Bitcoin Definition: How Does Bitcoin Work?

Almost everyone these days knows of the Bitcoin, especially given the unprecedented surge in value even in the middle of a global pandemic in which nearly every asset has depreciated. But what is the Bitcoin? Bitcoin is a decentralized digital currency founded by an individual or group of individuals under the name of Satoshi Nakamoto. It was designed to offer an alternative system of payment to traditional currencies like the USD or GBP. It is neither issued nor controlled by government or financial institutions.

Bitcoins are not physical coins; they are records of balances stored on a public ledger that can be viewed by everyone. Bitcoins are in high demand and may be bought with a variety of payment methods, including credit, debit, and Paypal accounts. Discover more here about buying Bitcoin using a credit card here. It will give you the greatest advice on how to get started buying bitcoins. Every Bitcoin transaction must be verified by miners; these are nothing but computers in the network that ae responsible for verifying authenticity of transactions. The public ledger is a blockchain which is a collection of many blocks; every block contains records of transactions. Every block has an identical copy of the blockchain; so, every time a new block gets added, everyone can view it. This helps to prevent double spending and none can cheat the system.

How does Bitcoin work?

The Bitcoin has been founded on a blockchain or a public ledger of digital records. This blockchain is made up of many blocks of data which have information about transactions, such as time and date, details about the buyers and seller, total value, and a unique code for every exchange. These entries are linked together through a chronological order.

The possibility of editing the blockchain by anyone who accesses it can sound risky but this is why the Bitcoin is trustworthy and secure. For any block to be added to the blockchain it needs to be first verified by a majority of the miners owned by Bitcoin holders. Unique codes for recognizing user wallets or transactions have to conform to the correct encryption pattern. Such codes are made of random numbers and lengthy, making it impossible to reproduce these fraudulently. This is what reduces the odds of fraudulent transactions.

Regardless of whether one runs a node or computer, he can view the transactions that take place in real-time. So, to commit a nefarious or criminal act, a party will need to run 51% of the total computing power. Incidentally, this is rather unlikely because the number of nodes in June 2021, for instance, was almost 10,000. Any attempt to change the hash power of one node will bring about corresponding changes to other nodes and this will automatically be detected and stopped. Even if an attack did happen, miners or the people mining Bitcoins using their computers, would fork into a new blockchain.

The balance of Bitcoins are maintained using private and public keys; these are long strings of letters and numbers. While the public key is somewhat like a bank address that is used for sending and receiving Bitcoins, the private key is like an ATM PIN that is exclusively provided to the Bitcoin holder for viewing his funds. New Bitcoins are given to miners when they successfully mine a block. However, the rate has been steadily declining since Bitcoin has a finite supply. Miners must use a Proof of Work process for verifying transactions and they are incentivized to mine through these rewards in the form of new Bitcoins. Today, however, mining demands specialized equipment that are highly energy-intensive, making it harder to mine independently.