How Bitcoin Works
Bitcoin is a digital currency that operates without the need for a central authority, like a bank or government. Instead, it uses a decentralized network of computers, called nodes, to verify and record transactions on a public ledger known as the blockchain.
When someone sends Bitcoin to another person, the transaction is broadcast to the network. These transactions are grouped together into a block. Each block is verified by miners—special participants who use powerful computers to solve complex mathematical problems. This process is called proof-of-work. Once a miner solves the problem, the block is added to the blockchain, and the transaction is considered confirmed.
Miners are rewarded with newly created Bitcoins and transaction fees for their efforts. This process not only secures the network but also gradually releases new Bitcoins into circulation. The total supply is capped at 21 million, making Bitcoin a deflationary currency.
Bitcoin is stored in digital wallets, which use cryptographic keys: a public key (like an account number) and a private key (like a password). Only the private key holder can access and send the funds.
Because of its decentralized nature, Bitcoin allows for peer-to-peer transactions without intermediaries. This can reduce fees and increase privacy. However, its value can be highly volatile, and its legal status varies around the world.
Bitcoin’s blockchain technology ensures transparency and security. Anyone can view the ledger, but personal information is not attached to transactions, offering a balance between openness and privacy.
In summary, Bitcoin works through a combination of cryptography, decentralization, and incentives. It represents a new form of money and continues to drive innovation in finance and technology.
