Why Bitcoin was created

Bitcoin was designed so two people could pay each other online without a bank in the middle. It appeared during the 2008 financial crisis. This lesson covers the problem it solved and where it came from.

The problem: digital things can be copied

A digital file can be copied as many times as you like. If money were only a file, you could send the same coin to two different people. This is called the double-spend problem.

Before Bitcoin, the only fix was a trusted middleman. A bank kept the one official record and refused any payment you could not cover. Earlier digital cash projects worked the same way. The best known, DigiCash, depended on a company and partner banks, and it went bankrupt in 1998.

The white paper

On 31 October 2008, someone using the name Satoshi Nakamoto published a nine-page paper, Bitcoin: A Peer-to-Peer Electronic Cash System. It described how a network of strangers could agree on one record of payments with nobody in charge.

The first block, known as the genesis block, is dated 3 January 2009. Satoshi released the first version of the software five days later.

The message in the first block

The genesis block contains a line of text: that day's headline from The Times of London, about a second bailout for banks. It shows the block was not made before that date. Many people also read it as a comment on a system where failing banks are rescued with public money.

What the design set out to change

• No middleman. Payments go directly from one person to another.
• Proof instead of trust. The network checks every payment with cryptography, so you do not have to trust a company.
• Rules instead of decisions. New coins are issued on a fixed schedule that no single authority can change. Lesson 5 covers that schedule.

Who is Satoshi?

Nobody knows. Satoshi worked with other developers online until late 2010, then stepped away. The last known message, an email from April 2011, said the project was in good hands. Several people have claimed to be Satoshi, or have been named as Satoshi, and none of those claims has been proven.

Bitcoin kept running because it does not depend on its creator. The code is open for anyone to read, and no single person controls the network.