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What is Bitcoin and how it works?

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An anonymous group created the new virtual currency or cryptocurrency called Bitcoin, another payment for transactions without involving a third party.

Many believe the group is called “Satoshi Nakamoto”. The transactions take place between two parties without any intermediary.

It is built on blockchain technology, which is used to create, store, and manage digital transactions that are public, secure, and distributed.

Each Bitcoin is a computer file stored in a ‘digital wallet’ app, just like Paytm or GPay on a smartphone or laptop.

The transaction process in bitcoins works similarly to how any other digital wallet works. We can send them to others and vice versa.

All the transactions in the wallet are recorded and maintained in a public list known as Blockchain.

It works on the principle of recording transactions to not be duplicated or changed.

Bitcoin works in the following manner-

  • After installing a Bitcoin wallet on a cell phone or computer, your first Bitcoin address is generated, which works just like a UPI address. You can even disclose the same to others to facilitate the sending and receiving of bitcoins. You can create more bitcoin addresses whenever you need one. The Bitcoin address generated is unique, and you can only use it once.
  • All the transactions get recorded on the blockchain network, which is nothing but a shared public ledger, and it displays all the credits and debits in your bitcoin wallet. Cryptography makes sure the integrity, and chronological order of the blockchain is maintained and enforced.
  • Like any other mainstream transaction, bitcoin transactions also need to be signed, which can be done with the help of a private key. Through a process called mining, all transactions get broadcasted to the network. The Blockchain’s chronological order is enforced through mining. It protects the neutrality of the whole digital network and enables various devices to agree and work on the systems’ state.

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