How Does Bitcoin Work?
Bitcoin is a decentralized digital currency that operates on a technology called blockchain. Unlike traditional currencies issued by governments (fiat), Bitcoin is created and managed through a process known as mining.
1. Blockchain Technology
The blockchain is a public ledger that records all Bitcoin transactions. It consists of blocks, which are linked together in a chronological chain. Each block contains a list of transactions, a timestamp, and a hash of the previous block, ensuring security and integrity.
2. Mining
Mining is the process by which new bitcoins are generated and transactions are verified. Miners use powerful computers to solve complex mathematical problems that validate transactions and add them to the blockchain. In return, they receive a reward in the form of newly created bitcoins.
3. Transactions
To make a transaction, a Bitcoin user sends coins to another user’s wallet address using their private key for verification. Transactions are broadcast to the network, where miners confirm their validity and add them to the blockchain.
4. Wallets
Bitcoin wallets are digital tools that allow users to store, send, and receive bitcoins. They can be online (hot wallets) or offline (cold wallets), with varying levels of security and accessibility.
In summary, Bitcoin works through a combination of blockchain technology, mining, and encrypted transactions, enabling a secure and decentralized financial ecosystem.