Introduction to Crypto

Basic Information

1. Limited Supply/Scarcity - There will only ever be 21 million Bitcoins. If there were only 21 million USD or GBP then how much would each unit be worth. This prevents institutions like governments and banks from printing new money and deflating the value of each unit. The rate that Bitcoins are mined is algorithmically tied to be similar to the rate we dig gold out of the earth.
2. Bitcoin uses something called Blockchain technology, a large component of this is a public ledger making all wallets and transactions visible, preventing double spending.
3. Bitcoin is not anonymous, but it is pseudonymous. Each wallet is just a series of numbers and letters and you can create as many wallet addresses as you want. However, if you attach your name to an address in a public place then you create a link that removes any anonymity.
4. Bitcoin and most other cryptocurrencies consist of 8 decimal places, as opposed the 2 decimal places which we are used to with fiat currency, 100c = $1. In Bitcoin 100,000,000 (1 hundred million) Satoshi's make up 1BTC.
5. Cryptocurrencies are mostly decentralized (with the exception of a few such as Ripple). Instead of banks processing transactions and taking fees (centralized) miners get paid their share of the reward for mining transactions. This is the purpose of Bitcoin mining and PoW (Proof of Work) in the cryptocurrency ecosystem. Miners secure the network by providing decentralized computer power that makes it difficult to hack or bring down whilst also processing transactions on the blockchain.
6. Bitcoin has only ever had one security flaw and that happened in 2010 in the first two years and since it was fixed via a fork there have been no other incidents.

Who Created Bitcoin?

Nobody knows for sure but many have speculated over the years. All we have is a name, that name is "Satoshi Nakamoto" and this person or group of people wrote a whitepaper titled "Bitcoin: a Peer-to-Peer Electronic Cash System that was published on the 31st of October 2008 and the domain name bitcoin.org had been registered on the 18th of August 2008.

The whitepaper was initially shared out to a cryptography mailing list that just happened to have some of the most important cypherpunks as regular readers and contributors as a way to get general feedback from the community.

What are cypherpunks you ask? I will hand this one over to the brilliant Jameson Lopp who penned a fantastic article Bitcoin and the Rise of the Cypherpunks to explain the backstory behind the cypherpunk movement and crypto-anarchists.

On January the 3rd 2009 the bitcoin network was born with the release of the first open source Bitcoin client and the issuance of the first bitcoins, and Satoshi Nakamoto mined the first block of bitcoins ever to exist (commonly known as the genesis block), which included a reward of 50 bitcoins. Embedded in the coinbase of this block was the following text:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.

It is proposed that the above was included both as a way to prove the block was created at least on or after the written date and as a dig at the antiquated traditional financial systems that had failed the people.

The newspaper headline Satoshi included came from the UK based newspaper "The Times" leading some speculators to believe the author was British or perhaps living in Britain at the time.

Another clue that would seem to point to the same conclusion is the fact in analyzing his writing he adopts British English rather than American English using spellings such as "optimise" and "colour" and also uses a few phrases in emails and on forums that are typically British sayings "wet blanket" "bloody hard". You can actually read all of Satoshi's writing on an archive on the Nakamoto Institute website.

Satoshi remained in the public until April 2011 when he handed over the responsibility to a growing group of volunteer developers and cryptographers.

Bitcoin certainly wasn't the first digital cash system though and Satoshi can't take all of the credit, the cypherpunks mentioned in his whitepaper, some of which have been accused of being Satoshi himself all played their part.

David Chaum and Stefan Brands had created the ecash protocols. Adam back developed hashcash, a proof of work scheme for email spam control that's ultimately the same idea behind the fees for Bitcoin transactions to disincentivize spam transactions.

Wei Dai and Nick Szabo both independently created the first proposals for distributed digital scarcity based cryptocurrencies in the form of b-money and bit gold respectively and the late great Hal Finney developed RPOW (reusable proof of work) using hashcash.

All of these cryptographers contributed to the birth of what is now considered the first cryptocurrency, Bitcoin.

What are Cryptocurrencies?

It helps to understand cryptocurrencies to help you better understand how to buy Bitcoin. Cryptocurrencies are best described as digital assets that are designed to work in the same way physical currency does but with many improvements, most notably the fact no physical version needs to exist, be minted or printed by banks or the federal reserve.

Firstly cryptography is used to secure the transactions while limiting and controlling the creation of new units of currency which prevents external interference & state-controlled inflation.

The rate at which new units of currency are produced is determined when the blockchain system is created and this information is publicly available.

The ledgers security and accuracy is based on the assumption that the majority of those mining the currency are trying to maintain the ledger due to the financial incentive of mining cryptocurrencies as it's reward system.

A Cryptocurrency is classified as a subset of digital & virtual currencies as currencies used in digital games have been used or many years prior to BitCoin.