What is bitcoin explained simply
Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system.
To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.
This is only a very short and concise summary of the system. If you want to get into the details, you can read the original paper that describes the system's design, read the developer documentation , and explore the Bitcoin wiki. How does Bitcoin work? This is a question that often causes confusion. Here's a quick explanation!
It allows people to send or receive money across the internet, even to someone they don't know or don't trust. Money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin's security.
A Bitcoin address, or simply address, is an identifier of letters and numbers, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. For example, using Bitcoin Core, one can click "New Address" and be assigned an address. It is also possible to get a Bitcoin address using an account at an exchange or online wallet service.
One of the differences between using bitcoin and using regular money online is that bitcoin can be used without having to link any sort of real-world identity to it. Unless someone chooses to link their name to a bitcoin address, it is hard to tell who owns the address. Bitcoin does not keep track of users; it keeps track of addresses where the money is. Each address has two important pieces of cryptographic information, or keys: The public key, which is what the "bitcoin address" is created from, is similar to an email address; anyone can look it up and send bitcoins to it.
The private address, or private key, is similar to an email password; only with it can the owner send bitcoins from it.
Because of this, it is very important that this private key is kept secret. To send bitcoins from an address, you prove to the network that you own the private key that corresponds to the address, without revealing the private key. This is done with a branch of mathematics known as public key cryptography. A public key is what determines the ownership of bitcoins, and is very similar to an ID number. If someone wanted to send you bitcoins, all you would need to do is supply them your bitcoin address, which is a version of your public key that is easier to read and type.
Anyone using the system can see how much money "ABC" has and how much money "DEF" has, but they cannot tell anything about who owns the address. But Bob and Alice each have a second key which only they individually know.
This is the private key, and it is the "other half" of a Bitcoin address. The private key is never shared, and allows the owner of the bitcoins to control them. However, if the private key is not kept secret, then anyone who sees it can also control and take the bitcoins there. The person who took it, told others about it later, saying "I'll send it back once Matt gives me a new address, since someone else can sweep [empty] out the old one. Sites or users using the Bitcoin system are required to use a global database called the blockchain.
The blockchain is a record of all transactions that have taken place in the Bitcoin network. It also keeps track of new bitcoins as they are generated. With these two facts, the blockchain is able to keep track of who has how much money at all times. To generate a bitcoin, a miner must solve a math problem. However, the difficulty of the math problem depends on how many people are mining for bitcoin at the moment.
Because of how complicated the math problems usually are, they must be calculated with very powerful processors. The process of generating the bitcoins is called mining. People who use these machines to mine bitcoins are called miners. Miners either compete with one another or work together in groups to solve a mathematical puzzle.