Category: 3. How Bitcoin works

Of course, no system is perfect, and a decentralised, distributed system such as Bitcoin suffers from limitations that a centralised system doesn’t. The main limitation is the trilemma between security, scalability, and decentralisation. This means that there are trade-offs when designing a network, and you can’t have all three. In other words, you can’t have…

We’ve just seen how, unlike fiat currencies, Bitcoin achieves reliable digital scarcity with no one in charge. Here’s how it satisfies the remaining properties of sound money: Durability: the architecture of the blockchain makes it incredibly robust. Since every node has a copy of the ledger, destroying the Bitcoin network would require that all 50,000 nodes distributed…

Mining is also the way by which new bitcoin are released into the system. Whoever wins the competition for solving the cryptographic problem gets to add the new block of transactions to the blockchain – plus a reward comprising transaction fees and new bitcoin.  Transaction fees are the sum of fees paid for all transactions…

The solution introduced by Bitcoin to this age-old computing problem involves maths, competition, and economic rewards, and goes by the name of mining. Mining involves a competition for solving a complex mathematical problem, which takes on average 10 minutes and is adjusted every two weeks to account for current computing power. The winner gets to…

Bitcoin is many things, but we’ll focus on the design elements here. Firstly, Bitcoin is a peer-to-peer network of computers all following a set of rules and instructions (the Bitcoin protocol) for validating transactions and issuing new coins. Any computer running any software that respects these rules can participate in the Bitcoin network. These are…

Bitcoin combines computing and cryptography with a clever system of economic competition and rewards that ensure it’s in everyone’s best interest to respect the rules without the need for a central authority. Instead, the network manages itself, and no single party controls the system. Bitcoin rewards honest “work” that supports the network (validating transactions, as…

Bitcoin was created by an individual (or group of individuals) who went by the alias of Satoshi Nakamoto. To this day, nobody knows (at least publicly) who Satoshi Nakamoto is – and that’s arguably their biggest legacy to the community. By vanishing into the ether soon after Bitcoin was robust enough, Nakamoto has done away…

What you’ll learn How Bitcoin achieves sound money An introduction to Nodes, Blockchains & Mining Bitcoin’s economics – money supply & inflation Bitcoin’s limitations