How Does Bitcoin Work?
Bitcoin is a decentralized digital currency that facilitates peer-to-peer transactions over the internet. Its operation is based on blockchain technology, a distributed ledger system that records all transactions across a network of computers.
1. Blockchain Technology
The Bitcoin blockchain is a chain of blocks, where each block contains a list of transactions. Once a block is filled, it is added to the chain in a linear and chronological order. This ensures transparency and security, as altering a block would require changing every subsequent block, which is computationally infeasible.
2. Mining
Bitcoin is created through a process called mining, where powerful computers solve complex mathematical problems to validate transactions. Once a miner successfully validates a block, they are rewarded with newly minted bitcoins, which incentivizes the maintenance of the network.
3. Wallets
Users store their bitcoins in digital wallets, which can be software-based or hardware-based. Wallets contain cryptographic keys that allow users to send and receive bitcoin securely, ensuring that only the owner can access their funds.
4. Transactions
When a user initiates a transaction, it is broadcasted to the network, where miners compete to validate it. Once validated, the transaction is permanently recorded on the blockchain, making it tamper-proof and transparent.
Overall, Bitcoin operates on the principles of decentralization, security, and transparency, which are fundamental to its function as a cryptocurrency.