Bitcoin is a decentralized cryptocurrency that has recently risen to quite a popularity among enthusiasts and investors alike. Originally created by Satoshi Nakamoto, an anonymous member of an online community. The real identity of this creator has never been discovered.
How does it work
Bitcoin works by creating a network of computers that relay transactions between each other. Each transaction is signed by the sender with a cryptographic key (explained below) that guarantees a few things.
- The Sender has the required funds
- The Sender does, in fact, have access to the funds
A cryptographic key is a string of bits used by a cryptographic algorithm to transform plain text into cipher text or vice versa. This key remains private and ensures secure communication. -Techopedia
As each Cryptographic key is unique, by signing the transaction on the ledger with key you are verifying you wish to send the coin, and it is, in fact, you sending the coin.
The public ledger (Blockchain) is the public record of every transaction ever submitted to the bitcoin network.
Why Does it matter
So what’s the point to all this technology?
Becuase there is no central server handling all the transactions, the system is globally checked by miners all over the globe. There is no central agency responsible with authority and ability to act corrupt with selfish interests. As we have seen with many countries and institutions, absolute power corrupts. By creating a network in which no party has absolute control, we create a network that can stand against corruption.
The miners are millions of computers attempting to calculate the equation of the bitcoin transaction in exchange for a small amount of bitcoin. China is the home to huge computer farms making money off of simply running these computers.
Bitcoin Nodes are ran by enthusiests and users alike. The bitcoin node downloads the public ledger and relays any transaction to the ledger across the network. The node is one of the ways bitcoin stays decentralized. There is no single server that is responsible for detecting errors.
With the public ledger being public, and every transaction cryptographically signed by the person sending the coin, every transaction ever made can be followed through the network from wallet to wallet. This will make the flow of money available to anyone interested, unlike cash.
Due to the security of cryptographic signing, there can be no fraud on the network. Fake money won’t be a thing, as millions of computers are calculating hashes on the bitcoin network.