Bitcoin is an encrypted, time stamped ledger that maintains a record of new coins being mined by dedicated Bitcoin mining computers, and the transfer of existing coins (or small portions thereof called “Satoshis” or “Sats”) between users. A copy of this ledger resides in cyberspace on a decentralized computer network consisting of thousands of computers around the globe, called nodes. Thousands of people and businesses run easy-to-use node software on personal computers, as a way of supporting and propagating the network. Anyone with a computer and a connection to the internet is free to operate a node or a Bitcoin mining rig using free, open source software.
That includes you!
Bitcoin miners including many private individuals like you and I operate high performance computers that mine new coins by solving extremely difficult cryptographic math problems that require billions of attempts to solve. When a miner’s computer succeeds in solving one of these puzzles first, before every other mining computer, they are rewarded by receiving a specific quantity of newly minted Bitcoins, along with any of the transaction fees for Bitcoin transfers that have occurred since the previous block was mined. So miners earn Bitcoin by supplying the computer processing power needed to mine new coins and write new transaction data to the ledger when Bitcoin is transferred between users. A small portion of every Bitcoin transaction in a block (a fee) is given to the successful miner of each block as an additional reward, which also helps offset the cost of the electricity they are using to run their mining rigs and overhead to operate the business. The amount of the fee is determined by the size of the data the transaction contains and how much of a backlog there is of transactions waiting to be processed, and hence the priority that individual users want to place on their transaction to be cleared quickly versus over the course of later blocks. The higher the priority a user places on having their transaction finalized, the higher the fee. Users can monitor current fees by checking the Mempool.
The accuracy and veracity of the transactions recorded on this ledger (new coins being mined, and existing coins being moved between user addresses) are maintained by confirming them across all of the reachable nodes, and writing a record of those transactions to a permanent record, called the Bitcoin blockchain. Currently, a new “block” of transaction data containing information about what has occurred on the network since the last block was published, is shared out to each node roughly every ten minutes. This timechain was started in 2009 by Bitcoin’s creator, Satoshi Nakamoto, and has persisted across the globe to this day as an permanent and unalterable record, with 99.98% network uptime. Once a block is added to the blockchain, it is permanent. It can never be removed or altered. Ever. In this way, Bitcoin transactions between users are final and irreversible. Just like sending cash or gold.
All of the computer code used to create, grow and maintain the Bitcoin blockchain, and the node and mining software that supports it, are “open source”. That is, every line of code can be inspected to see exactly what it does. Unlike other computer networks and operating systems (like Windows for example), there is no way to hide secret access points or “backdoors”. If a transaction is attempted that doesn’t meet at least a 51% consensus among thousands of nodes worldwide, the transaction is rejected and cannot be written to the next block as a permanent part of the record. In this way, Bitcoin’s ability to store value across time is established. Every set of user addresses (wallets) are kept private by a 12 or 24 word SHA256 strong encryption key. A user can only transfer Bitcoin that is in their possession if they have this key and a signing device (a hardware or software Bitcoin wallet). The odds of guessing a key phrase that is in use, that is not your own, would be numerically about the same as finding a particular grain of rice, if every object in the visible universe was covered 1m deep in rice. SHA256 encryption is unbreakable. In fact, the early pioneers of encryption technology fought a long and protracted battle with government to make it legal, because it is so absolutely effective at storing personal information. As long as a user has their key phrase memorized or securely stored (often on steel plates), and has access to a computer, they can cross borders with or send an unlimited amount of stored monetary value across the globe to another Bitcoin address anywhere in the world in seconds. Try doing that with a bag of gold coins!
Due to it’s decentralized model, the Bitcoin is the only one out of thousands of cryptocurrencies that is not owned or administered by a company or individual. It is not subject to theft or destruction by simply turning it off. Once the Bitcoin algorithm was launched on the internet, when coins began to be mined and nodes began enforcing the consensus rules of the code, it became essentially it’s own purely electronic lifeform. Every node on the planet would need to be stopped, permanently, in order to halt the creation of the next block of transaction information. The immutability and persistence of the Bitcoin network, and the hard coded limit of 21 million coins that can ever be mined into existence, is how Bitcoin is “backed” as a store of value, medium of exchange, and a unit of account. It cannot be inflated in it’s supply and have it’s value diminished by printing an unlimited amount of it, unlike government currency.
