A brief: How does Bitcoin work?

The basis for new users

As a new user you can get started with Bitcoin without technical knowledge. Once you have installed a Bitcoin wallet on your computer or mobile phone, your first Bitcoin address is generated and you can always create new addresses. Give your addresses to your friends so that they can pay you and vice versa. It is actually similar to how e-mail works, except that Bitcoin addresses can only be used once.


Balance – block chain

The blockchain is a shared public register on which the entire Bitcoin network is built. All confirmed transactions are included in the blockchain. For example, Bitcoin wallets can calculate the balance to be issued and it can be verified that the bitcoins in a new transaction are also the real property of the person issuing them. The integrity and chronological order of the block chain are kept intact by means of cryptography .

Transactions – secret keys

A transaction is a transfer of value between Bitcoin wallets that is included in the block chain. Bitcoin wallets have a secret piece of data, a secret key or seed that is used to sign transactions. For example, mathematically insured that the relevant transaction comes from the owner of the corresponding wallet. The signature also ensures that the transaction can not be changed by anyone after it has been executed. All transactions are sent to users and usually confirmed by the network within the next 10 minutes via a process called mining .

Processing – mining

Bitcoin mining is a distributed consensus system that is used to confirm new transactions by including them in the blockchain. It ensures that transactions are included in the blockchain in chronological order, protects the neutrality of the network and ensures that different computers have the same idea about the state of the system. To be confirmed, transactions must be packaged in a block with very precise cryptographic conditions, which is then checked by the network.Those conditions prevent a previous block from being changed, because such a change would invalidate all later blocks.Mining also works as a kind of lottery where you have more chance if your computer does more work, making it too difficult for an individual to add blocks to the blockchain that do not belong. For example, no one can decide which block to add next or change the blockchain to undo its own expenses.

More information

This is just a brief, concise summary of the system. If you would like to know more about how it works, read the original paper describing the design of the system, consult the developer documentation or look around in the Bitcoin wiki . There is also plenty of information on investing in bitcoin available on Coinbase.

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