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What the heck is it?

Electronic Cash

Bitcoin is money for the internet. Bitcoin can be sent just like an email. The Euro has 2 decimal places, and €0.01 is called a cent. Bitcoin has 8 decimal places, and B0.00000001 is called a satoshi.

Graphic of two people, one using a phone and the other using a laptop, sending or receiving digital money.
Many people already send and spend euros in digital form

Satoshi Nakamoto

Satoshi Nakamoto is the pseudonym of the person (or persons) who created Bitcoin. The real identity of Satoshi Nakamoto is unknown. Satoshi is a masculine Japanese name meaning wise. A profile created by Satoshi on the forum p2pfoundation in 2008 indicated a 35-year-old male located in Japan. There is much deliberation over the identity and motives of Satoshi Nakamoto.

The UK Times, January 3rd, 2009, headlined 'Chancellor on Brink of Second Bailout for Banks'.
The first block of the Bitcoin blockchain references the 3rd of January, 2009, Times headline

Double Spend

It was in the autumn of 2008 that Satoshi Nakamoto published his infamous white paper Bitcoin: A Peer-to-Peer Electronic Cash System. In it was an ingenious solution to a problem that had puzzled cryptographers for the previous two decades, the double spend. The double-spend is to spend the same money a 2nd time.

A (blank) cheque stamped paid.
Cheques can take days to clear
A (blank) cheque stamped insufficient funds.
Cheques often fail to clear

Trusted Third Party

Before Bitcoin, to send money over the internet, a trusted third party such as PayPal, MasterCard or Bank of Ireland, was needed. The trusted third party ensures that the sender has sufficient funds. They may also mediate disputes and issue chargebacks.

A graphic of the Anglo Irish Bank circular inter-institution money deposit scam. It shows three payments, €978M on September 26 2008, €2B on September 29 2008 and €4B on September 30 2008.
The Anglo Irish Bank circular inter-institution money deposit scam

Distributed Ledger

Bitcoin turns on its head the security model that is the foundation of existing monetary systems. It eliminates the need for a trusted third party. Instead of a private, centrally controlled accounting ledger, Bitcoin proposes a widely distributed public ledger called a blockchain.

A graphic attempting to depict many copies of the same ledger distributed all over the globe.
There are many copies of the Bitcoin ledger all over the internet


Electronic money (eMoney) was a hot topic in cryptography circles since the dawn of the modern internet in the late 1980s and early 1990s. Cryptography keeps communication safe by obscuring data while it travels from the sender to the recipient. It would be crucial in any eMoney system, and this is why Bitcoin is known as a cryptocurrency.

A graphic representing one of the first forms of cryptography, the Caesar cypher. It shows a wheel graphic with the letters of the alphabet listed twice in two rows around the wheel. Each letter in the message is changed with another letter a certain number of letters ahead in the alphabet to make a message secret with the Caesar Cipher. The wheel displays with an offset of 7 characters, where A in the plain-text alphabet lines up with H in the cypher-text.
Invented by Julius Caesar to frustrate attempts to intercept his personal and, especially, his military correspondence


There were attempts to create eMoney before Bitcoin. There was Ecash in the early 1990s. Then there was Bit gold, RPOW and b-money. They all had issues, and eventually, they all failed. According to Satoshi, attempts to create eMoney had failed because they were all centrally controlled.

The Cantillon Effect: The first ones to receive the newly created money see their incomes rise, whereas the last ones to receive the newly created money see their purchasing power decline as consumer price inflation comes about. Richard Cantillon (1680s – May 1734) was an Irish-French economist. Some consider him as the founding father of modern economics.
Born in Tralee, Co. Kerry, Richard Cantillon is an inspiration for eMoney pioneers such as Nick Szabo


In January 2009 Satoshi released free open source software, Bitcoin Core, for creating and maintaining the Bitcoin blockchain. The software runs a process known as mining. The mining process is a challenge between users of the software, who are known as miners. The aim is to be the first to solve a problem that is very difficult (but it’s easy to verify the solution).

A graphic of an unsolved and a solved Rubik's cube.
It takes time and effort to solve a Rubik’s cube, but it’s easy to verify that it’s solved


The mining process is more formally known as a proof-of-work system. Proof-of-work is an anti-spam technique. It's something like Google Captcha's, where you must select some particular images (do some work) before you can access a website.

Examples of different CAPTCHAs.
A CAPTCHA is a challenge to verify if the user is a human


In February 2009 Satoshi released the first Bitcoin wallet software to allow the sending and storing of Bitcoin. There are numerous hardware and software wallets available today. Hardware wallets claim increased security, but nothing is entirely secure.

A hardware wallet and a phone app wallet.
Ledger hardware wallet and mobile app


A Bitcoin address is needed to receive and store Bitcoin. A Bitcoin wallet allows you to create multiple addresses, somewhat akin to having multiple bank accounts.

A Bitcoin address is between 26 and 35 characters long, e.g. 1KvcJhqrFZ1DW5hpSQCYN3W4J2PLBRw94P. The total number of possible bitcoin addresses is 2¹⁶⁰ or 1461501637330902918203684832716283019655932542976.
There is an almost infinite amount of possible Bitcoin addresses


A Bitcoin address gives you pseudonymity. When Bitcoin is received, the address of the recipient and the amount of Bitcoin received is forever recorded and available for viewing on the public blockchain. It is said to be more secure and private to use a new address for each transaction.

A face hidden by sunglasses.
Bitcoin transactions are not entirely anonymous or untraceable


Before the 1970s, if two parties wanted to share encrypted data, both parties needed access to the same password to either encrypt or decrypt the data. This password, technically known as a secret symmetric key, would have to be shared in a secure way such as by courier or registered mail. This process did not facilitate efficient business telecommunication. When Whitfield Diffie and Martin Hellman published their paper New Directions in Cryptography in 1976, things changed.

Depiction of a symmetric key dangerously exposed on the world wide web.
Sharing a symmetric key is necessary but risky

Public-Private Keys

Instead of a single secret symmetric key, Diffie & Hellman proposed two asymmetric keys. One private key which the owner keeps secret, and one public key, which can be widely shared. The public key encrypts data which only the corresponding private key can decrypt.

Depiction of private asymmetric keys safely with their owners, and their public asymmetric keys harmlessly and usefully exposed on the world wide web.
Sharing a public key is useful and harmless. Private keys should not be shared.

Digital Signatures

The private key creates tamper-proof, digitally-signed, non-encrypted messages. The public key verifies that the signed message is precisely what the sender wrote.

A cheque signed by Robert Redford.
A digital signature is akin to an ink signature on paper


A Bitcoin address is essentially the public key of a public-private key pair. The private key digitally signs a Bitcoin transaction. The public key verifies the transaction. Transactions broadcast to the Bitcoin network wait with other unconfirmed transactions.

Screenshot of a Bitcoin send transaction in the Trezor hardware wallet web user interface. An amount of 0.12345678 Bitcoin is the amount being sent, equivalent to €750.36. A 'Normal' fee of 42 sat/B is indicated, equivalent to €0.43. An 'Expected confirmation time' of 50 minutes is indicated.
An example of a transaction being created in the Trezor hardware wallet web user interface


Bitcoin miners pick transactions from the unconfirmed group so that they may become confirmed. Transactions are added to a structure known as a block, essentially an accounting ledger. A block is limited in size at about 1-megabyte, which accommodates about 3,500 transactions.

A simplified depiction of the data in a Bitcoin block. New Unique ID: 0000000000000000000f67...de27d19, Previous ID: 0000000000000000000d80...1395a40, Timestamp: 2020-03-25 08:52, Height: 622886, Miner: F2Pool, # Transactions: 2,931, Difficulty: 16,552,923,967,337.23, Size: 1.344719MB, Nonce: 408,115,700, Bitcoin Total: 10628.98283719 BTC, Block Reward: 12.50000000 BTC, Total Fees: 0.53265959 BTC, Transaction List: Reward + Fees of 13.03265959 BTC go to address 1KFH...DbYY, address 1AUR...411j sends 0.29843774 BTC to address 1HTf...vFoi, address 1HTf...vFoi sends 0.28939070 BTC to address 1EyE...mksn.
Some of the data in a Bitcoin block


Each Bitcoin miner creates a new block each time the previous problem is solved. Once a miner solves the problem, they broadcast their solution along with their block. If accepted as a valid solution, the block links to the previous block, creating a sequence of chained blocks, i.e. a blockchain.

A simplified depiction of the Bitcoin blockchain showing that each block contains the reference to the previous block's unique ID.
Each Bitcoin block contains the unique ID value of the previous block


The Bitcoin system adjusts the difficulty of the problem roughly every two weeks. The aim is to keep an average time to solve the problem at 10 minutes. The results in a block of transactions being added to, or confirmed on, the blockchain every 10 minutes.

A chart displaying the ever-increasing difficulty level set in Bitcoin. The difficulty level is the expected number of attempts required to solve the problem. It reached 2.5 trillion in 2018, 10 trillion in 2019, and exceeded 15 trillion in early 2020, reaching 16,552,923,967,337.23.
Bitcoin's difficulty level is almost always on an upward trend


The solving of the problem triggers the awarding of new Bitcoins to the successful miner. All Bitcoins are created and distributed in this way. Mining is akin to the European Central Bank printing and issuing new Euros.

A portrait painting of Thomas Paine and a quote of his: 'If anything had or could have a value equal to gold and silver, it would require no tender law.'
Thomas Paine wrote a blistering attack on paper money


It is set in the Bitcoin system to halve the amount of Bitcoin awarded for adding a new block to the chain every 210,000 blocks. When Bitcoin started in 2009, the reward for adding a block to the chain was 50 Bitcoins. The first halving, down to 25, occurred on the 28th of November 2012. The second halving, down to 12.5, occurred on the 9th of July 2016. The third halving, down to 6.25 Bitcoins, is expected to occur in May 2020.

Bitcoin inflation chart from 2009 to 2020 with inflation peaking at 175% in January 2011 and declining ever since to reach 3.83% in 2020.
Bitcoin inflation is set to fall below the European Central Bank target of 2% after the 2020 halving


There is a preset limit of 21 million Bitcoins coded into the Bitcoin software. This limit is due to be reached in the year 2140. At this point, no more new Bitcoins are created and awarded for adding a new block to the chain.

There is a finite amount of Bitcoin, 21 million. 18 million will be minted by 2020.
The supply and inflation rate of Bitcoin is predictable


Fees can, and typically should be added in each Bitcoin transaction. Wallet apps add the appropriate fee to the transaction automatically. The required fee can vary dramatically. However, the average transaction fee is generally less than €1. The fees are added to the reward for mining a block. When Bitcoin reaches its limit in the year 2140, these fees are the only reward for mining a block.

Bitcoin fees are set in satoshis.
Bitcoin fees in satoshis per data byte

Mining Pools

When the Bitcoin blockchain started in January 2009, there were not many miners mining Bitcoin. A typical home pc could have run the Bitcoin Core software and have a reasonable chance of mining a block. However, before the end of 2010, miners were grumbling about mining for weeks without reward.

Thus begins the creation of mining pools where miners combine their computing power. The larger group has more chance of mining a block. Any Bitcoin awarded is split amongst the group, relative to the computing power they provided. The owners of the mining pool take a fee of about 5% from each reward.

A pie chart of mining pool computing power distribution dated April 2020. China-USA-EU based are on top with 18.5% of total bitcoin network hashing power. China-USA based are 2nd with 15.9%. China-Singapore based are 3rd with 14.2%. China based are 4th with 11.4%. China based are 5th with 6.3%. China based are 6th with 6.2%. China based are 7th with 6.1%. Czech Republic based slushpool are 8th with 5.2%. The remaining 16.1% is for all other miners.
April 2020 - Distribution of computing power of the top mining pools


The computing hardware used to mine Bitcoin is continuously evolving as miners seek to gain an edge on each other. In a forum post made in December 2009, Satoshi asked for there to be a "gentleman's agreement to postpone the GPU arms race as long as we can for the good of the network".

ArtForz may have been the first to break this agreement with his Graphics Processing Unit (GPU) mining setup in 2010. By 2013, academia were discussing the creation of bespoke hardware, known as Application-Specific Integrated Circuit (ASIC), for mining Bitcoin. A popular ASIC such as the Ant Miner S9 costs about €100.

The inside of a Bitcoin mining farm in Sainte Haycinthe, Quebec.
A Bitcoin Mining Farm in Sainte-Hyacinthe, Quebec


After the cost of the equipment, it is the cost of electricity that determines if Bitcoin mining is profitable. At a rate of €0.15 per kiloWatt/hour (kWh), and a market value of €7,500 per Bitcoin, 100 Ant Miner S9’s could mine circa €50,000 worth of Bitcoin, but would have run up an electric bill of €150,000.

Jurisdictions like Quebec, with residential rates as low as €0.05 per kWh and industrial rates as low as €0.01 per kWh, are particularly appealing to Bitcoin miners. Quebec's Energy Board has a love/hate relationship with Bitcoin miners. Over the past decade, they have welcomed, rejected and most recently conditionally allowed Bitcoin miners access to their energy surplus.

In 2020, the Bitcoin mining network is using an estimated circa 75 TeraWattHours of electricity annually. ANNUAL Bitcoin mining  FOOTPRINT; Carbon Footprint: 34.64 Mt CO2. Comparable to the carbon footprint of Denmark. Electrical Energy: 72.94 TWh. Comparable to the power consumption of Austria. Single Transaction mining FOOTPRINT; Carbon Footprint: 344.93 kg CO2. Equivalent to the carbon footprint of 862,321 VISA transactions or 57,488 hours of watching YouTube. Electrical Energy: 726.16 kWh. Equivalent to the power consumption of an average U.S. household over 24.54 days.
The estimated footprint of the Bitcoin mining network
Source: (


Bitcoin uses hashing to maintain the integrity of its blockchain. Hashing is a computer algorithm that can generate unique and fixed-length output, known as a hash value, from any amount of input. There are many types of hashing algorithms. The one used by Bitcoin is called SHA-256. It produces output that is 64 characters in length, and you can try it here.

Input1: 'A woman without her man is nothing.' Output1: 'e5bd4039185b81d6d6865f2c44dcf9eaf5b419a13f32af662b23cd946cfd5187'. Input2: 'A woman: without her, man is nothing.' Output2: '3b34251ce2ee674f6731bbf7c154f44ba8b94358215a1e8014167be1dee7ce9e'.
Secure Hash Algorithm (SHA-256) - Input and Output Examples


Hashing is a superb tool for verifying the integrity of data. The outputted hash value is the unique signature of the inputted data. If even a single character of the input is changed, the outputted hash value is entirely different.

The Linux Mint OS download page. It offers download mirrors from all over the world as well as a reminder and a link to verify the downloaded ISO where they provide a digitally signed hash value of the ISO.
Hash values allow the verification of the authenticity of online downloads


The Bitcoin mining process is running the SHA256 hashing algorithm repeatedly. The problem that the Bitcoin Core software creates for the miners is to be the first to create an output hash value that starts with a certain amount of zeros. The input data for the hash algorithm is the entire Bitcoin blockchain, plus a new block of transactions.

Bitcoin started with a target of 8 leading zeros, e.g. 00000000839a8e6886ab5951d76f411475428afc90947ee320161bbf18eb6048. Today it requires 19 leading zeros, e.g. 0000000000000000000197a93a0af835ec72bad8d5b4808391b781e5cb95aef0.
Difficulty rises when mining power increases


To produce different output for each hash, a number, known as a nonce, is added to each block. The number can range from 0 to 4,294,967,295. There are various techniques for attempting to solve the problem. Still, essentially it's just a brute force attempt trying one nonce value at a time. Miners have other ways, such as picking different transactions, for adjusting their input block.

The definitions of 'nonce'. '1. the one, particular, or present occasion, purpose, or use, e.g. for the nonce. 2. occurring, used, or made only once or for a special occasion, e.g. a nonce word.
A dictionary definition of nonce

Longest Chain

When a miner adds a new block to the blockchain, it broadcasts its new, more extended version of the blockchain, over the Bitcoin network. Coded into the rules of Bitcoin is that miners must accept the longest chain as the one true copy of the Bitcoin blockchain.

Simply showing logos of f2pool and slushpool each with a chain representing the blockchain. slushpool have a longer chain, thus they have the true copy of the blockchain.
Longest chain wins


The Bitcoin blockchain is said to be immutable, meaning that it's a permanent, un-editable transaction store. Transactions that are in the most recently added blocks are susceptible to being reversed in what's known as a 51% attack. Even with a 51% attack, transactions become theoretically impossible to reverse as soon as 3 or 4 more blocks are chained.

Bitcoin block #416236, Timestamp: 2016-06-14 07:50, Coinbase data: /HaoBTC/Sun Chun Yu: Zhuang Yuan, will you marry me?,
Marriage may not always be immutable but this proposal written into Bitcoin block 416236 is

51% Attack

The Bitcoin blockchain is reliant on the majority of miners being honest. If a mining pool gained more than 50% of the total hashing power, they could take control of the blockchain for several blocks in a row. A rogue miner could work on two versions of the blockchain at once.

In version A, they could have a particular transaction and broadcast it to the network. If the receiver is hasty, they may see that they have received the Bitcoins at their address in the most recent block on the chain. The rogue miner could then push another version B, without that particular transaction. The rogue miner needs to add another block to version B before another miner can add one to version A (containing the transaction they want reversing).

However, it would soon become apparent, after just 1 or 2 blocks, that a group of miners are rogue. The rest of the network could just ignore them, and their efforts may not have been worth the considerable effort and cost involved.

A rogue miner is working on two chains at one time aiming to publish a transaction on one chain and not include it on the second chain.
A rogue miner working on two chains at one time

Full Node

Bitcoin offers software, known as full node, that validates transactions and blocks. Its purpose is to allow anyone to be able to verify for themselves the Bitcoin blockchain. It supports the integrity of the network and assists in the relaying of transactions and blocks to others on the Bitcoin network.

It takes a reasonable amount of network bandwidth to run the software. It downloads the full Bitcoin blockchain at first, which is currently over 250GB. According to, you can expect to upload 200GB and download 20GB each month. Running this software is known as running a full node.

A graph showing the increase in size of the Bitcoin blockchain from 2009 to 2020 where it execeeds 250GB. It indciates that it reached 50GB in 2015, 100GB in 2016, 200GB in 2018 and 250GB in 2019.
The ever increasing Bitcoin blockchain in GigaBytes

Block Size

There is much debate over Bitcoins 1MB block size. Given the average block time of 10 minutes and a maximum of circa 3,500 transactions, the Bitcoin network can process circa 10 transactions per second. Paypal processed 450 payments per second on Cyber Monday in 2015. Visa state that they average 1,667 transactions per second and are capable of handling 56,000 transactions per second.

Some in the Bitcoin community want larger blocks for higher transactions per second so that Bitcoin can be a daily use currency like euros. Others want the block size to remain as is as they prefer to see Bitcoin as a store of value like gold.

3 cubes in 3 sizes.
The block size debate has divided the Bitcoin community


Software releases occur in versions with new features added or broken features fixed in each new version. Since Bitcoin is open-source software, the code from each version of its release is available to the public. Permission is granted to take any version as a basis for another cryptocurrency or blockchain application in a process known as (software) forking.

Litecoin started as a fork of the Bitcoin code in 2011. Litecoin reduced the block time down to 2.5 minutes compared to 10 minutes for Bitcoin. Litecoin has a max supply of 84 million coins compared to 21 million for Bitcoin. Litecoin uses a different hashing algorithm, scrypt, compared to SHA256 used by Bitcoin.

Bitcoin continues releasing versions as Litecoin goes on its release path.
In October 2011, Litecoin released after being forked from Bitcoin (Core)


In 2017, in an attempt to resolve the Bitcoin block size debate, a fork was made of the Bitcoin software that increased the block size from 1MB to 8MB. A split occurred in the mining community. Most ignored the forked version and continued to use the version of Bitcoin with 1MB blocks. However, some miners did use the 8MB version of the software, thus creating another version of Bitcoin that would be known as Bitcoin Cash. In 2018, due to further disputes within the Bitcoin Cash mining community, a fork of Bitcoin Cash was created that would be known as Bitcoin SV (Satoshi Vision).

A fork-in-the-road sign representing the split, or forking of, Bitcoin Cash from Bitcoin (Core).
In August 2017, Bitcoin Cash implemented 8MB blocks

Air Drops

These forks give a bonus, known as an airdrop, to holders of the coin that forked. If you had a certain number of Bitcoin when Bitcoin Cash was forked, you would have the same number of Bitcoin Cash. The same as when Bitcoin SV forked from Bitcoin Cash, you would have the same number of coins on the new Bitcoin SV blockchain.

Cryptocurrencies being parachuted to the ground after being dropped from a plane. Three are shown; NEM, Bitcoin Cash and Stellar Lumens.
Stellar Lumens, NEM and Bitcoin Cash started as 'free' airdrops


A cryptocurrency exchange is a platform to convert between euros and cryptocurrencies, or between cryptocurrencies. Exchanges are many peoples route into cryptocurrencies, but there are security concerns. There are hacks, scams and bankruptcies aplenty to be found in the decade long history of cryptocurrency exchanges.

Logos of 3 cryptocurrency exchanges, Coinbase, Binance and Kraken.
Coinbase and Kraken comply with Anti-Money-Laundering and Know-Your-Customer regulations
Binance is becoming more compliant

Smart Contracts

In 2015, Vitalik Buterin, a Russian-Canadian programmer launched a programmable version of a blockchain called Ethereum. Ethereum is a platform for running decentralised and autonomous applications (DApps) or organisations (DAO). Rules, known as smart contracts, set out in computer code, govern these apps or organisations. The Ethereum blockchain has its native cryptocurrency called Ether (ETH). Ethereum also facilitates the creation of crypto tokens.

Photo of Vitalik Buterin (wearing a tshirt with unicorn llamas, spaceships and a rainbow).
Vitalik Buterin co-founder of Ethereum and co-founder of Bitcoin Magazine


Crypto tokens are a type of cryptocurrency but often represent an asset such as points in a loyalty program or shares in an organisation. The creators of Firefox created the Basic Attention Token with aims to "radically improve the efficiency of digital advertising".

Basic Attention Token. Its logo is a triangle. One side represents users (who are abused), one publishers (who are hurting) and one advertisers (who are losing). Up to 50% of the average user’s mobile data is for ads and trackers. Google and Facebook take 50% of world-wide digital ad spend. Advertisers lack good information on what they are paying for.
BAT claim that intermediaries, trackers and fraud overrun digital advertising


Decentralised Applications (DApps) are applications that run on a blockchain and meet particular criteria. The most important one is that it must be open-source so that anyone can look at the code and be able to verify what the code does. One of the first DApps was a Tamagotchi-like game called CryptoKitties. Within days of launch, CryptoKitties were trading at values exceeding €100,000.

Screenshot of the 8 highest priced CryptoKitties for sale. 5 are priced at over $1,000,000, 2 at over $100,000 and the 8th one is $75,000.
CryptoKitties for sale


This seemingly innocuous game CryptoKitties demonstrated a superbly powerful and useful feature of blockchain coupled with smart contracts, a Non-Fungible Token (NFT). A non-fungible token represents ownership of digital assets which cannot be modified. It allows the possibility for creating digital assets, such an image, an ebook, or a CryptoKitty, and assert the number of valid copies that exist and who owns them.

Nike has filed a patent application for using this method to create digital assets linked to copies of actual physical shoes sold.

Nike filed a blockchain patent to create digital versions of its shoes to help 'users verify the authenticity of the shoes they are purchasing, among other benefits'.
Nike took inspiration from CryptoKitties


A Decentralised Autonomous Organisation (DAO) is an organisation that is governed by transparent rules set in computer code rather than humans. Bitcoin eliminates the need for a central bank to issue currency or a commercial bank to validate an online transaction. Ethereum brings much more possibilities for the elimination of third-parties and human intervention in online interactions and transactions.

Steem is a social blockchain that grows communities and makes immediate revenue streams possible for users by rewarding them for sharing content.
STEEM offer platforms for blogging, video and gaming
BitcoinCryptocurrencyBlockchainSmart Contract

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