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The invention of bitcoin

In 2008, Satoshi Nakamoto rose to the challenge and unveiled a digital currency called bitcoin. This new currency effectively harnessed cryptography techniques to manage ownership and to secure the system—hence the name cryptocurrency.

Satoshi solved the aforementioned problems by introducing what he called initially a chain of blocks. In his published whitepaper (see https://bitcoin.org/bitcoin.pdf), he presented his vision for a new peer-to-peer electronic cash system—bitcoin—and described in detail its underlying machinery—blockchain.

Bitcoin was the first reliable and distributed electronic cash system that's fully peer-to-peer, underpinned by the following basic concepts:

Encryption to ensure ownership and identity
A proof-of-work consensus mechanism for validating transactions and securing the network against double transactions
A transparent and shared ledger (a blockchain)
Pseudonymity

With the assumption that the network majority (>51%) is honest, the bitcoin system operates autonomously following the rules defined by the protocol (consensus rules) to validate a given transaction. By using a shared blockchain, each player has the ability to check the transaction's log history and the sender's solvency, then vote on whether the proceeded transaction is valid or not.

The voting depends on the overall hash-power the player puts into service to secure the network (initially, one CPU is one vote).

To use a cryptocurrency, users need to install a specific client which creates a wallet, generates cryptographic key pairs (private/public keys), and syncs the blockchain with the network. The public key is used by the client (software) to generate valid addresses, and the funds sent to a given address are controlled by the private key from which the address was calculated. In this way, we rely on secure cryptographic principles to manage ownership.

The following diagram depicts how transactions are processed in bitcoin's peer-to-peer network and added into a blockchain:

In a bitcoin network where users don't know one another, the blockchain is considered the single source of truth to which they refer to learn about previous consensus outcomes. The blockchain with the consensus protocol allows the network to manage transactions without a single point of failure.