Understanding Bitcoin: Cryptography, Engineering and Economics

Prologue

– What is Bitcoin?

– It’s a digital currency.

– Yeah, I get that, but who is behind Bitcoin?

– Nobody.

– What do you mean by nobody? Somebody must be controlling it!

– Nobody is controlling it, it is an algorithm.

– What? You mean like Terminator? So you say the world is going to be taken over by machines?

– Well, not the world, but maybe some businesses.

– Right... (rolling her eyes) But who controls the algorithm? Some mad scientist?

– It’s an open source project.

– An open what?

– Yes, free code. You can download it from the internet and do with it whatever you want.

– So you don’t have to pay for the “program"?

– Well, it’s free as in freedom, not free as in beer.

– What does beer have to do with it?

– The code is not only free in the sense that you can use the program free of charge. It is also free in the sense that you can take the code, modify it, and release a program of your own with it.

– Wait a second! If I can do that then I can make my own bitcoins. What value does a bitcoin have then?

– No, you cannot mint your own bitcoins. What you can do is invent your own currency. And then you have to somehow make it gain acceptance...

– Oh, but this surely is the end of Bitcoin. If you can make as many currencies as you want, none of them would have any value.

– Currencies have value because of social convention. Bitcoin has value because people are willing to give value to it.

– I don’t think you are right. Euros or dollars have value, everybody knows that.