A simplified breakdown of Bitcoin. This article is for anyone struggling to understand Bitcoin and decentralized ledger technology. Bitcoin creator Satoshi Nakamoto gave to the world Bitcoin, and it is the most exciting, and could be one of the biggest innovations in history. Everybody should get to know it.

1. Bitcoin Layman’s Terms by Tommy Limpitlaw
Bitcoin can seem a little daunting if you attempt to understand it. For the average
person, trying to make sense of the Bitcoin whitepaper isn’t easy, and isn't even
necessary.
Some say it’s just as difficult, and at times worrying, to use as to understand, but for
those who would like a general idea of how it works, this post unravels the
technicalities and utilities of Bitcoin and helps digest the most exciting innovation of
the century.
What is Bitcoin and Where Does It Come From?
In short, Bitcoin is the soundest, hard money ever created. It is an open-source,
decentralised, independent of any central authority, peer-to-peer, trustless,
immutable, cryptographically secure, payment network and public ledger.
The underlying technology is now known as a blockchain, which is a digital chain of
blocks, each connected to the previous one. The blocks store every single transaction,
and a new block is added to the chain roughly every 10 minutes.
Each bitcoin 1.00000000 is divisible by one hundred million, and each of these units
0.00000001 is known as a satoshi. The bitcoins are a reward paid out to people who
use their computing power to mine the blocks that make up the blockchain. A lot to
digest? Let me explain.
Who Created Bitcoin?
Bitcoin was created by pseudonymous software engineer, Satoshi Nakamoto, who
authored the Bitcoin whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System.
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2. Bitcoin Layman’s Terms by Tommy Limpitlaw
It was published on 31st October 2008, and Bitcoin itself was launched on 3rd January
2009.
Satoshi mined the first block, known as the genesis block, and a reference to the
ongoing banking and financial crisis was embedded into it:
‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks’ was the
headlines of British newspaper The Times that day, and it’s thought that Satoshi
embodied it into the genesis block as a timestamp and as a reminder for the necessity
of a decentralized money like Bitcoin.
The first transaction on Bitcoin was on 12th January 2009, when Satoshi sent 10
bitcoins to Cypherpunk Hal Finney.
Finney was a known cryptographer, who had been involved in several past attempts
to create a digital currency. After receiving the bitcoins, Finney decided to start mining
them on his computer, but was put off after a short while due the heat his computer
was generating. Something, he says, he regretted at a later date.
How Does Bitcoin Work?
Bitcoin is an open-source distributed software network. This means it’s
collaboratively developed, all code is open and shared freely so any person can audit it
and build on it.
Nobody owns it, it’s not a company, it’s a transparent network that’s openly auditable,
and the blockhain is basically an immutable, secure, and distributed public ledger.
The fundamental infrastructure of Bitcoin is a network of thousands of globally
distributed full nodes, and many more miners.
A full node is a hardware storage device that has the Bitcoin Protocol downloaded
onto it. Every full node has the entire blockchain installed and running on it, and their
job is to validate every block that the miners send. Once they come to agreement, the
new block is added to the chain.
Miners can be a single person, a mining company (mining farm), or thousands of
people mining together (a mining pool). Miners are the ones who use their powerful
computing power to help validate the transactions, by hashing them and sending them
to nodes to seek confirmation that the sender has enough bitcoins or satoshis to send.
*For a guide on mining Bitcoin please, click here…
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3. Bitcoin Layman’s Terms by Tommy Limpitlaw
Once nodes have confirmed this, the miners pick up the transaction and add it to the
newest group of transactions. They then shrink the transactions into a cryptographic
hash of 256 bits, which is what is known as the block.
The block is then sent back to the network of full nodes, which then have to come to
consensus that all transactions are the same in every block. Once the full nodes are in
agreement, the block is added to the blockchain and a block reward is sent to the
miners. This process is known as Proof of Work (PoW) consensus mechanism.
The block reward is the creation of newly minted bitcoins for every block added to the
blockchain. At time of writing, the block reward is 12.5 bitcoins, which is added to the
total bitcoins in circulation.
After every 210,000 blocks (about four years) the block reward is halved. This event is
known as the Halving, or ‘Halvening’, and is predetermined and will continue until the
last fraction of Bitcoin is mined in around 2140.
There have been two halvenings previously and the minting rate went from the original
block reward of 50 to 25, and then it was cut to 12.5 at the last halvening. The next
halvening will take place around 20th May and the block reward will then be 6.25. The
miners are also rewarded with transaction costs.
How Secure is Bitcoin?
The encrypted blockchain that is distributed globally on the network of nodes ensures
that Bitcoin is the most secure network ever created.
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4. Bitcoin Layman’s Terms by Tommy Limpitlaw
The Bitcoin network and protocol uses the most secure hashing algorithm, SHA_256,
to secure its encrypted blocks. And as long as 51% of nodes are in agreement there
can be no rogue block or even transaction on the chain.
If somebody tries to manually corrupt the transactions their node’s version of the
blockchain will not align with the public version and it will be refused part of the
public chain.
If say, 51% of the nodes agree that their version is correct, but the other 49%
disagree, the 51% remains as the Bitcoin blockchain, and the 49% will form another
chain. This is known as a hardfork, and has happened before, but not with 49% of the
network.
In the past, a small percentage of miners decided to create their own version of Bitcoin
and so we now have other versions such as Bitcoin Cash and Bitcoin Gold. So, if you’re
new to Bitcoin and want to buy some, make sure you buy only BTC!
Can Bitcoin be Hacked?
The decentralized nature of Bitcoin means that there is no central server to attack.
This is a problem all centralized databases such as Google, JP Morgan and even the
Pentagon have suffered from in the past.
To hack Bitcoin you need to take control of 51% of the network, which is distributed
on thousands of computers dotted around the world.
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5. Bitcoin Layman’s Terms by Tommy Limpitlaw
While nothing is ‘unhackable’, it can be said with near certainty, that ever since Bitcoin
came into the public realm cyber criminals of all levels from single persons to nation-
state hackers have tried and are continuously trying to hack Bitcoin.
It is technically possible to take control of the blockchain. But to do this it would need
a conglomerate of nodes (billions of dollars of computing power) to even have a
chance of seizing control of 51% of the network. Even then, due to the extremely high
costs and low probability, it’s unlikely that anybody would attempt this.
And as more people get into Bitcoin and start mining or running their own full node,
the more secure the Bitcoin Network will become.
How to Buy Bitcoin?
Bitcoin is a peer-to-peer network, and anyone wanting to buy Bitcoin will buy from
anyone wanting to sell it. The easiest place to do this is by sending money to a
centralized exchange, such as Coinbase, Binance or Kraken.
There you can buy satoshis or bitcoins if you have enough money. On these exchanges,
you’ll have a wallet interface, which shows how many you have. You will also be given
a public key in these wallets, which is connected to the address you want anybody to
send them to. You can add and withdraw from this address as much as you like.
The owner of any bitcoin has an address with a public and private key, which are
randomly generated alphanumerical strings.
The public key is as it states: public. The user will give this to any person who wants to
send them some bitcoins or satoshis. There is no third party involved and no trust is
needed. The sender will send an amount of Bitcoin to the receiver and the miners,
nodes and Bitcoin protocol will do the rest.
Once a transaction is verified and added to the blockchain, it cannot be reversed, and
as long as the user sends it to the correct address, the bitcoins cannot go astray. There
is no need for a middleman or even trust, maths and a decentralised network takes
care of everything.
A private key, like the public key, is a string of letters and numbers, but private means
private. There is a saying in the Bitcoin world’: ‘Not your keys, not your Bitcoin.’ This
means, if you don’t have sole ownership of the private keys, you do not own the
Bitcoin.
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6. Bitcoin Layman’s Terms by Tommy Limpitlaw
Basically the private key is the combination to your Bitcoin bank vault. It’s utterly
important that you don’t share these with anyone. If you do, they will technically have
as much right to the bitcoins in that address as you do.
And don’t lose your private key either, because if you lose it, you will have no chance
of ever getting your Bitcoin back, even if you have the public key.
Where to Keep Bitcoins?
You can “store” your bitcoins in a hardware or software digital wallet. I say store, but
technically this isn’t right. Bitcoins never leave the blockchain, and your private key is
the all-important key to your bitcoins, but using a digital wallet does make life easier
for the average user.
A digital wallet is basically an interface that makes Bitcoin easier to use, and can be
either software or hardware. You will have a password for the wallet and a backup
seed phrase if you ever forget your password. But wallets are centralized and that
weakens the security a bit. But they are relatively safe and are the best bet for the
average user, as long as you don’t fall for rogue phishing attempts.
You can also store your bitcoins on a Crypto exchange, although this isn’t advised.
There are a good few respected exchanges, but they are centralised and more
susceptible to being hacked.
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7. Bitcoin Layman’s Terms by Tommy Limpitlaw
There have been a few cases, Mt. Gox being the most infamous exchange hack, and
people holding their bitcoins on the exchange lost them all. There have been a few
other hacks, including Binance, but the exchange covered the losses of over $40m and
made sure all customers who lost their bitcoins, were fully refunded.
Probably, the safest way to store your private keys is to write it down a few times on
separate pieces of paper, and store it in a few different locations like a safety deposit
box, your mum’s attic, and maybe one under your floorboards. This doesn’t make your
bitcoins as accessible as a digital wallet, so is probably only recommended for those
wanting to hold Bitcoin for the long term.
If your memory is strong and you’re confident you can memorize your private keys,
you can also store it in your brain. This is without doubt the safest way to store them,
but remembering a hexadecimal number is a challenge for most people, and one I
wouldn’t contemplate.
Wherever you choose to store them, always be safe and cover all bases, and remember
to never share your private keys, ever.
Bitcoin - The Most Transformative Innovation in History?
Bitcoin is the most secure network ever created, it’s a distributed, immutable, public
ledger that takes the need for a middleman away. You don’t need to trust anybody
because every transaction is secured by code, maths and a distributed network that
powers the most secure hashing algorithm ever created.
Bitcoin is not a company or owned by any central entity. It’s a network and it’s owned
by whoever wants to participate in it. It doesn’t have a marketing team promoting it, it
promotes itself.
It is 11 years old, but it is still in its infancy. The possibilities it brings to the world are
endless. Bitcoin is here to stay and disrupt, and it could quite easily become the most
transformative technology ever.
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