What is a Bitcoin and how it works?

Bitcoin is virtual currency. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once. It is a peer-to-peer currency with no central bank, based on digital tokens with no core value.

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Balances – block chain

The block chain is a shared public records on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender.

Transactions – private keys

A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The sinature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining

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How does Bitcoin work?

Bitcoins are sent (or signed over) from one address to another with each user potentially having many, many addresses. Each payment transaction is broadcasted to the network and included in the block chain so that the included bitcoins cannot be spent twice. After an hour or two, each transaction is locked in time by the massive amount of processing power that continues to extend the block chain. Using these techniques, Bitcoin provides a fast and extremely reliable payment network that anyone can use.

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One thought on “What is a Bitcoin and how it works?

  1. Pingback: Bitcoin for Beginners | Second Star Technologies

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