Bitcoin is a decentralized digital currency that enables secure peer-to-peer transactions over the internet without relying on a central bank or intermediary institution. It was created in 2008 by an individual or group under the pseudonym Satoshi Nakamoto. Bitcoin operates on a technology called the blockchain, which is a public and distributed ledger recording every transaction history shared across a network of computers (nodes). Transactions are verified and added to the blockchain through a process known as mining, where miners solve complex cryptographic puzzles to validate blocks of transactions and are rewarded with new bitcoins. Bitcoin is capped at a total supply of 21 million coins, ensuring it cannot be infinitely inflated or manipulated, making it akin to digital gold. Users interact with Bitcoin via digital wallets that store public and private keys required to send and receive bitcoins securely.
What Bitcoin Is
- Bitcoin is a form of digital money, also called a cryptocurrency, that works independently of any government or central authority.
- It is peer-to-peer, meaning transactions happen directly between users across the internet.
How Bitcoin Works
- Transactions are created by a sender specifying the recipient's address and the amount.
- The sender digitally signs the transaction with their private key to prove ownership.
- Transactions are broadcast to the network and validated by miners.
- Miners group valid transactions into blocks and compete to solve a cryptographic puzzle ("proof of work").
- The first miner to solve the puzzle adds the block to the blockchain, confirming the transactions.
- The blockchain is a decentralized ledger maintained by numerous nodes, making it tamper-resistant.
- Bitcoin transactions are publicly recorded but pseudonymous since users are identified by public keys.
Key Concepts
- Blockchain: The distributed ledger storing all Bitcoin transactions.
- Mining: The process of validating transactions and adding blocks to the blockchain.
- Wallet: Software holding users' public and private keys to interact with the Bitcoin network.
- Decentralization: No single entity controls the network, preventing centralized manipulation.
Bitcoin thus functions as a digital currency, a store of value, and a payment system secured by cryptography and consensus mechanisms on a decentralized network.
