Today’s global market is utilizing the facility of digital currency in which encryption techniques are used to regulate the generation of units of money and verify the transfer of funds, mainly decentralized and operating independently of any centralized banking system.
The most common decentralized crypto-currencies such as bitcoins now providing an effective outlet for personal as well as business wealth that is beyond restriction and confiscation. It allows for instantaneous transactions and border-less transfer-of-ownership.
What are Bitcoins?
Bitcoin is today’s innovative payment network and a totally new kind of money, also called the digital money or the crpto-currency. Bitcoin uses a peer-to-peer technology to operate without any central authority or banking services. Managing transactions and the issuing of bit-coins is carried out collectively by the bitcoin network.
Bitcoin is based-on an open-source technology; its design is publicly made, so nobody owns or controls it and everyone can take part in. Through many of its unique properties, it allows exciting uses that could not be covered by any previous payment platforms.
Bitcoin uses a fast peer-to-peer transactions technology, that is widely accepted by the worldwide payment systems and a very low processing fees. The first decentralized payment network powered by its users with no central authority or middlemen.
There are large number of businesses and individuals using it today.
How do Bitcoins work?
Bitcoin is nothing more than just a mobile application or a computer program that provides a personal wallet and allows any user to send and receive bitcoins with them. This is how it works for most of the users around the globe.
The basics for a new user
As a new user, they can get started with Bitcoin without even understanding the technical details. Once user have installed any Bitcoin wallet on their computer or phone, it will generate their first Bitcoin address and they can create more whenever they need extra. They can disclose their addresses to others for all future transactions.
Balances – block chain
Based-on the block-chain, a shared public ledger on which the entire Bitcoin network depends. All the confirmed transactions are included in the blockchain. This way, the Bitcoin wallets can calculate spendable balance and new transactions can be verified to be spending bitcoins by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography.
Transactions – private keys
All the transactions between Bitcoin wallets gets included in the blockchain. Bitcoin wallet keeps a secret piece of data called a private key or seed, which is used to sign transactions, and providing a mathematical proof that have come from the owner of the wallets. It also prevents the financial transaction from being altered by anybody once it has been issued by anybody. All transactions are broadcast between users and usually begin to be confirmed by the network in the following few minutes, through a process called bitcoin mining.
Processing – mining
The mining of bitcoin is a distributed consensus system, which is used to confirm waiting transactions by including them in the block chain. Bitcoin mining enforces a chronological order in the blockchain, which protects the neutrality of the entire network, and allows different computers to agree on the state of the system. Confirmed transaction gets packed in a block, based-on a very strict cryptographic rules that gets verified by the network.
These rules always prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the blockchain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.
If you need to know more about it!
This is just a very short and concise summary of the entire bitcoin system. If you really want to get more details, you can read the original paper which describes the system’s design, also read the developer documentation, and may even explore the updated Bitcoin wiki.