What is Bitcoin?

Bitcoin

Bitcoin is a decentralized digital currency created in 2009 by an anonymous individual or group using the pseudonym Satoshi Nakamoto. It operates on a peer-to-peer network without the need for intermediaries such as banks or governments. Bitcoin transactions are recorded on a public ledger called the blockchain, which is maintained by a distributed network of nodes worldwide.

Unlike traditional currencies issued by central banks, Bitcoin is not controlled by any single entity. Its monetary policy is governed by code.

Bitcoin has a fixed maximum supply of 21 million coins. This hard cap is enforced by the protocol and cannot be changed without consensus from the network. As of 2024, approximately 19.5 million Bitcoin have been mined, with the remaining supply to be released gradually through the mining process.

New Bitcoin are created through a process called mining, where participants compete to validate transactions and add new blocks to the blockchain. The reward for mining a block is halved approximately every four years in an event known as the "halving. This diminishing issuance rate means the final Bitcoin is expected to be mined around the year 2140.

Although only 21 million Bitcoin will ever exist, each Bitcoin is highly divisible. The smallest unit of Bitcoin is called a satoshi, named after its creator. One Bitcoin can be divided into 100 million satoshis. This divisibility enables Bitcoin to be used for transactions of any size, from large institutional transfers to micropayments. The total supply of 21 million Bitcoin equates to 2.1 quadrillion satoshis (2,100,000,000,000,000 satoshis).

The Blockchain: What Makes Bitcoin Possible

For Bitcoin to exist, it needs a tamper-resistant public record of all transactions: the blockchain. The blockchain is a distributed ledger that records all Bitcoin transactions. Each block contains a set of transactions, a nonce, a cryptographic reference to the previous block, and additional metadata required for validation. This chain of blocks creates an immutable history that cannot be altered without redoing all subsequent work.

Core Properties of a Blockchain

How Bitcoin Transactions Work

Bitcoin uses UTXOs (Unspent Transaction Outputs), not account balances. Instead of “one balance,” your wallet holds many spendable pieces of value, like having several bills and coins. Your displayed balance is simply the sum of all UTXOs you control.

• Inputs: Your wallet selects one or more UTXOs to spend (each input references a previous output).
• Outputs: The transaction creates new UTXOs, typically one to the recipient and one back to you as change (often to a new address your wallet generates).
• Fee: sum(inputs) − sum(outputs) = network fee.

Bitcoin's Limitations

While Bitcoin revolutionized digital money, it has intentional limitations. Bitcoin Script is limited in functionality and is Turing incomplete - it provides a basic set of operations with spending conditions, but lacks the functionality for loops, recursive functions, advanced data manipulation, or the ability to house contract addresses.

Understanding Bitcoin Script

Bitcoin Script is a small, stack-based language that declares conditions to spend a UTXO. It’s deliberately limited (no loops, no globals) so execution is deterministic: the combined script for an input must finish with true on the stack or the spend is invalid. Here's a simple example:

// A simple Pay-to-Public-Key-Hash (P2PKH) script
// This is the most common type of Bitcoin transaction

// ScriptPubKey (locking script):
OP_DUP              // Duplicate the top stack item
OP_HASH160          // Hash the public key
< PubKeyHash>
// Push the expected hash onto stack
OP_EQUALVERIFY      // Verify the hashes match
OP_CHECKSIG         // Check the signature

// ScriptSig (unlocking script):
< Signature>
// Push signature onto stack
< PublicKey>
// Push public key onto stack

// When executed together, this verifies:
// 1. The public key hashes to the expected address
// 2. The signature is valid for this public key
        

// A simple Pay-to-Public-Key-Hash (P2PKH) script
// This is the most common type of Bitcoin transaction

// ScriptPubKey (locking script):
OP_DUP              // Duplicate the top stack item
OP_HASH160          // Hash the public key
< PubKeyHash>
// Push the expected hash onto stack
OP_EQUALVERIFY      // Verify the hashes match
OP_CHECKSIG         // Check the signature

// ScriptSig (unlocking script):
< Signature>
// Push signature onto stack
< PublicKey>
// Push public key onto stack

// When executed together, this verifies:
// 1. The public key hashes to the expected address
// 2. The signature is valid for this public key
        

Why Build on Bitcoin?