bitcoin. Then tomorrow we will run the second part of the Bitcoin article. Many thanks to Pete for contributing this — JB)
When Jack asked me to write this, he told me that
Milton’s goal with Paradise Lost was “to explain the ways of God to man.” Here, you would be explaining the ways of the future to the merely present.
So,
What is Bitcoin ?
The future.
Is the future bright ?
Indeed!
How does Bitcoin work ?
Let’s find out.
Who is this Satoshi guy ?
Satoshi Nakamoto is the pseudonymous creator of Bitcoin. A man of unique intelligence and foresight, he was but one in a long line of cryptographers and computer scientists who attempted to create a non-statal (ie. private) digital currency. For over 20 years the problem had been approached from various angles but all were ultimately too centralised. Satoshi was the first to create the right incentive structure, the right fail-safe structures, and the necessary decentralisation to succeed. He published his White Paper on the subject in late 2008 and then mined the first coins a few months later. He nursed the project along from its inception in early 2009 until late 2012 when it was clear that the project had the legs it needed to be successful. Satoshi mined approximately 1,000,000 of the early coins, which would now make him a billionaire many times over, but his coins have never moved and may very well never move. It’s entirely probable at this point that Satoshi destroyed his private keys and that his coins are effectively dead.
Is Bitcoin money ?
In as much as anything can be money, yes. In as much as it has a dead President and a pyramid with a big eye on it, no.
Is Bitcoin only for criminals ?
No. Criminals probably use it, but they also use dollars and that doesn’t stop you from being paid in those, does it ?
What are private keys ? Or public keys ?
In public-private key cryptography, public keys are the mailbox and private keys are the keys to the mailbox. People can send mail (or any data, including money) to any public mailbox in the world but only the person with the private keys can open it. Bitcoin isn’t the only piece of software to use public-private key cryptography, Pretty Good Privacy (PGP) was developed in 1991 and was the first mainstream use of the technology – it’s used to encrypt e-mail. PGP is what Edward Snowden used and what serious privacy advocates still use to this day. Public-private key cryptography is used all the time but it’s usually in the background and you usually aren’t in control of the private keys. Bitcoin and PGP demand that their users solely control their private keys, which is no small burden.
What is a “hash” and how do you calculate it ?
A hash is a mathematical function that takes data of any size and spits out data of a fixed size. Hashes are essential for information security in general and Bitcoin in particular because they are one-way functions that are easy to verify but difficult to reverse engineer. Think of them like Sudoku puzzles in this sense. Computers calculate hashes for Bitcoin mining by guessing millions of combinations a second in an effort to guess the “correct” one that solves the newest block. It takes 10 minutes on average to guess the hash for the newest block and earn the block reward. Bitcoin also uses hashes as transaction records that form the blockchain, and in other ways. You can read the White Paper to learn more, and there will be a piece later today to explain it in basic terms.
What is a blockchain ?
You’ll see tomorrow.
What is a block reward ?
You’ll also see that tomorrow.