Block Chain - Introduction Bitcoin
What is Bitcoin?
Bitcoin is a decentralized digital currency, often referred to as a cryptocurrency, that operates on a peer-to-peer network without the need for a central authority or intermediaries. It was the first cryptocurrency and remains the most well-known and widely used in the world of digital currencies.
Created in 2009 by an unknown person or group of people using the pseudonym Satoshi Nakamoto, Bitcoin was introduced as an alternative to traditional fiat currencies and was designed to enable secure and direct transactions between individuals without the need for banks or financial institutions.
Bitcoin is based on a technology called blockchain, which serves as a distributed public ledger, recording all transactions ever made with Bitcoin. It uses cryptographic techniques to secure transactions, control the creation of new units (called mining), and verify the transfer of assets.
How Bitcoin Works?
The working of Bitcoin involves several key elements, including transactions, blockchain, mining, and consensus mechanisms. Here's an overview of how Bitcoin works:
- Bitcoin Addresses: To use Bitcoin, users need a digital wallet that contains one or more pairs of cryptographic keys - a public key (Bitcoin address) and a private key. The public key is visible to others and is used to receive Bitcoin, while the private key is kept secret and is used to sign and authorize transactions.
- Transactions: When a user initiates a Bitcoin transaction to send coins to another user, they create a digital message containing the recipient's Bitcoin address, the amount of Bitcoin being sent, and a digital signature generated using their private key. This transaction is broadcast to the Bitcoin network.
- Validation and Inclusion: Transactions are collected in a pool called the "mempool" where they await validation. Miners, who are participants in the network, collect transactions from the mempool and include them in blocks.
- Mining: Miners compete to solve complex mathematical puzzles using their computational power. The first miner to find the solution to the puzzle gets the opportunity to create a new block. This process is known as mining. The solved block includes the list of valid transactions and a reference to the previous block, creating a chain of blocks - the blockchain.
- Consensus Mechanism: The Bitcoin network uses a consensus mechanism called Proof of Work (PoW). PoW requires miners to prove that they have expended computational effort to solve the puzzle, which makes it difficult and resource-intensive. This process ensures that blocks are added to the blockchain in a secure and distributed manner.
- Block Addition and Confirmation: Once a miner successfully solves the puzzle, they broadcast the new block to the network. Other nodes in the network verify the validity of the block and its transactions. If the block is accepted, it is added to the blockchain, and the transactions within it are confirmed.
- Transaction Confirmation: A transaction is considered confirmed once it is included in a block added to the blockchain. The more blocks added after a transaction, the higher the level of confidence in its validity.
- Halving: To control the supply of Bitcoin, the network has a predetermined issuance rate. Approximately every four years, the block reward that miners receive for adding a new block to the blockchain is halved. This event is known as the "halving."
