Let’s discuss, How bitcoin works?
How bitcoin works in Simple terms
Imagine only $21 Million exist in the world, and there are exists a detailed list of all the people who possess that money. Everyone, including you (even though you have only $5), have a copy of this list. When you give $2 to your friend, you must subtract $2 from your entry and list and add $2 to your fiend’s entry. After informing his transaction, he updates the list as well. In fact, everyone in the world need to update the list, otherwise list will be inaccurate. Therefore, not only do you need to notify your fiend, but also need to publicly announce that you are updating the list. If you try to cheat the system and send your fiend $1000, your cheating attempt would be easy to catch because everyone knows you have only $5 to give.
Now imagine that all transactions are carried out on computers that communicate via internet, and replace dollars with bitcoins. This is how Bitcoin works.
Bitcoin Units
| Bitcoins | Conversion |
|---|---|
|
1 bitcoin |
1 BTC or 1 XBT |
|
1 BTC |
1000 mBTC (millibitcoins) |
|
1 mBTC |
1000 μBTC |
|
1 μBTC |
100 satoshis = 1 bit |
The Bitcoin Address
Like a bank account number, a bitcoin address consists of a string of letters and numbers (usually beginning with 1) for your convenience, you can put your bitcoin address or QR (quick response) code. You don’t need to be connected to the internet to receive Bitcoin. Only Sender needs to be connected.
The Private Key:
Where as bitcoin address is similar to a bank account number, a private key is more like a PIN: you need it to authorize to the Bitcoin network, instructing bitcoins to be moved from one address to another.
Computers on the network check whether the transaction is authorized before making any updates to the public ledger. Specifically, they check whether the transaction has been digitally signed using a private key. A digital signature is extra data appended to a transaction that can only be created by someone possessing the corresponding private key.
Note that although a private key can be used to produce a digital signature, a digital signature can’t be used to obtain a private key and also a digital signature can’t be used to make new transaction. So broadcasting digital signature on the network is not risky, unlike any other PIN.
The Bitcoin Wallet
The Blockchain
The Bitcoin Lottery
Blockchain Forking
Bitcoin Mining
Bitcoin mining is the competitive process of collecting transactions and adding them to blockchain in the form of block. Although the total number of bitcoins are capped at 21 million. The transactions happened on the Bitcoin network and to add them to bolckchain, it rewards the newly mined bitcoin to the miners that’s how new bitcoins are generated and added to the network. Once all the coins are mined. The transaction fees are paid to the miners are reward for adding the new block to blockchain.
Conclusion:
As it eliminate middleman such as banks and also no one can restrict and anonymous makes bitcoin more secure and reliable.
