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What is Bitcoin and why it could be a valuable alternative to our usual currencies such as dollars and euros?



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<h2 class="wp-block-heading">Bitcoin and bitcoin</h2>



Bitcoin is both the blockchain and the cryptocurrency that exists on it. To distinguish the two, Bitcoin as the blockchain is usually written with a capital B. 



The basis of the technology were first outlined in Satoshi Nakamoto's (pseudonyme) <a href="https://d.center/en/explore/bitcoin-a-peer-to-peer-electronic-cash-system" class="ek-link">White Paper</a> published in 2008 and titled "A Peer-to-Peer Electronic Cash System". 



It was not the first try to create a digital currency, but it was the first to succeed in solving all the intricate problems that led to previous attempts’ failures. Satoshi Nakamoto exploited decades of research, in particular in the fields of cryptography and distributed systems, and brilliantly brought them together to create a fast, secure, independent, and borderless digital money.



<h3 class="wp-block-heading">Bitcoin consists of:</h3>



<ul>
<li>Bitcoin protocol - a set of rules and algorithms that enable bitcoin issuance and transactions validation via&nbsp;network consensus (a way to ensure that network participants are well-intentioned and will update transactions ledger fairly; Bitcoin consensus is called a <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a>)</li>



<li>decentralized <a href="https://d.center/explore/p2p-network" class="ek-link">peer-to-peer network</a><a href="https://d.center/explore/p2p-network" class="ek-link"> </a>to run the Bitcoin protocol. Without any central server, a P2P network is composed of computers with equal rights that verify transactions and, if they wish, participate in bitcoin issuance and transactions’ recording.</li>
</ul>



Running the Bitcoin protocol results in a public distributed ledger called the blockchain, where all the transactions are stored. Everyone can consult the blockchain and its transactions from the Genesis block up to now.



Bitcoins are issued according to the protocol as a reward for maintaining the network, and their transfer is carried out&nbsp; without intermediaries and centralized authorities. This means that, unlike [tooltip content=" fiduciary money with no intrinsic value backed by and dependent on the government (e.g. dollars or euros) "] fiat [/tooltip] currencies, Bitcoin does not depend on the government or banks to issue money or to settle and validate transactions. 



The only thing that gives control over bitcoins is the private key associated with every Bitcoin address and available exlusively to its owner.



<h2 class="wp-block-heading">Bitcoin alternative to fiat money</h2>



Store of value. No single entity could ever change Bitcoin code: it is stored and run on the network nodes - literally thousands of independent computers all over the world. This ensures that the code is law, and the rules embedded into code won’t change unless the majority of the network decides so. 



This stability is particularly important when it comes to the emission rules: bitcoin emission rate is predefined, with the supply divided by two every 4 years, meaning that there won’t ever be more than 21 million bitcoins. In the world where Central Banks can print as much fiat money as they wish, Bitcoin represents a remarkable store of value.



Free use. Bitcoin is also public and open source, allowing anyone to join, participate or use it. Anyone can open a Bitcoin wallet and send/receive bitcoins, without any approval from whatever organization. 



This is a significant improvement compared to the red tape of the banking system, not to mention a precious access to the world's finance for the unbanked. Furthermore, in the authoritarian countries where access to money is often used as a tool of repression, Bitcoin’s accessibility is vital. 



<h2 class="wp-block-heading">Bitcoin updates and developments</h2>



The rules that define Bitcoin protocol were first introduced by Satoshi Nakamoto, but as every computer program, they have to be regularly revised and updated, in order to reinforce the protocol security and introduce new functionalities. The way such updates are agreed upon is usually referred to as the <a href="https://d.center/explore/bitcoin-governance" class="ek-link">governance</a>, and in Bitcoin case its community plays a critical role.&nbsp;



Beyond the Bitcoin protocol itself, there have been numerous developments of the so-called layer 2, allowing&nbsp; to execute transactions off the mainchain. Such solutions usually aim to improve Bitcoin’s performance or introduce new functionalities.



Bitcoin's most popular layer-2 solution is Lightning Network, which increases dramatically its transaciton throughput and decreases network fees.

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Bitcoin is an assembly of&nbsp; technologies and principles that interact in a predefined manner, securing the whole system performance.&nbsp;So how does it work? 



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<a href="https://d.center/explore/keys-and-addresses" class="ek-link">Keys and addresses</a>. Bitcoin is a decentralized system without any trusted third party, which means that no one can dispose of coins except for their rightful owner. Such feature necessitates extensive security measures, and Bitcoin ensures them using a system of cryptographic keys and addresses. 



<a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Wallets</a><a href="https://d.center/explore/bitcoin-wallets" class="ek-link"> </a>are programs capable of communicating with the Bitcoin network. They generate keys and addresses that allow sending and receiving bitcoins, and can reconstitute the bitcoin balance of a particular account by researching the blockchain. 



<a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Transactions </a>are generated and sent by wallets. Bitcoin transactions have a simple structure called UTXO, and a limited coding language script, which ensure the system’s robustness. 



<a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> enjoys a Peer-to-Peer, or <a href="https://d.center/explore/p2p-network" class="ek-link">P2P</a>, architecture - its nodes communicate with each other without any central server. Network nodes run Bitcoin protocol to verify if a transaction is valid (the sender has enough coins on their account and their signatures are correct) and if a candidate block (set of confirmed transactions) sent by a miner is OK, then propagate them to the network. 



<a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Consensus </a>is needed in order to determine which node will add the next block to the blockchain and to guarantee that this block is not fraudulent. Bitcoin utilizes <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, where nodes need to find a solution to a cryptographic problem, which necessitates a big amount of electricity and specific equipment. As a reward for such work a node gets to add a block and receives newly created bitcoins. Such “bitcoin extraction” activity is called mining and the nodes engaging in it - miners. Mining is the only way to create new bitcoins.



 The node who finds a PoW solution first broadcasts a new block to the network, where, if the block is validated by the network, other nodes start working on the following blocks. Each block having a cryptographic reference to the previous one, a <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">blockchain </a>is being formed.

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Bitcoin network is based on a peer-to-peer (P2P) architecture and anyone can join it as a full node, a miner or an SPV wallet. 



A P2P network is a distributed IT network, where computers communicate directly without any central server. P2P means that computers are peers and have the same rights and functions, being both clients and servers. P2P network nodes communicate thanks to the specific program, somewhat erroneously called the “client”. The most used Bitcoin client is called Bitcoin Core. 



P2P architecture is fundamental for Bitcoin - an open network allowing anyone who has downloaded the protocol to join it and fulfill the same functions as the other members. In the absence of a central authority and with a big amount of nodes all capable of accomplishing essential tasks (and also evolving in a dynamic way) it is pretty hard to apply any censorship to the network, which makes Bitcoin a truly independent cryptoasset. 



<h2>Network nodes: full nodes, miners and SPV wallets </h2>



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The heart of the Bitcoin network is composed of full nodes - the nodes who stock the entire blockchain and are therefore capable of individually verifying transactions and blocks, in order to pass them on to the rest of the network. 



The miners and the SPV wallets connect to the full nodes. Miners need it to get the latest state of the blockchain (blocks and transactions) that will allow them to compete in finding the <a href="https://d.center/explore/proof-of-work" class="ek-link">PoW </a>and eventually submit their candidate block to the network for verification (see <a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Bitcoin consensus and mining</a>). 



SPV wallets are lightweight wallets that do not stock the entire blockchain, but only block headers, which means that they have to connect to the full nodes in order to be able to function (see <a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Bitcoin wallets</a>). If they wish to, a full node can integrate a wallet feature without the help of other nodes, and a miner can have his own full node to access the blockchain. 



In order to integrate the network a new full node must contact an already active full node and download the blockchain. Once a full node joins the network, it will validate and transmit blocks and transactions. An SPV wallet also must connect to the network in order to send and receive transactions relative to the addresses it controls, but it will only download block headers (see <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">Bitcoin blockchain</a>).