How Does Bitcoin Work?

March 12th, 2018

Looking Under The Hood

Since it first came out on the market in 2008, interpreting Bitcoin has become a matter of controversy- as a store value, a currency, an asset, or a payment network. Fortunately keeping all economic debates on the side, one thing about Bitcoin is pretty easy to answer is that it is a software. Bitcoin is a digital phenomenon that uses a set or processes and protocols. It is currently one of the most popular digital currencies in circulation around the world.

Blockchain: The Public Distributed Ledger

Bitcoin is a digital network that runs on a protocol known as a Blockchain. In the year 2008 computer programmer, Satoshi Nakamoto, first created Bitcoin and the Blockchain. Over the years, thousands of blockchains have been created using different cryptographic techniques. Blockchain can be used to refer to the Bitcoin Blockchain, and other times it can be used for other cryptocurrency blockchains, like Litecoin or Ehtereum.

The basic idea of blockchain technology is pretty straightforward. Any given blockchain consists of single chain of blocks of information all chronologically arranged. In general, this could be a string of 1s or 0s, marriage certificates, land titles, contracts, emails, or bond trades.

The Bitcoin blockchain is just a list of transactions. Bitcoin user A, sends X amount of bitcoins to Bitcoin user B, who then sends X amount of bitcoins to Bitcoin user C and so on. All of the transactions are accounted for, this allows everyone to know where he or she stands on the blockchain. A blockchain is a distributed ledger, the Bitcoin blockchain is public ledger and any individual can access it and/or download it.

Despite being accessible to everyone, Bitcoin blockchain is extremely difficult to tamper with. This digital current isn’t tangible, so you aren’t able to lock it in a physical vault-you are able to keep it secure through your digital wallet. Bitcoin has made financial institutions unnecessary and this decentralized currency system is independent of any central bank, which means it is up to the users of Bitcoin to keep this currency flowing properly and safe.

Mining For Bitcoins

The process that maintains this distributed ledger is called mining. People from all around the world who mine for bitcoins are called miners. These miners record all transactions on the blockchain. Recording all these threads of Bitcoin transactions can be done by any old computer, but the mining process is a very difficult process and requires special software to make the mining process faster.

Blockchain Hashes

The network of miners are not bound to each other by any person or professional ties, they are only part of the distributed ledger to share and receive the latest batch of transaction data. The miners run all the data through an algorithm which generates a hash. A hash is a thread of numbers and letters that serves as a verification code for the validity of the transactions without revealing the actual information. Mining bitcoins requires expensive hardware and software that can handle a massive amount of electricity. Most of the new computer systems that are being created help to mine bitcoins. Miners can start pools in order to divide the rewards among themselves. This is the easiest way to start mining Bitcoin, rather than starting on your own.

This new digital currency, is taking the world by storm and bringing advanced technologies out to play. Start buying bitcoins today to get a piece of the pie.

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