What is Bitcoin?

On 18 August 2008, the domain name bitcoin.org was registered.[27] In November that year, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System[15] was posted to a cryptography mailing list.[27] Nakamoto implemented the bitcoin software as open source code and released it in January 2009.[28][11] The identity of Nakamoto remains unknown, though many have claimed to know it.[10]
In January 2009, the bitcoin network came into existence after Satoshi Nakamoto mined the first ever block on the chain, known as the genesis block, for a reward of 50 bitcoins.[29][30] Embedded in the coinbase of this block was the following text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.[11]
One of the first supporters, adopters, and contributors to bitcoin was the receiver of the first bitcoin transaction, programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction.[31][32] Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold.[33]
In the early days, Nakamoto is estimated to have mined 1 million bitcoins.[34] Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the 'anarchic' bitcoin community's closest thing to an official public face.[35]
The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction of 10,000 BTC used to indirectly purchase two pizzas delivered by Papa John's.[29]
On 6 August 2010, a major vulnerability in the bitcoin protocol was spotted. Transactions were not properly verified before they were included in the blockchain, which let users bypass bitcoin's economic restrictions and create an indefinite number of bitcoins.[36][37] On 15 August, the vulnerability was exploited; over 184 billion bitcoins were generated in a single transaction, and sent to two addresses on the network. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the bitcoin protocol.[38][36][37]
On 1 August 2017 bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and a hard fork, Bitcoin Cash (BCH).[39]
Design
Blockchain
For a broader coverage related to this topic, see Blockchain.

Number of unspent transaction outputs
The blockchain is a public ledger that records bitcoin transactions.[40] A novel solution accomplishes this without any trusted central authority: the maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.[8] Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.[41] Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin amount, each network node stores its own copy of the blockchain.[42] Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.[3]:ch. 5
Transactions
See also: Bitcoin network

Number of bitcoin transactions per month (logarithmic scale)[43]
Transactions are defined using a Forth-like scripting language.[3]:ch. 5 Transactions consist of one or more inputs and one or more outputs. When a user sends bitcoins, the user designates each address and the amount of bitcoin being sent to that address in an output. To prevent double spending, each input must refer to a previous unspent output in the blockchain.[44] The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. Since transactions can have multiple outputs, users can send bitcoins to multiple recipients in one transaction. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer.[44] Any input satoshis not accounted for in the transaction outputs become the transaction fee.[44]
Transaction fees

An actual bitcoin transaction including the fee from a webbased cryptocurrency exchange to a hardware wallet.
Paying a transaction fee is optional.[44] Miners can choose which transactions to process[44] and prioritize those that pay higher fees. Fees are based on the storage size of the transaction generated, which in turn is dependent on the number of inputs used to create the transaction. Furthermore, priority is given to older unspent inputs.[3]:ch. 8
Ownership

Simplified chain of ownership.[15] In reality, a transaction can have more than one input and more than one output.
In the blockchain, bitcoins are registered to bitcoin addresses. Creating a bitcoin address is nothing more than picking a random valid private key and computing the corresponding bitcoin address. This computation can be done in a split second. But the reverse (computing the private key of a given bitcoin address) is mathematically unfeasible and so users can tell others and make public a bitcoin address without compromising its corresponding private key. Moreover, the number of valid private keys is so vast that it is extremely unlikely someone will compute a key-pair that is already in use and has funds. The vast number of valid private keys makes it unfeasible that brute force could be used for that. To be able to spend the bitcoins, the owner must know the corresponding private key and digitally sign the transaction. The network verifies the signature using the public key.[3]:ch. 5
If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;[8] the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.[45] A backup of his key(s) might have prevented this.

Mining

Mining is a record-keeping service done through the use of computer processing power.[d] Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block.[40] Each block contains a cryptographic hash of the previous block,[40] using the SHA-256 hashing algorithm,[3]:ch. 7 which links it to the previous block,[40] thus giving the blockchain its name.
To be accepted by the rest of the network, a new block must contain a so-called proof-of-work.[40] The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.[3]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, ...[3]:ch. 8) before meeting the difficulty target.
Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.
Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.
The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.[49] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.