How Does Bitcoin Work?

How Does Bitcoin Work?

This is an issue often surrounded by confusion, so here is a brief explanation of how Bitcoin works.

Essentials for a New User

As a new user you can beginsr with Bitcoin without understanding the technical details. After installing a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more addresses whenever you need them.

You can show your address to your friends to receive payments or vice versa. In fact, it's quite similar to how an email works, the only difference being that Bitcoin addresses are only used once.

Balance - Blockchain (Blockchain)

The block chain is a notebook of public accounts shared, on which the entire Bitcoin network is based. All confirmed transactions are included in the block chain. In this way, the wallets Bitcoin can calculate your available balance and new transactions can be verified to be able to use bitcoins that are actually owned by the person who is spending. The integrity and chronological order of the block chain is protected by encryption.

Transactions - Private Keys

A transaction is a transfer of value between Bitcoin wallets that is included in the block chain. Bitcoin wallets hold a secret piece of information called a private key or seed and are used to sign transactions, providing a mathematical proof that they came from the wallet owner.

The signature also prevents the transaction from being altered by anyone after it has been issued. All transactions are transmitted between users and typically start to be confirmed over the network within the next 10 minutes, through a process called mining.

Processing - Mining

Mining is a distributed consensus system that serves to confirm transactions and include them in the block chain. This imposes a chronological order on the block chain, protects net neutrality, and allows different computers to come to an agreement on the state of the system.

To be confirmed, transactions must be included in a block and verified by the network using cryptographic rules. These rules prevent old blocks from being modified, which would cause later blocks to be invalidated. Mining also creates a lottery-like game, which prevents any individual from easily adding new blocks consecutively to the block chain.

This prevents people from being able to decide what to include in the block chain, or change parts of the block chain, and thus be able to reverse their own transactions.

Willing to Find Out More on How Bitcoin Works?

This is just a very brief and concise summary of the system. If you want to know more in depth, you can read the original document describing the system design, read the documentation for programmers, and explore the bitcoin wiki.

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