Unlike traditional currencies, Bitcoin is completely virtual.
Bitcoins exist hidden within the exchange of value between senders and recipients. Bitcoin users have keys that allow them to prove within the Bitcoin network that they have authority to transact bitcoins, which can then be spent, bought, sold and exchanged for other currencies once decrypted. Due to Bitcoin's fast, secure and borderless nature, in some sense Bitcoin represents the perfect form of an internet currency.
Bitcoin is a decentralized peer-to-peer network system. Therefore, there are no "central" servers or central points of control.
Bitcoin pioneered a solution to the problem of distributed computing.
Satoshi Nakamoto's invention was also a feasible solution to the "Byzantine Generals Problem", an unsolved problem in distributed computing. In simple terms, the problem involves trying to achieve consensus on an action protocol through communication within an untrustworthy network that has potential threats. Nakamoto's solution was to achieve consensus without a central authority using the concept of proof-of-work, which represented a breakthrough in distributed computing science and has far surpassed mere currency applicability.
There is a lot of information about Bitcoin online, so I won't go into a detailed explanation here.
Speaking of the origins of Bitcoin, we have to talk about a rather mysterious group: the Cypherpunks. This was a loose alliance of cryptographic geniuses, and Bitcoin's innovations drew heavily from contributions by Cypherpunk members. The term Cypherpunk comes partly from "cipher", which in cryptography refers to algorithms used for encryption and decryption, and partly from Cyberpunk, referring to the then-popular sci-fi genre. This combination has very subtle connotations, exuding a radical ideal of changing society.
The Cypherpunks' view was that modern society was experiencing an ever-growing erosion of individual privacy and rights. They exchanged views on this issue amongst each other, and believed that in the digital age, protecting privacy was crucial to maintaining an open society. This philosophy was embodied in Bitcoin – the pursuit of decentralization and the embrace of anonymity. The Cypherpunks themselves were among the earliest propagators of digital currencies. Discussions of digital currencies were common on their email lists, with some ideas put into practice. People like David Chaum, Adam Back, Nick Szabo, Hal Finney and others did extensive early explorations in the digital currency sphere.
Bitcoin was not the first attempt at digital currency. Statistics show dozens of failed digital currencies or payment systems prior to Bitcoin's birth. It was these explorations that provided a wealth of experience for Bitcoin to draw from.
David Chaum was a cryptographic expert and a leading "bishop"-level figure among the Cypherpunks of the 1980s and 1990s. He invented many cryptographic protocols, and his 1981 research laid the foundations for anonymous communications. In 1990 he founded DigiCash and experimented with a digital currency system called Ecash. Payments were anonymous in his system, but recipients were not. More precisely, Ecash was a system for individuals to pay merchants. The currency system he invented also had some characteristics of bypassing intermediaries – DigiCash acted as a trusted third party to confirm transactions and prevent double-spending, ensuring the honesty of the system.
Adam Back is a British cryptographer who invented Hashcash in 1997, which used a proof-of-work system. The prototype of this mechanism could be used to solve spam on the internet, for example as an anti-spam solution. It required computers to perform a certain amount of computational work before gaining permission to send information. This would have virtually unnoticeable impact on normal information transmission, but for computers mass-distributing spam to the entire network, the computations would become unbearable. This proof-of-work mechanism later became a core component of Bitcoin.
Haber and Stornetta proposed a protocol in 1997 that used timestamps to ensure the security of digital documents. The simple explanation is to record the chronological order of document creation with timestamps. The protocol required that timestamps could not be altered after a document's creation, making the possibility of tampering zero. This protocol became a prototype for Bitcoin's blockchain protocol.
Wei Dai is a cryptographer with diverse interests who invented B-money in 1998. B-money emphasized peer-to-peer transactions and tamper-proof transaction records, with each transactor in the network keeping track of transactions. However, in B-money each node maintained its own ledger, which would inevitably lead to inconsistencies between nodes. Wei Dai designed complex incentive and penalty mechanisms to prevent nodes from cheating, but did not fundamentally solve the problem. When Satoshi Nakamoto invented Bitcoin, he borrowed a lot from Wei Dai's design and had extensive email exchanges with him.
Hal Finney was a top developer at PGP Corporation and an important early member of the Cypherpunk movement. In 2004, Finney introduced his own electronic currency that used a reusable proof-of-work system (RPOW). Hal Finney was the recipient of the first ever Bitcoin transaction, and interacted extensively with Satoshi Nakamoto during Bitcoin's early days. Suffering from a terminal illness, Hal Finney passed away in 2014.
The Birth of Bitcoin
Bitcoin was born in September 2008, beginning with the collapse of Lehman Brothers, when the financial crisis erupted in the United States and spread around the world. In response to the crisis, governments and central banks around the world adopted unprecedented fiscal stimulus and expansionary monetary policies, providing emergency assistance to financial institutions. These measures were also met with widespread skepticism.
At 2:10 pm on October 31, 2008, several hundred members of an ordinary cryptography mailing list all received an email from someone calling himself Satoshi Nakamoto: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." He then directed recipients to a 9-page whitepaper describing a new currency system. On November 1, 2008, the person calling himself Satoshi Nakamoto published the Bitcoin whitepaper "Bitcoin: A Peer-to-Peer Electronic Cash System" online, laying out an electronic cash system based on distributed ledger technology, Proof of Work consensus, cryptography and other technologies – marking the birth of Bitcoin.
Two months later on January 3, 2009, the first (numbered 0) genesis block was born, taking Bitcoin from theory into practice. A few days later on January 9, 2009, block number 1 appeared and connected to the genesis block number 0 to form a chain, marking the birth of the blockchain.
In 2015, The Economist magazine ran a cover story titled "Blockchains, The Trust Machine", pointing out the technology behind Bitcoin could change economic operating models, calling it “a trust machine that allows people who have no particular confidence in each other to collaborate without having to go through a neutral central authority. Simply put, it is a machine for creating trust.” This resulted in increasingly more public attention on Bitcoin and blockchain.
Continue exploring the early stories of the cypherpunks movement.