Proposals to develop an Internet-only currency to facilitate secure and inexpensive transactions online had been floating around for years, but they couldn’t solve what was called the double-spending problem.
An Internet currency would consist entirely of information stored on computers, which means the information could be duplicated easily. Something was needed to prevent the same currency from being spent over and over.
Satoshi Nakamoto first proposed bitcoins in a paper written in 2008. Nakamoto – no one knows if Nakamoto is a person or several people – solved the problem by posting each transaction on a public ledger that is verified by a large number of computers owned by people who own or are in the process of obtaining bitcoins.
Nakamoto mined the first bitcoins, 50 of them, in 2009, and the first bitcoin purchase was executed in 2010.
Laszlo Hanyecz, a programmer in Jacksonville, Fla., agreed to transfer 10,000 bitcoins to a man in England, who then phoned in an order for two pizzas to a Jacksonville Papa John’s and paid for them with his own credit card.
Hanyecz said he did it because he thought it would be interesting to see if bitcoins could be used to buy something.
Since then, bitcoins have been used to buy veterinary services in Albuquerque and taxi rides in Lithuania.
People can trade bitcoins on exchanges and buy them from private individuals who can be located online. Some banks will transfer bitcoins between accounts.