what is bitcoin

What Is Bitcoin And How Does It Work

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What are Bitcoins and how do they work?
Bitcoins are digital tokens that can be exchanged between users through a digital payment network. Let’s take a closer look at the cryptocurrency that started it all.

The cryptocurrency revolution is already on the threshold. Or, it seems, given the huge number of people who buy, sell and talk about cryptocurrencies like bitcoin. Although it is true that there are many types of cryptocurrencies, bitcoin was the first in the world and eventually took its place among the most famous and beloved. But what are Bitcoins? And how do they work?

What are Bitcoins ?
Bitcoins are a type of digital token that can be exchanged electronically through a decentralized digital payment network. Originally developed as a secure electronic payment system, they can be sent from one person to another anywhere in the world.

Bitcoins are based on blockchain technology. Blockchain is a type of digital ledger that stores information (for example, related to transactions) in such a way that it is almost impossible to change it. This method of recording information is already secure in itself, but Bitcoin provides an additional layer of security by specifically using a decentralized blockchain that depends on peer-to-peer (“peer-to-peer”) networks for verifying transactions.

It may seem like a complex system, but in this guide we will take a detailed look at every aspect. The most important thing to keep in mind is that Bitcoin offers an alternative approach to the financial world than that offered by banks and traditional governments. In addition, many consider them the future of the global economy.

How do Bitcoins work ?
Nakamoto called an electronic currency (for example, bitcoin) a “chain of digital signatures.” It may seem complicated, but it’s a good way to understand how it works.

When a bitcoin owner transfers a coin to another owner, the transaction information is recorded in the blockchain. This information includes the recipient’s “public key”. Public keys work in the same way as bank account numbers: they can be transferred to third parties for verification without compromising the user’s security.

Everything seems pretty clear, but there is another problem that needs to be solved. How can a person buying a room be sure that the owner hasn’t spent it yet? This is a specific problem with digital tokens, called “double spending”.

What is the problem of double spending?
If you spend euros in one store, you can’t go to another store and spend the same euro. In other words, you can’t spend that Euro twice.

If the issue of double spending does not affect a traditional fiat currency such as the euro or dollar, this could become a problem for bitcoin and other cryptocurrencies. In this case, a new mechanism is needed to ensure that one coin will not be spent twice.

How does Bitcoin solve the problem of double spending?
In order to verify transactions and constantly confirm the correctness of the blockchain, bitcoins use a decentralized network of high-speed computers. The participants of this network do not have to trust each other or even know each other: in fact, each of them receives an identical copy of the same blockchain registry.

Unlike one original copy, this huge number of distributed copies not only eliminates the need for a reliable centralized authority, but also protects the blockchain from possible cases of hacking and double spending.

After the initial transaction is verified by the network and added to the blockchain, it can no longer be changed, and if a hacker tries to change or alter the blockchain in any way, he will only be able to change his own copy. The modified copy will not match copies stored on other computers on the network, so there can be no majority consensus on its validity.

In the case of bitcoin, at least 51% of the computers on the network must confirm an incorrect copy of the blockchain in order for it to be considered valid. Given the cost and computing power required to affect such a large number of computers in a decentralized network, it is very difficult to introduce a bug into the blockchain.

What is Bitcoin mining and how does it work?
Bitcoin mining is the process by which bitcoin transactions are recorded, as well as the process that allows new bitcoins to enter circulation. Let’s look at this concept in more detail.

We just mentioned that the consensus model on which Bitcoin is based requires a huge amount of computing power to work. This model is called proof of gold

As proof or in return, these miners receive new bitcoins. The fact that so many computers use such computing power to verify transactions makes it virtually impossible, at least 51%, to verify an inaccurate version of the registry.

What are Bitcoins for ?
Although bitcoins were originally conceived as a currency payment system, they have received many different applications. Here are some examples:

Bitcoins can be used to make purchases. From stylish luxury cars to regular insurance, you can use bitcoin to buy anything. With Bitcoin debit cards, which are loaded with cryptocurrencies but also allow you to make daily transactions in fiat currencies, you can use bitcoins wherever card payments are accepted.

Bitcoins can be considered as a safe asset. Despite the fact that they are far from traditional investments, many consider bitcoins to be a valuable asset. The very volatile price makes it a high-risk asset, but this aspect has not deterred many speculators. Since the total number of bitcoins is limited, some consider them “digital gold”.

Bitcoins can be bought, sold and exchanged. Given the volatility and unpredictability of prices on the open market, bitcoin and other cryptocurrencies are also widespread among DA traders, but do not forget that any investment in cryptocurrency involves serious risks.

How much does Bitcoin cost?
The value of bitcoin is determined by the offers on the open market. In fact, it follows the rules of supply and demand: the higher the demand, the higher the cost.