How does bitcoin work?
This is a question that often causes confusion. Here is a quick explanation!
The essentials for a new user
As a new user, you can start with Bitcoin without understanding the technical details. Once you have a wallet installed on your computer or mobile device, your first Bitcoin address will be generated and you can create more when you need it. You can give your address to your friends to get paid or vice versa. In fact, it is similar to how email works, except that Bitcoin addresses should only be used once.
Balances – block chain
The block chain or “block chain” is a shared and distributed public accounting on which the entire Bitcoin network is based. All confirmed transactions are included in the block chain. In this way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified, ensuring that the payment is being made to the person making the payment. The integrity and chronological order of the blockchain are enforced with cryptography. “The distributed public accounting technology that underlies bitcoin … could change the financial system, think of the Internet before Internet browsers existed.”
Transactions – private keys
A transaction is a transfer of values between Bitcoin purses that will be included in the chain of blocks. Bitcoin purses have a secret fragment called a private key, used to sign transactions, providing mathematical proof that the transaction is made by the purse owner. The signature also prevents the transaction from being altered by someone once it has been issued. All transactions are disseminated among users and usually begin to be confirmed by the network in the next 10 minutes through a process called mining.
Processing – mining
Mining is a distributed consensus system which is used to confirm the pending transactions to be included in the block chain. It enforces a chronological order in the chain of blocks, protects the neutrality of the network and allows an agreement between all the teams on the state of the system. To confirm transactions, they must be packaged in a block that conforms to strict encryption rules and will be verified by the network. These rules prevent any previous block from being modified, since doing so would invalidate all the following blocks. Mining also creates the equivalent of a competitive lottery that prevents anyone from easily adding new blocks consecutively in the block chain. In this way,