Getting Started with Bitcoin

Introduction

Playlist

 
What
Bitcoin is peer-to-peer digital cash. A computer network and scarce good tracked by that network.

 

Who
Bitcoin was created by an anonymous person[s] called Satoshi Nakamoto. Today, it is used by millions of people around the world for savings and daily business. These people tend to be freedom advocates.

 

When
Bitcoin was launched on January 3, 2009 and has been running non-stop since. New network status updates are created every ten minutes called blocks.

 

Why
The point of Bitcoin is to create a digitally scarce good that can be sent over a communication channel without permission or license.

FAQ

Bitcoin is a peer-to-peer network protocol (computer network) for a digitally scarce and freely tradable good also called bitcoin. Its design aligns the incentives of market participants leading to an expanding ecosystem and powerful network effects. Bitcoin is both software and the good that software tracks, these two parts interact through transactions and result in the block chain.

The block chain is the record of every transaction that’s ever occured on the Bitcoin network. It’s the shared (decentralized) data and data structure for the Bitcoin network. You can think of it as the cumulative state of the network every node must maintain and verify. It is appended to in the process known as mining.

A block chain is very inefficient compared to a centralized database, because it forces the duplication of storage and computation on every node. Every node must agree on the cumulative state (to remain in consensus). This nature of block chains means they’re very costly and must have a correspondingly important use case not possible with a cheaper centralized alternative, and with demand high enough to sustain its operation. Block chains don’t make sense for nearly all applications, because their primary strength is being very hard to kill. If the use case is not in danger of censorship, it doesn’t need a block chain.

The term “blockchain” was seized upon and marketed as the revolution during the long bear market in 2014-2015, but so far, all alternative applications of a block chain have not yielded productive results. I say productive, because the blockchain meme has been very profitable for speculators and con men selling “blockchain” to the uneducated.

 

Bitcoin transactions are packets of data in a specific format passed as messages on the network. The data has several parts: 1) it identifies which records are being affected, 2) the cryptographic signatures that unlock those records, 3) the new signatures those records are being assigned to, and 4) other data (scripts). This message is then broadcast to every node on the network where miners will see it and include it into the official record (for a fee).

 

Since Bitcoin was created, many people have created alternatives (altcoins) by tweaking the original ideas of Bitcoin. Very few of these altcoins are honest attempts to create something useful with talented people working on them, some are honest attempts with no talent, most are dishonest people selling tokens to the uneducated.  An analogy will help demonstrate what’s going on with altcoins.

The appearance of altcoins is very similar to the Protocol Wars of the early internet, when many groups their own versions of the internet. Companies and users wanted to speak their own language on their own network with unique features. However, it soon became apparent no one could communicate between these relatively small silos of users, a new language, tailor made for each use case, was very inefficient. It was much more beneficial to speak the same language and modularize features in that shared language. Eventually, all alternatives dropped away and we are left with the Interneting Protocol (this is communication convergence). Bitcoin is the language of value for the internet. Everyone will benefit from speaking the same language more than using a separate tokens, and modularizing on top for different features.

That addresses the existence of many altcoins, but why is Bitcoin the one everyone will converge on? Bitcoin is the most robust everything in this space, the most settled codebase, meaning other features can be built with it without worry that future changes or hacks will break their application. In other words, the important competition is for stability and robustness, not features.

 

Bitcoin has three main benefits. First, it is a tool of self-defense against extortion from increasingly indebted governments. Second, it supercharges the economy by increasing the efficiency of price discovery due to its fixed supply. Third, it allows culture to flourish by promoting low time preference.

 

Recommended Reading

Books

Essays

Newsletters and Blogs

MISC

  • Bitcoin.org – the original Bitcoin site from 2009. They have a ton of explanations expert advice for the beginner.
  • Libbitcoin wiki – This is an unique economic exploration of Bitcoin by Eric Voskuil. It’s a little Austrian Economics a little cypherpunk.
  • Bitcoin-Only – a curated repo of strictly “BITCOIN ONLY” products, services, content, and more.
  • Bitcoin-Intro.com – detailed step-by-step guide to participating in the bitcoin network with your own node and cold storage practices.