How Does Bitcoin Work?
This is a question that often causes confusion. Here's a quick explanation! As a new user, you can get started with Bitcoin without understanding the technical details. 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. The block chain is a shared public ledger 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. The integrity and the chronological order of the block chain are enforced with cryptography . 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 signature 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 . Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions Continue reading >>
How Bitcoin Works | Investopedia
Hydropower: The Key to Bitcoin Mining in the Future? How exactly to interpret bitcoin is a matter of controversy – as a currency, a store of value, a payment network, an asset class? Fortunately, leaving the economic debates aside, it's pretty easy to answer what bitcoin actually is – software. Don't be fooled by stock images of shiny coins bearing modified Thai baht symbols. Bitcoin is a purely digital phenomenon, a set of protocols and processes. It is the most successful of hundreds of attempts to create virtual money through the use of cryptography (the science of making and breaking codes), though competition is heating up. (Check out our new Bitcoin Page for real-time price quotes and news) Bitcoin is a network that runs on a protocol known as the blockchain. A 2008 paper by a person or people calling themselves Satoshi Nakamoto first described both the blockchain and bitcoin, and for a while the two terms were all but synonymous. The blockchain has since been conceptually divorced from its first application, and thousands of blockchains have been created using similar cryptographic techniques. This history can make the nomenclature confusing. "Blockchain" sometimes refers to the original, bitcoin blockchain; other times it refers to blockchain technology in general, or to any other specific blockchain, such as the one that powers Ethereum . The basics of blockchain technology are mercifully straightforward. Any given blockchain consists of a single chain of discrete blocks of information, arranged chronologically. In principle this information can be any string of 1s and 0s – emails, contracts, land titles, marriage certificates, bond trades – and this versatility has caught the eye of governments and private corporations. In bitcoin's ca Continue reading >>
How Does Bitcoin Work? A Guide To Digital Currency
Like email, bitcoin is a protocol. Where email is a protocol for sending messages over the internet, bitcoin is a protocol for sending money over the internet. The bitcoin protocol defines the rules of a payment network, called bitcoin, that uses a currency, also called bitcoin, to pay computers around the world for securing the network. The software that implements the bitcoin protocol uses a special branch of mathematics called cryptography to ensure the security of every bitcoin transaction. The rules of the bitcoin protocol include the requirement that a user cannot send the same bitcoin more than once and a user cannot send bitcoin from an address for which they do not possess the private key. If a user tries to create a transaction that breaks the rules of the bitcoin protocol, it will automatically be rejected by the rest of the bitcoin network. Note: this is a simplified explanation of how bitcoin works. You can learn more about the technical details of how bitcoin works in the bitcoin whitepaper and the bitcoin wiki . Bitcoin ownership is secured by a special code called a cryptographic key pair. Each key pair is made of two keys: a public key and a private key. The public key is transformed into a bitcoin address that is used to receive bitcoin transactions. The private key is used to make a digital signature that sends bitcoin from one address to another. Bitcoin addresses are often turned into QR codes so they can easily be scanned by a smartphone camera: (Note: bitcoin sent to that address cannot be spent, so dont try it unless you like throwing away money!) Like an email address, a bitcoin address can be shared with anyone that the owner wants to receive a bitcoin payment from. Private keys, on the other hand, should not be shared. Anyone who possesses th Continue reading >>
What Is Bitcoin And How Does It Work?
Bitcoin is a cryptocurrency, or a digital currency, that uses rules of cryptography for regulation and generation of units of currency. Bitcoin is talk of town these days. On one hand, Japan consider bitcoin as a legal tender, while on the other, JP Morgan Chase CEO James Dimon calls it little more than a fraud. Investors or traders of Bitcoin faced chaotic situation after Shanghai-based BTCChina, a major Chinese bitcoin exchange, on Thursday said it would stop trading in the crypto-currency from September 30, citing tightening regulation, while smaller bitcoin exchanges ViaBTC, YoBTC and Yunbi on Friday announced similar closures. This sent negative signal to the world in relation to Bitcoin. Indian government also is not looking happy with Bitcoin. The Reserve Bank of India official Sudarshan Sen on September 13 said that the central bank was uncomfortable with non-fiat cryptocurrencies like Bitcoin. The digital-currency has plunged over 50 per cent in the past 13 trading days. Bitcoin is a cryptocurrency, or a digital currency, that uses rules of cryptography for regulation and generation of units of currency. Bitcoin falls under the scope of cryptocurrency and was the first and most valuable among them. It is commonly called a decentralised digital currency. Bitcoin was invented by Satoshi Nakamoto in 2009. Hitesh Malviya, Bitcoin Expert, itsblockchain.com explains, Bitcoins are completely virtual coins designed to be self-contained for their value, with no need for banks to move and store the money. Once you own bitcoins, they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years. Bitcoins are traded f Continue reading >>
This Is How Bitcoin Works
Editors note: Bitcoins price has soared over the past year, placing it at the center of the debate over the future of cryptocurrency. But while Bitcoin was released nearly a decade ago, many consumers still dont know much about how it works. PBS NewsHour Economics Correspondent Paul Solman recently spoke with Neha Narula, the director of MIT Media Labs Digital Currency Initiative, to find out more about cryptocurrency. Their conversation has been edited for length and clarity. Watch the full Making Sen$e segment on cryptocurrency on Thursdays NewsHour program. NEHA NARULA: Thats a great question. Bitcoin is a way of making digital payments without a bank in the middle. This is actually something that we never really had until 2009, when Bitcoin became a thing. And with the invention of Bitcoin, I could transfer a token, a digital token, that had value to you and I could do that without a credit card company or a bank or PayPal or Venmo or any of those things in the middle. So just like I could give you a 20 dollar bill, I can give you some Bitcoin. Really, its an entry in a ledger. When you think about finances, when you think about accounting, often times the way that it works is that were keeping a ledger of transactions, were recording who has what, right? You know, Ive got $100 in my account and you might have $50 in your account, and if I give you money we record that as a change to the ledger. That is exactly what Bitcoin is, except instead of a financial institution holding this ledger for us, theres a whole bunch of nodes all around the world that are running this computer program that takes care of the ledger for us. And theyre all running the software, which is the Bitcoin software that keeps track of the ledger, makes sure all the transactions are correct, a Continue reading >>
Guide: What Is Bitcoin And How Does Bitcoin Work?
Guide: What is Bitcoin and how does Bitcoin work? Media playback is unsupported on your device WATCH: Ayshah's report on the rise of the Bitcoin The value of virtual currency Bitcoin is at the highest it's ever been - one Bitcoin is now worth more than 7,000 - and its value could go even higher. But what is Bitcoin and how does it all work? Image caption Physical Bitcoins are a bit of a novelty Bitcoin, often described as a cryptocurrency, a virtual currency or a digital currency - is a type of money that is completely virtual. It's like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether. The physical Bitcoins you see in photos are a novelty. They would be worthless without the private codes printed inside them. Image caption A Bitcoin wallet app on a smartphone Each Bitcoin is basically a computer file which is stored in a 'digital wallet' app on a smartphone or computer. People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people. Every single transaction is recorded in a public list called the blockchain. This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undo-ing transactions. There are three main ways people get Bitcoins. You can sell things and let people pay you with Bitcoins. Image caption People build special computers to generate Bitcoins In order for the Bitcoin system to work, people can make their computer process transactions for everybody. The computers are made to work out incredibly difficult sums. Occasionally they are rewarded with a Bitcoin for the owner to keep. People set up powerful computers just to try and get Bitcoins. Th Continue reading >>
Bitcoin - Simple English Wikipedia, The Free Encyclopedia
digital cash system and associated currency unit Bitcoin is a digital and global money system (currency). It allows people to send or receive money across the internet, even to someone they don't know or don't trust. Money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin's security. A Bitcoin address, or simply address, is an identifier of 26-35 alphanumeric characters, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. For example, using Bitcoin Core, one can click "New Address" and be assigned an address. It is also possible to get a Bitcoin address using an account at an exchange or online wallet service. There are currently two address formats in common use: Common P2PKH which begin with the number 1; e.g.: 1BvBMSEstWetqTFn5Au4m4GFg7xJaNVN2. Newer P2SH type starting with the number 3; e.g.: 3MXknxVapwv6QkMoQv99MBuXZ2XpPewHn9. One of the differences between using bitcoin and using regular money online is that bitcoin can be used without having to link any sort of real-world identity to it. Unless someone chooses to link their name to a bitcoin address, it is hard to tell who owns the address. Bitcoin does not keep track of users; it keeps track of addresses where the money is. Each address has two important pieces of cryptographic information, or keys: a public one and a private one. The public key, which is what the "bitcoin address" is created from, is similar to an email address; anyone can look it up and send bitcoins to it. The private address, or private key, is similar to an email password; only with it can the owner send bitcoins from it. Because of this, it is very important that Continue reading >>
Explainer: What Is Bitcoin And How Does It Work?
Nov 30, 2017 03:11 PM IST | Source: Moneycontrol.com Explainer: What is bitcoin and how does it work? The world's most valued currency bitcoin on Wednesday cruised past USD 10,800 in the early trade. We explain the intricacies of the cryptocurrency in layman's terms In simple words, cryptocurrencies like bitcoin are similar to the virtual cash stored in online wallets Ola Money, Paytm, Freecharge etcyou use for buying products or services through the internet. The major difference is that the money stored in these wallets uses currency units recognised and backed by any government body, unlike cryptocurrencies which are decentralised. Cryptocurrency, as the name suggests, are currencies which are generated by computer codes, thus it has no issuing agency (like Reserve Bank of India). Any cryptocurrency is generated by miners on a cryptocurrency network like bitcoin that solves complex mathematical problems. In pics - Bubble or not! Facts you might not know about bitcoin rally There are thousands of cryptocurrencies active today almost all of them are same or similar in nature, primarily differing on the technology they use for encryption and hashing (creation generating a value or values from a string of textthrough a mathematical function). The most popular ones are Bitcoin, Ether, Bitcoin cash, Ripple among others. Bitcoin is the name of the oldest and most popular cryptocurrency network as well as the unit of currency generated by the same network. Except the fact that it is virtual (i.e. you cannot touch it as there is no physical form) and decentralised, bitcoin behaves very much like any real currency you know. Bitcoin can be used to purchase products and as payment for services (subject to acceptance), can be an investment tool, traded on the market among other Continue reading >>
What Is Bitcoin, And How Does It Work?
Technology |What Is Bitcoin, and How Does It Work? Bitcoin transactions are tracked by a decentralized network of computers around the world. Credit Mark Blinch/Reuters If you find the concept of Bitcoin confusing, you are not alone. The virtual currency has been a constant source of controversy, but it is still not well understood. Are Bitcoins those coins I see in photographs? No. Those coins are novelty items that newspapers used in photographs because they couldnt find anything else to illustrate their stories about Bitcoin. A Bitcoin is a digital token with no physical backing that can be sent electronically from one user to another, anywhere in the world. A Bitcoin can be divided out to eight decimal places, so you can send someone 0.00000001 Bitcoins. This smallest fraction of a Bitcoin the penny of the Bitcoin world is referred to as a Satoshi, after the anonymous creator of Bitcoin. This all gets confusing, because Bitcoin is also the name of the payment network on which the Bitcoin digital tokens are stored and moved. Unlike traditional payment networks like Visa, the Bitcoin network is not run by a single company or person. The system is run by a decentralized network of computers around the world that keep track of all Bitcoin transactions, similar to the way Wikipedia is maintained by a decentralized network of writers and editors. The record of all Bitcoin transactions that these computers are constantly updating is known as the blockchain. Criminals have taken to Bitcoin because anyone can open a Bitcoin address and start sending and receiving Bitcoins without giving a name or identity. There is no central authority that could collect this information. Bitcoin first took off in 2011 after drug dealers began taking payments in Bitcoin on the black-market Continue reading >>
Still Don't Get Bitcoin? Here's An Explanation For Five-year-olds
If you still cant figure out what the heck a bitcoin is, this simple explanation for a five-year-old may help you ... Were sitting on a park bench. Its a great day.I have one apple with me, I give it to you. You now have one apple and I have zero.That was simple, right? My apple was physically put into your hand.You know it happened. I was there, you were there you touched it. We didnt need athird personthere to help us make the transfer. We didnt need to pull in Uncle Tommy (whos a famous judge) to sit with us on the bench and confirm that the apple went from me to you. The apples yours! Icantgive you another apple because I dont have any left. I cant control it anymore. The apple left my possession completely. You have full control over that apple now. You can give it to your friend if you want, and then that friend can give it to his friend, and so on. So thats what an in-person exchange looks like. I guess its really the same, whether Im giving you a banana, a book, a quarter, or adollar bill Now, let's say I have onedigitalapple. Here, Ill give you mydigitalapple. Ah! Now it gets interesting. How do you knowthatdigital apple which used to be mine, is now yours, and only yours? Think about it for a second.Its more complicated, right? How do you know that I didnt send that apple to Uncle Tommy as an email attachment first? Or your friend Joe? Or my friend Lisa too? Maybe I made a couple of copies of that digital apple on my computer. Maybe I put it up on the internet and one million people downloaded it. As you see, this digital exchange is a bit of a problem.Sendingdigitalapples doesnt look like sendingphysicalapples. Some brainy computer scientists actually have a name for this problem: its called the double-spending problem . But dont worry about it. All you need Continue reading >>
How Does Bitcoin Work? Bitcoin Explained For Beginners
The financial world can't stop talking about bitcoin. In recent weeks, the headlines of business journals and finance sections have covered everything from the importance of investing in bitcoin to how the bubble is about to burst (within days of bitcoin futures hitting the stock exchange). To anyone on the outside, those words make no sense. But that doesnt mean that bitcoin isnt on the average Americans radar. Introduced in 2009, bitcoin is an anonymous cryptocurrency, or a form of currency that exists digitally through encryption. It was invented to be unhackable, untraceable, and safe for investors. The value started out insanely cheap and hit a bump in 2013 that took it to about $250 per bitcoin. Once bitcoin futures hit the CME Group, the price of bitcoin skyrocketed to nearly $20,000. Think of it this way: If you'd invested $100 on January 1, 2011, when one bitcoin was valued at .30 cents, those bitcoins could be worth around $5 million today. So, at least for now, its not going away. Here's a quick rundown on what the hell bitcoin actually is. Bitcoin is a cryptocurrency that is conducted on a public ledger, the "blockchain." Digitally transferred, it exists only online. Much like gold, it can have monetary value while also being a commodity, but its still its own currency. It is also decentralized and not managed by a single entity, but rather a group of people who process transactions, called miners. This means it is not subject to government regulations when traded or spent, and you don't need a bank to use it. Miners are in charge of making sure bitcoin transactions made by users are recorded and legit. Simply put, they do this by grouping every new bitcoin transaction made during a set time frame into a block. Once a block is made, it is added to the chain Continue reading >>
How Does Bitcoin Work? I Built An App To Showyou.
How does bitcoin work? I built an app to showyou. As Bitcoin rose to unprecedented levels, it caught my attention & curiosity. I wondered, how does bitcoin really work? As I went down the blockchain rabbit hole, I found that many resources rarely go beyond the revolutionary, distributed and immutable dialogue. Many talk about the what, but not so much the why and how. I resorted to reading technical papers and source code to uncover this black box. I started sharing what I learned by building apps that demonstrated the inner workings of the blockchain. What I realized was bitcoin was just blockchain + transactions. This article will cover the transactions part of the equation. If you would like a refresher on blockchain, checkout Blockchain Demo or this article . A block on the blockchain has the following parts: A block on the blockchain Hash (#00001834d29f33): Is the block valid? Previous Hash (#000dc75): Is the previous block valid? Timestamp (Tue, 19 Dec 2017): When was the block added? Data (I freeCodeCamp): What information is stored on the block? Nonce (1263): How many iterations did we go through before we found a valid block? Instead of having text (I freeCodeCamp) as data, cryptocurrencies have transactions as data. Transactions are a record of payment between two parties. When there is an exchange of value, a transaction is created to record it. For example, lets say Satoshi has 100 coins. He wants to pay Dean 5 coins, with a mining fee of 1 coin. He uses the 100 coins he has to make the transaction. He expects to have 94 coins in change. When Satoshi mines a new block with the transaction above, he is rewarded with 100 new coins. The example above will create the following transaction outputs (to be explained): Since the initial 100 coins Satoshi had was us Continue reading >>
How Bitcoin Works | Howstuffworks
This is an artist's visual representation of the digital cryptocurrency, Bitcoin. Bitcoin itself has no physical presence. Dan Kitwood/Getty Images It's a bit like money ... and it's a bit like a financial bubble. It's Bitcoin , and it may be giving us a glimpse of the future of money . Bitcoin is a type of virtual currency brought to life by the internet, very powerful computers and the willingness of lot of people looking to embrace new forms of monetary exchange. Bitcoin shares some similarities with real-world currencies, particularly its growing acceptance as a form of payment with more and more merchants, retailers and individuals, both online and offline. You can buy Microsoft products with Bitcoin, buy airline tickets through Expedia, or buy gift cards to superstores like Walmart. Yet Bitcoin is also very different from traditional currencies. Unlike dollars or pounds, Bitcoin isn't backed by any government. It's a completely decentralized form of money. Bitcoin isn't linked to any sort of central banking system or issuing authority, and that's a big part of its appeal instead of being swallowed into a system that's often sullied by human greed and manipulation, this currency exists in an online world driven by mathematics and clever encryption protocols. You can use Bitcoin for all sorts of real transactions. To do so, you first buy bitcoins however you like, either through your credit card, a bank account or even anonymously with cash. Then your bitcoins are transferred directly into your Bitcoin wallet, and you can send and receive payments directly to a buyer or seller without the need for a typical go-between, such as a bank or credit card company. By skipping the middleman in the transaction, you pay far less in associated fees. Each party in the deal can Continue reading >>
How Does Bitcoin Work? - The Economist Explains
The Economist explainsHow does Bitcoin work? The virtual currency is decentralised, which is part of its appeal BITCOIN, the worlds first decentralised digital currency, was launched in 2009 by a mysterious person known only by the pseudonym Satoshi Nakamoto, whose true identity is still unknown. Since then, the value of a single Bitcoin has fluctuated wildly, reaching a high of around $1,000 in late 2013 before falling to less than half that level, and then rebounding in 2016. What exactly is Bitcoin, and how does it work? Unlike traditional currencies, which are issued by central banks, Bitcoin has no central monetary authority. Instead it is underpinned by a peer-to-peer computer network made up of its users machines, akin to the networks that underpin BitTorrent, a file-sharing system, and Skype, an audio, video and chat service. Bitcoins are mathematically generated as the computers in this network execute difficult number-crunching tasks , a procedure known as Bitcoin mining. The mathematics of the Bitcoin system were set up so that it becomes progressively more difficult to mine Bitcoins over time, and the total number that can ever be mined is limited to around 21 million. There is therefore no way for a central bank to issue a flood of new Bitcoins and devalue those already in circulation. The entire network is used to monitor and verify both the creation of new Bitcoins through mining, and the transfer of Bitcoins between users. A log is collectively maintained of all transactions, with every new transaction broadcast across the Bitcoin network. Participating machines communicate to create and agree on updates to the official log. This process, which is computationally intensive, is in fact the process used to mine Bitcoins: roughly every 10 minutes, a user w Continue reading >>
What Is Bitcoin, And How Does It Work?
Bitcoin. the digital currency, has been all over the news for years. But because its entirely digital and doesnt necessarily correspond to any existing fiat currency, its not easy to understand for the newcomer. Lets break down the basis of exactly what Bitcoin is, how it works, and its possible future in the global economy. Editors Note:we want to make it very clear right up front that we are not recommending that you invest in Bitcoins. Its value fluctuates quite a bit, and its very likely that you may lose money. In laymans terms: Bitcoin is a digital currency. Thats a concept that might be more complex than you realize: it isnt simply an assigned value of money stored in a digital account, like your bank account or credit line. Bitcoin has no corresponding physical element, like coins or paper bills (despite the popular image of an actual coin, above, to illustrate it). The value and verification of individual Bitcoins are provided by a global peer-to-peer network. Bitcoins are blocks of ultra-secure data that are treated like money. Moving this data from one person or place to another and verifying the transaction, i.e. spending the money, requires computing power. Users called miners allow their computers to be used by the system to safely verify the individual transactions. Those users are rewarded with new Bitcoins for their contributions. Those users can then spend their new Bitcoins on goods and services, and the process repeats. The advanced explanation: Imagine it as BitTorrent , the peer-to-peer network that you definitelydidntuse to download thousands of songs in the early 2000s. Except instead of moving files from one place to another, the Bitcoin network generates and verifies blocks of information that are expressed in the form of a proprietary currenc Continue reading >>