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Digital currency before bitcoin

Bitcoin was not the first of its kind, but it is the most successful attempt to implement digital currency. Nevertheless, previous attempts provided Satoshi with the opportunity to invent such a system:

DigiCash

DigiCash is a company that was founded by cryptographer and IT scientist David Chaum in the late 1980s. It was introduced as a privacy-oriented solution for online transactions based on an article authored by Chaum himself (details at link).

The DigiCash model was a centralised system, but it was nevertheless quite an interesting experiment. The company later went bankrupt, which according to Chaum was due to their beginnings, before e-commerce really took off.

B-money

The B-money system was originally described in a proposal published in the 1990s by computer engineer Wei Dai. It was quoted in the Bitcoin Whitepaper, and it's understandable why. 

B-money proposed a system called Proof of Work (used in bitcoin mining) and the use of a distributed database where users could sign their transactions. The second version of b-money also described an idea similar to stealing, which is used in other cryptocurrencies today.

Ultimately, b-money never took off, as the project failed to go beyond the draft version. Nonetheless, bitcoin clearly drew its inspiration from the concepts that Dai provided.

Bit Gold

The similarities between Bit Gold and Bitcoin are so great that some believe that Nick Szabo is Satoshi Nakamoto. At its core, Bit Gold consists of a register that records strings of data resulting from the Proof of Work algorithm.

Like B-money, this coin did not receive any further development. However, Bit Gold's similarity to bitcoin has earned it the title of "Bitcoin's predecessor".

How are new coins created?

Bitcoin has a limited supply and not all units are in circulation yet. The only way to create new coins is through a process called mining, a special mechanism for adding data to the blockchain.

How many bitcoins have already been mined?

The protocol records a maximum supply of twenty-one million bitcoins. As of 2020, just under 90% have been mined, but it will take more than a hundred years to produce the remaining bitcoins. This is due to a periodic event called halving, the purpose of which is to gradually reduce the reward for mining.

How does bitcoin mining work?

Mining allows participants to add blocks to the blockchain. To do this, they must dedicate the processing power of their computer to solve a particular cryptographic puzzle. As an incentive, there is a reward available to anyone who finds the appropriate solution and forms a valid block. 

In order to form a block, a large amount of resources are required, while it is very easy to verify its validity. If someone tries to cheat the network and add an invalid block, such a request will be immediately rejected and the miner will not get paid for mining.

The reward, often referred to as the block reward, has two components: transaction fees and the block subsidy. The block subsidy is the only source of "fresh" bitcoins. With each block mined, a unit is added to the total supply of coins.

How long does it take to mine one block?

The protocol adjusts the mining complexity so that it takes approximately ten minutes to find a solution for a new block. Blocks are not always mined for exactly ten minutes, this setting is a benchmark for all participants in the network.

 

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