What is Bitcoin

Bitcoin is actually the name given to a digital currency system that was invented by Satoshi Nakamoto, who published his invention under a pseudonym. He released the first version of the software in 2008, and then released a paper explaining the details of the design (the genesis block) later that year. Nakamoto programmed the system so that no single entity controls the supply of bitcoins; instead, any time a user requests coins, one is issued to him at a rate of about three per second. In June 2009, the release of the paper announcing the cryptocurrency was met with significant interest among technologists, libertarians, investors, entrepreneurs, academics, central bankers, and politicians. Because the network requires minimal structure to verify transactions, it is not controlled by any centralized authority and therefore its users are free to voluntarily associate themselves with each other. By January 2010, several people had written programs that allow users to check whether bitcoin addresses have received payments. These checking programs are often referred to as "block explorers".

Bitcoin uses peer-to-peer technology to facilitate instant payment transfers through the use of distributed computing power. Bitcoins are created as a reward for a process known as mining. To create a block of transaction data and append it to the blockchain, miners compete to solve a computationally difficult puzzle. This puzzle is based on an algorithm called Proof of Work and is shared among all participants in the bitcoin network. Once a miner has solved the puzzle, he or she receives a small amount of bitcoins as compensation. Every 10 minutes, or once every 4 years, the rate of issuance drops by half, reducing the total number of bitcoins that will ever be produced. As the mining difficulty increases over time, the average time between blocks decreases. As of April 2016, the mining rate is about 1 block every ten minutes. About 21 million bitcoins will be generated.

Transactions are verified by network nodes through cryptography, making each node virtually certain of the validity of each transaction. All transactions are recorded permanently on the blockchain, which acts as a distributed ledger. A copy of the entire blockchain resides on every computer running bitcoin software.

Each transaction carries a unique reference number associated with it called the Transaction ID. This identifier is derived from the hash of the current block's Merkle root, a tree constructed using hashes of hashes, where each internal hash points back to the previous block. Given enough merges, it would take an attacker an impractically long time to produce two separate merkle roots with identical hashes. Thus, given enough time, finding a second valid merkle root would prove that the blockchain had been altered.

The block header includes various fields for storing relevant information. Among these fields is the coinbase field, which indicates who paid for the creation of a particular block. Additionally, every block contains a link to the previous block, forming a chain of blocks. Such a chain of blocks forms