Even though I’ve spent years amassing tons of bitcoin knowledge, and pondered over the nature of this invention for hundreds of hours, I still find it valuable to read and digest how other people define bitcoin.
Below you’ll find some of my favorite and most popular definitions, which combined with my own writings, paint a holistic picture of this enigma.
First up, according to Google:
Bitcoin is a protocol which implements a highly available, public, permanent, and decentralized ledger.
In order to add to the ledger, a user must prove they control an entry in the ledger.Google
We’ve already established that a ledger is just a list of transactions, like a spreadsheet. And we’ve already discussed that decentralized just means it’s hosted on tens of thousands of computers who all are in agreement with what’s on the ledger. Google also mentions that the ledger is ‘public’ hinting at bitcoin’s transparency, open source, and permissionless nature. And permanent to establish it’s realistically impossible to change the ledger entries.
What might still be confusing is the term protocol – an internet protocol is just a standardization of rules that allow computers to communicate with each other. Think of it like a language, a standard way of communicating. The rules by which data is encoded, transmitted, and understood by other computers. In Bitcoin terms the protocol keeps track of transactions and bitcoins, governs how that ledger is updated, and enforces the limit of 21 million coins (among other things).
Adding to the ledger just means creating another transaction that will be recorded on the blockchain. The ‘proof’ that a user controls an entry in the ledger, just means that you are in control of the keys to unlock the bitcoin vault and move the money.
Said another way, when you send a bitcoin to someone, what you’re actually doing is updating the bitcoin spreadsheet, telling all the nodes in the world that the money is moved from Alice to Bob.
According to the subreddit r/bitcoin:
Bitcoin is the currency of the Internet: a distributed, worldwide, decentralized digital money.
Unlike traditional currencies such as dollars, bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of Bitcoin.
As such, it is more resistant to wild inflation and corrupt banks.
With Bitcoin, you can be your own bank.r/bitcoin
This definition leans a bit more into the token/money side of bitcoin vs describing how the ledger works.
The difference between distributed and decentralized is just that distributed only means hosted on thousands of computers, whereas decentralized means no one is in charge. A distributed computer network can still be technically centralized if there are hierarchies. In bitcoin all nodes are equal.
The fact that bitcoins are issued and managed via computer software vs a central authority makes bitcoin apolitical and neutral. Similar to if we all transacted in gold nuggets that didn’t have a face of a king on them. The advantage of a non-state peer-to-peer money is of course the absence of inflation, counterparty risk, and fractional reserve bank runs, but also full monetary autonomy, increased digital privacy, and censorship resistance.
Being your own bank with bitcoin just means running your own software to verify for yourself that the money is yours, and having full autonomy over your money without counterparty risks.
While a bit complicated, in their Bitcoin 101 paper, NYDIG describes many bitcoin elements extremely succinctly:
Bitcoin is an open source monetary system – that is, a system for storing and transmitting an asset of value whose underlying code is fully open to the public.
This system allows bitcoin (lowercase “b”), the native digital asset of the Bitcoin network, to be sent securely between users over the internet without the need of an intermediary.
Transactions are verified and recorded in a public ledger called a blockchain through a process called mining.NYDIG
Bitcoin is an open source system
All of bitcoin’s code is available to inspect and it’s in the public domain meaning you can freely copy and modify it. There’s no copyright protections, and you can use the code for commercial purposes. The code that bitcoin runs is visible to everyone, and so are the updates. And it’s voluntary meaning you don’t even have to accept any changes or updates if you don’t want to. Bitcoin is fully transparent for ethical reasons, but also so that it can replicate itself like a virus.
Bitcoin is a monetary system
You can send, hold, and receive bitcoin within the software stack. Just like PayPal or Venmo, or a bank account. In the same way that we have a global fiat monetary system, where money can be transferred around via payment processers and banks, bitcoin the currency can be transfered around via the bitcoin network
bitcoin lowercase b is a native digital asset
It’s a token. Bitcoin spelled with a lower case b is usually referring to the money itself, like the dollar, and bitcoin with an uppercase B is referring to the network, like Paypal. It would be fucking weird if your credit card, banking system and cash were were all just called the Dollar. But in bitcoin the network and token have the same name which can be confusing.
bitcoin is sent between people over the internet without an intermediary
Think of bitcoin on the Bitcoin network like handing someone a physical gold coin or a dollar bill. When you pay in person for something there’s no one in the middle of that transaction. All digital money before bitcoin had to go through some company or bank or government, someone you had to trust to pay you back. Someone who took fees, or took 7-10 business days, or who declined your transaction or froze your withdrawal. Someone who needs to get the money from someone else first, in a never ending chain of IOUs.
Bitcoin removes all of that garbage from banking. There’s no one in between you and the person you’re paying. The transmission is instead handled by autonomous computer code and a global competition.
Transactions are verified and recorded in a public ledger called a blockchain through a process called mining.
So mining bitcoin is a bit complicated and not something I’ll cover here. But the funny way to think about mining is that it’s like running your Xbox 24 hours a day resulted in solved Sudoku’s you could trade for heroine. Basically what you have to know is that it is the process that settles bitcoin transactions and keeps them recorded forever.
The bitcoin network is a global decentralized consensus network which operates on a cryptographic p2p protocol – on top of the Internet – established by individuals [computers / nodes] all around the world who run the Bitcoin Core Software [free open-source software] program which enforce Consensus Rules through an process called Bitcoin Mining which relay and validate UTXO transactions and record state to an immutable append-only Distributed Ledger; Bitcoin Blockchain.BitcoinNetwork.com
Ok this is another loaded one, but by far the most accurate and comprehensive bitcoin explanation I’ve ever found. In fact I recommend just straight up visiting bitcoinnetwork.com and reading as much as you can there.
I’ll do my best to break this out though:
Decentralized Consensus Network is a group of computers all talking to each other forming a network, the computers are all distributed around the world instead of in one place which makes them decentralized. And they reach consensus, aka agreement, on the order of transactions through math, physics and probabilities, instead of one master computer deciding on the truth.
Cryptographic just means using big numbers and math proofs to secure data. In bitcoin many parts of the network rely on cryptography, from keeping your private keys safe, to saving data, and to keeping the monetary policy stable.
P2P Protocol stands for peer-to-peer, there are no hierarchies and everyone can communicate with each other directly.
Bitcoin Core Software [free open-source] is the computer program that the nodes run to talk with each other and participate in the network. If a node is running an incompatible software, they won’t be able to participate in transactions. And open source just means it’s publically available information and anyone can inspect or redistribute it for free.
The Consensus rules are like bitcoin’s ‘constitution’ and they are rules that guide the monetary policy and system. These can’t be changed since doing so would make your node incompatible with everyone else. These rules keep the system free from corruption and inflation, and keep the system decentralized.
UTXO transactions are just a fancy way of saying transactions. UTXO’s took me weeks to understand so don’t worry if you’re confused just trust me. When you hear UTXO’s just think gold nuggets, some are little pebbles and some are big chunks of bitcoin. The way bitcoin is structured is less like a bank account and more like cash, where you have $10 bills and $1 bills and dimes and quarters etc. In your wallet you take out pieces of money. This is a lesson for another day.
An ‘immutable append only distributed ledger’ means a list of transactions that can’t be changed, only added to. This ledger exists everywhere, it’s distributed amongst many computers so there’s lots of redundancy and everyone transparently knows what the list says.
And last but certainly not least:
Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem.
Units of currency called bitcoin are used to store and transmit value among participants in the bitcoin network.
Bitcoin users communicate with each other using the bitcoin protocol primarily via the internet, although other transport networks can also be used.
The bitcoin protocol stack, available as open source software, can be run on a wide range of computing devices, including laptops and smartphones, making the technology easily accessible.Mastering Bitcoin
WOW a collection of concepts and technologies how can you get any more confusing than that!
How do you describe something which is really a collection of many things? And not just a collection of many things…
…bitcoin is a collection of many ideas.
Neutrality, Transparency, Privacy, Security, Equality, Freedom, Autonomy, Trust, Cosmopolitanism, Justice, Peace, Human rights, etc.
Bitcoin is more than just a money, it’s a cryptographic digital money ecosystem and a belief system.