In October 2008, a whitepaper was published online, titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” This 9 page whitepaper outlined the design and justification for a digital currency, or cryptocurrency, controlled by no single entity.
Traditionally, you trust the singular bank to conduct financial services on our behalf. With Bitcoin, the intention is to do what no other attempt at a cryptocurrency could do before: create an anonymous, trust-less, decentralised currency.
Instead of trusting any individual humans, we put trust into math, cryptography, and logic.
You trust the Bitcoin protocol, even if you don’t trust any individual in the network. This cryptocurrency relies on computational power to cast votes. As mentioned earlier, this is known as Proof-of-Work. And as you saw earlier, the idea of solving a cryptographic hash puzzle was also used in Hashcash.
Satoshi wrote in the whitepaper that this is meant to enforce a “one-CPU-one-vote” system, such that every computer only has the ability to cast one vote in the consensus process. This is different from the traditional “one-identity-one-vote” process used in government elections because you can’t assume that each real world identity has only one digital identity.
In addition, each person maintains their own identity through public and private keys, authenticating themselves through blind signatures, which was introduced by David Chaum from DigiCash. This ensures that every user maintains their own privacy until they voluntarily choose to reveal themselves.
In Bitcoin, every full node maintains their own copy of the blockchain, similar to how in B-Money’s protocol, every participant maintains their own individual database, to keep track of how much money belongs to each user. Bitcoin was designed to be a deflationary currency, meaning that there will only be a limited amount of bitcoins that will ever exist, specifically 21 million.
Every miner gets a block reward for finding a block, but this block reward decreases over time. It began at 50 bitcoins and is halved every two hundred and ten thousand (210,000) blocks. Eventually, the block reward will become 0, at which point 21 million bitcoins will have been minted. Interestingly enough, Satoshi chose to include a message within the first block of the Bitcoin blockchain. This information is a powerful glimpse into the mentality and motivations of Satoshi Nakamoto.
As I will discuss further in the next article [SOON], the coinbase transaction gives a miner a block reward. This particular transaction has empty space into which extra information can be included. Satoshi chose to reference a story in the Times of London mentioning a Chancellor bailing out a bank.
As you can tell from several posts and comments made by Satoshi, he was not fond of the modern banking system, particularly fractional-reserve banking. Bitcoin’s design aims to eliminate these issues. During this first year, people sent bitcoins to each other out of interest, playing around with the software. During this time, however, bitcoins were never exchanged for any tangible good. And then in May of 2010, this post showed up on the bitcoin-talk forum.
By the way, a man named Laszlo Hanyecz asked for pizza in exchange of 10,000 bitcoins. And on May 22, 2010, he received a $25 order of pizza in exchange for his bitcoins. This was the world’s first ever Bitcoin transaction for a tangible asset. In this moment, Bitcoin went from worthless internet money to something with real value.
As a fun fact: as of March 15, 2018, the pizzas Laszlo ordered are now worth 81 million dollars. And here’s Laszlo reporting back on the forum about the pizza’s safe delivery. Most people ridicule Laszlo for spending bitcoins on such a small purchase. However, they are not aware that Laszlo wanted to see Bitcoin flourish. Before this purchase, the idea that bitcoins could be used to purchase real world goods was ridiculous.
For most people, mining Bitcoin was merely a hobby.
This purchase validated the use of Bitcoin for its original purpose as a currency actually used for buying goods. So in a way, by trailblazing the currency’s use, Laszlo is a hero to Bitcoin enthusiasts. this was the very first time a Bitcoin transaction traded “magic worthless internet money” for a tangible item of value - therefore bitcoins have value.
However, it’s not like bitcoins were worth that much when Laszlo spent them on pizza. It took years of development and spread before Bitcoin became accepted as a legitimate technology, yet it’s still got a ways to go before reaching worldwide legitimacy.
Comments