The Advent of Bitcoin

Now that we understand what a blockchain is, let's explore the advent of Bitcoin. The creation of Bitcoin in 2009 marked a pivotal moment in the history of digital currencies and blockchain technology. Created by an anonymous entity or group of people using the pseudonym Satoshi Nakamoto, Bitcoin introduced the world to a new form of money that was decentralized, digital, and independent of traditional banking systems.

Going back to the picture from the first chapter, we can now specify the invention of Blockchain as the start of Web 3.0:

The Birth of a New Currency

Bitcoin was introduced to the world through a white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System". The document laid out a vision for a system where electronic transactions could be made directly from one party to another without the need for a central authority, such as a bank or government.

The white paper proposed using a decentralized ledger, which would come to be known as the blockchain, to record all transactions publicly and immutably. Bitcoin essentially demonstrated that trust could be established not through centralized institutions, but through mathematics, cryptography, and network consensus.

Key Principles of Bitcoin

There are several key principles that underpin the Bitcoin network which we'll discuss in detail later in the course:

• Decentralization: As we have previously mentioned, unlike traditional currencies controlled by governments and central banks, Bitcoin operates on a decentralized network of computers. This network collectively validates and records transactions on the blockchain;

• Limited Supply: Bitcoin has a capped supply of 21 million coins, which is enforced by the network's underlying code. This limited supply mimics the scarcity of precious metals like gold and is intended to prevent inflation. As of January 2024, Bitcoin supply level is at 19.61 million;
• Mining: New bitcoins are introduced into the system through a process called mining which involves creating new blocks. Miners use computational power to solve complex mathematical problems, which helps secure the network and process transactions. In return for their efforts, miners are rewarded with newly minted bitcoins;

Let's now take a look at the following graph illustrating the increase of Bitcoin total supply with each new block:

• Proof of Work: Bitcoin utilizes a consensus mechanism known as Proof of Work (PoW) to ensure that all transactions are accurately recorded without the need for a trusted third party. Once again, miners compete to complete transactions on the network and are rewarded for their work with bitcoin.