Introduction

Bitcoin consists of:

  • A decentralized peer-to-peer network (the Bitcoin protocol)
  • A public transaction journal (the blockchain)
  • A set of rules for independent transaction validation and currency issuance (consensus rules)
  • A mechanism for reaching global decentralized consensus on the valid blockchain (proof-of-work algorithm)

History of Bitcoin

Bitcoin was first described in 2008 with the publication of a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” written under the alias of Satoshi Nakamoto.

The Bitcoin network started in 2009, based on a reference implementation published by Nakamoto and since revised by many other programmers.

Satoshi Nakamoto withdrew from the public in April 2011, leaving the responsibility of developing the code and network to a thriving group of volunteers.

Getting Started

There is a reference implementation of the Bitcoin protocol that includes a wallet, known as “Bitcoin Core”, which is derived from the original implementation written by Satoshi Nakamoto.

Choosing a Bitcoin Wallet

Types of Bitcoin wallets

  • Desktop wallet: Many users run desktop wallets for the features, autonomy, and control they offer. Running on general-use operating systems has certain security disadvantages, however, as these platforms are often insecure and poorly configured.
  • Mobile wallet: To avoid downloading and storing large amounts of data, most mobile wallets retrieve information from remote servers, reducing your privacy by disclosing to third parties information about your Bitcoin addresses and balances.
  • Web wallet: Web wallets are accessed through a web browser and store the user’s wallet on a server owned by a third party. The user’s dependence on the server still compromises their privacy.
  • Hardware signing devices: Hardware signing devices are devices that can store keys and sign transactions using special-purpose hardware and firmware. They usually connect to a desktop, mobile, or web wallet via USB cable, near-field-communication (NFC), or a camera with QR codes.

Full node versus Lightweight

  • Full node: A full node is a program that validates the entire history of Bitcoin transactions (every transaction by every user, ever). A full node uses substantial computer resources, but the full node offers complete autonomy to its users.
  • Lightweight client: A lightweight client, also known as a simplified-payment-verification (SPV) client, connects to a full node or other remote server for receiving and sending Bitcoin transaction information, but stores the user wallet locally, partially validates the transactions it receives, and independently creates outgoing transactions.
  • Third-party API client: A third-party API client is one that interacts with Bitcoin through a third-party system of APIs rather than by connecting to the Bitcoin network directly. The wallet may be stored by the user or by third-party servers, but the client trusts the remote server to provide it with accurate information and protect its privacy.

Who controls the keys

Your keys, your coins. Not your keys, not your coins.

  • Desktop full node (you control the keys)
  • Mobile lightweight wallet (you control the keys)
  • Web-based accounts with third parties (you don’t control the keys)

Recovery Codes

The recovery code usually consists of numbers, letters, or words selected randomly by the software, and is used as the basis for the keys that are generated by the wallet.

A recovery code is sometimes called a “mnemonic” or “mnemonic phrase”, which implies you should memorize the phrase, but writing the phrase down on paper takes less work and tends to be more reliable than most people’s memories. Another alternative name is “seed phrase” because it provides the input (“seed”) to the function that generates all of a wallet’s keys.

Bitcoin Addresses

The private key randomly generated will be used to derive Bitcoin addresses. The addresses are generated independently without reference or registration with any service.

Getting Your First Bitcoin

Bitcoin transactions are irreversible.

Acquiring, holding, and spending bitcoin does not require you to divulge sensitive and personally identifiable information to third parties. However, where bitcoin touches traditional systems, such as currency exchanges, national and international regulations often apply. In order to exchange bitcoin for your national currency, you will often be required to provide proof of identity and banking information. Users should be aware that once a Bitcoin address is attached to an identity, other associated Bitcoin transactions may also become easy to identify and track—​including transactions made earlier.