Bitcoin works as a decentralized digital currency using blockchain technology, mining, and peer-to-peer networking. Here's an overview of how it works:
- Bitcoin transactions happen when someone sends Bitcoin from their wallet to another person's wallet. The sender creates and digitally signs the transaction with their private key to prove ownership.
- The signed transaction is broadcast to the Bitcoin network, where miners verify its validity. Miners group transactions into blocks and compete to solve complex cryptographic puzzles to add a new block to the blockchain.
- The blockchain is a public, distributed ledger that records every confirmed Bitcoin transaction. Each block is linked to the previous one, making the blockchain immutable and secure.
- Mining is the process that secures the network, validates transactions, and creates new Bitcoins. Miners are rewarded with new Bitcoins for successfully solving the cryptographic puzzle.
- Transactions are confirmed once included in a block, with additional confirmations occurring as new blocks are added, further securing the transaction.
- Users need a Bitcoin wallet to store their public and private keys, access to the internet to interact with the network, and often a cryptocurrency exchange to buy and sell Bitcoin.
Bitcoin's design ensures decentralization, security through cryptographic techniques, and transparency via the blockchain, allowing direct and secure value transfers without intermediaries like banks.
