What is Bitcoin?
Bitcoin, with a capital “B”, is an internet-wide distributed ledger, or blockchain, that records the ownership of all bitcoin (lowercase “b”). Bitcoin with a lowercase “b” is a digital currency that is exchanged between two parties with no pre-existing trust.
What are the origins of Bitcoin?
Unless you have spent the time studying Bitcoin, it may appear as if it emerged out of thin air. In reality, it is the result of several incremental technological innovations built on top of one another over several decades.
There have been a number of attempts to create digital money. DigiCash, started in 1989 by David Chaum, was the earliest known attempt — a payments system using a virtual currency called Ecash. The main problem was that it was hard to persuade banks and merchants to adopt it. Without merchants on board, there was no way to bootstrap the network.
Bit Gold (circa 1998) was another noteworthy attempt at creating scarce digital money. Nick Szabo set out to create a protocol “whereby unforgeable costly bits could be created online with minimal dependence on trusted third parties.” The premise was based on the fact that “precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation.” Ultimately, the Bit Gold consensus mechanism fell short because it would be inexpensive for a bad actor to create a large number of nodes and tamper with the property registry.
B-Money conceptualized an “anonymous, distributed electronic cash system.” While it was never developed beyond the whitepaper stage, it included a number of concepts — distributed ledger, digital signing of transactions, creation of money via proof of work — that eventually made their way into Bitcoin.
Hashcash was a late-90s project aimed at limiting email spam that greatly influenced Bitcoin. It required a sender to generate a token by solving a proof-of-work puzzle — like a postage stamp. For a regular user, the cost would be negligible, but for a spammer, generating tokens in bulk would be prohibitively expensive. Hashcash demonstrated that digital scarcity could be created in the face of abundance.
The Bitcoin white paper was published in 2008. The network launched in January 2009. Bitcoin successfully created a digital currency that operates in a fully decentralized, trustless manner — allowing users to send monetary value to each other through the internet without the need for trusted financial intermediaries.