First decentralized cryptocurrency

The first decentralized cryptocurrency was Bitcoin, which was described in a white paper published online by "Satoshi Nakamoto" on 18 August 2008. A working implementation of the concept was completed by 3 January 2009, when Nakamoto mined the first block on the blockchain, and the open-source client was released to the public on 9 January 2009.

Bitcoin was developed as asolution to the challenge of regulating a digital currency without any centralized organization, or "trusted third party", to oversee transactions. Earlier attempts at creating digital currencies used similar cryptographic techniques to identify users and log transactions, but still required a trusted third party (acting like a bank) to make sure that people didn't "double spend" – that is, spend the same money more than once.

Batches of transactions are validated using Proof-of-Work (PoW) consensus mechanism. Each node (i.e.,computer) represents a validator, also called, in the case of PoW, a miner. After a transaction is broadcast to the network (i.e., blockchain) it is validated by the miners, and confirmed (i.e., added to a block) with 51% “approval” of the miner’s community.

The Bitcoin network is solving the double spend problem with a “trustless” mechanism that does not require any third-party (e.g., banks) to verify transactions; and it achieves that with validators (i.e., miners, in PoW.) Miners are computers dedicated to the network to validate all transactions and prohibit any bad actors. Users create cryptographically secure transactions and broadcast them to the network of miners. The miners gather up as many transactions as can fit into a block and go through a mathematical process (i.e., finding the hash of the next block) to verify the block and add it tothe chain of past blocks. Miners are rewarded in freshly minted bitcoin for contributing their computing resources to the network.

To find thehash, bitcoin miners use the SHA-256 Cryptographic Hash algorithm. The SHA-256 hash function includes: all the current transactions which fit into the block's size limit (1 MB); the previous block's hash result, and; the nonce. Every minor change (e.g., Capitalized letters) changes the Hash number.

The math problem stipulates that the first miner to produce a hash with a certain amount of leading 0s will be the winner of that block and be able to add it to the network. The nonce is a number added to each block as the variable that miners can continuously change until the miner finds a nonce that solves the math problem. When a miner finds the block, they broadcast the blockhash and nonce to the network. Everyone else can take the block and the nonce and perform the SHA256 hash of this data and see that indeed this gives you a hash with the correct number of leading 0s.

The block is added to the public blockchain if it matches the string calculated by the majority of computers involved. All nodes of the blockchain (which are connected to the internet) automatically sync to the longest set of hashes. Since only one miner, the first one who solves the complex mathematical problem, wins, and gets the rewards, the process of PoW is very computation intensive, and thus requires powerful computers and vast investment in hardware.

Bitcoin has its origins in theonline community that built up around a mailing list called "Cypherpunks", which brought together cryptography enthusiasts, libertarians and software developers. This group was created in 1992, and various members had been working on the concept of a digital currency based onthe resolution of cryptographic puzzles since the late 1990s. Bitcoin builds on ideas developed by community members Nick Szabo, Wei Dei and Hal Finney between 1998 and 2004, as well as earlier cryptocurrency concepts such as Hashcash (1997) and DigiCash (1990).

The creator of Bitcoin identifiedhimself on the Cypherpunks mailing list as "Satoshi Nakamoto", which later turned out to be pseudonym. It is not known who Nakamoto is (or if it's actually a group identity), but experts who have looked through his posts and code believe that Nakamoto was a well-established member of this community, rather than a newly-arrived outsider. Nakamoto's involvement with Bitcoin declined over the course of 2010, and there has been no confirmed online activity from him since April 2011. The Bitcoin wallet linked to Nakamoto's initial transactions has around 600,000 bitcoin in it (with a nominal value of $21 billion as of 24 February 2022), but it has been inactive for more than adecade.