What Is Bitcoin?
Bitcoin is essentially digital money. It is the first cryptocurrency ever created, announced in 2008 (and launched in 2009). Bitcoin allows users to send and receive digital money called bitcoins (with a lowercase b, or BTC for short).
Unlike traditional fiat currencies issued by governments (like dollars or euros), Bitcoin is decentralized, meaning no single institution, government, or entity controls it. Transactions are conducted peer-to-peer, removing the need for banks or financial institutions to act as intermediaries.
What makes Bitcoin highly appealing is its inherent resistance to censorship, the impossibility of double-spending funds, and the ability to conduct transactions anytime and anywhere.
How Does Bitcoin Work?
Bitcoin operates on blockchain technology, a public ledger that records all transactions. This means every Bitcoin transaction is transparent, verifiable, and secure.
Imagine blockchain as a chain of blocks, where each block holds information about transactions. Every time someone uses Bitcoin, their transaction is added to the blockchain, and this record is stored across a global network of computers (called nodes).
This distributed network ensures that no single party can manipulate the data. Anyone can participate in the ecosystem by downloading Bitcoin's open-source software.
Decentralization: Bitcoin's blockchain is maintained by a distributed network of computers, ensuring no central authority controls the ledger.
Immutability: Once a transaction is added to the blockchain, it cannot be altered or deleted.
Security: Transactions are encrypted using cryptography, and verifying each block requires solving complex mathematical puzzles, a process known as mining.
BTC transaction example
When Alice sends a BTC transaction to Bob, the blockchain database updates their balances (e.g., removing 1 BTC from Alice and adding 1 BTC to Bob’s balance). It's like Alice is writing on a piece of paper (that everyone can see) that she's giving Bob 1 BTC.
When Bob goes to send the same funds to Carol, the network can easily check if he has enough BTC balance. The blockchain acts like a digital ledger that tracks all Bitcoin transactions and keeps the users’ balances up-to-date.
Since the network is decentralized, all participants (nodes) have an identical copy of the database (blockchain ledger) stored on their devices. So, they have to communicate constantly to synchronize new information.
