Bitcoin For The Intelligent Layperson. Part One: Context.
[Music] In 2008, an anonymous person going by the name Satoshi Nakamoto wrote a paper describing a protocol for a digital currency called Bitcoin. Bitcoin brought together ideas discussed on the cipherpunk mailing list during the 1990s. The cipherpunks strove towards what they called crypto-anarchy. This imagined order, facilitated by cryptographic technology, is one in which the government is not temporarily destroyed, but permanently forbidden and permanently unnecessary.
In January 2009, Nakamoto released the first computer program that used the Bitcoin protocol. Soon, people were running the software on their computers, buying and selling things for Bitcoins. If you've heard about Bitcoin, you'll probably already know that the price of Bitcoins has been increasing rapidly and that it's volatile. No mission is required to start using Bitcoin; there are no forms to fill in. Anyone with a computer, an internet connection, and some free software anywhere in the world can accept and then send Bitcoins.
Bitcoin is a peer-to-peer system, so it doesn't require any trust to be placed in a central authority. There are no servers to hack, no databases containing sensitive information that can be leaked, and there's no one in control who can be strong-armed by governments or other powerful parties. The rules in the protocol mean that there can never be more than 21 million Bitcoins, and the rate that new coins are created is known in advance. This means that, unlike fiat currencies issued by central banks, no one has the ability to inflate the supply of Bitcoins.
Anyone can write software that uses a modified version of the Bitcoin protocol, but unless the changes are clearly in the interest of the majority of Bitcoin users, it's unlikely that enough people would voluntarily download and install the new software for this effort to be worthwhile. The most popular pieces of Bitcoin software are open-source projects; anyone can inspect the code, and many people do. This ongoing scrutiny is a powerful safeguard against insecure or malicious code finding its way into the programs.
A Bitcoin is a unit of account, analogous to a Euro or a dollar. Each Bitcoin is currently divisible into 100 million atomic units called Satoshi. Bitcoin is also a public protocol. The protocol can be thought of as a set of rules for how pieces of software, known as Bitcoin clients, must communicate with each other. A Bitcoin client allows a person to send and receive Bitcoins. If the messages that pass between clients stick to the rules of the protocol, they're forwarded on, spreading through the network.
We're going to look at the fundamental ideas behind how the Bitcoin system works. [Music]