The fact that Bitcoin is safe and a kind of threat to conventional banks is certainly something that you have heard of. But how does this virtual currency actually work? This is not at all very complicated and something that you can understand. But for most, it does not require deep knowledge about Bitcoin in order to use the currency in a good way. Here is a brief explanation of how Bitcoin works.
A digital file on a network
You can say that your bitcoin plants are actually a digital file that includes transactions. As soon as a new transaction is completed, it will be saved in what could be seen as a sort of ledger. This moment can not be overridden, and anyone in the Bitcoin network can see all transactions. The main book with all information is available on each device that is included in the network. There is thus no central point or device that controls all transactions. In this way, you get a system in which payments are made directly between users, a so-called decentralized payment system.
Therefore, when you buy Bitcoin, you will not have actual money in your hand. They are available electronically on your computer in a hardware wallet or online in a netbook. Using keys, you can access your money and choose to send them to someone else who also has a Bitcoin address and can receive the currency.
Now you might wonder how Bitcoin payments may be anonymous if everyone in the network will see your transaction. Everyone sees you send a certain amount but they do not see you! You are a number and you can not trace who you are or who you send to. This gives complete anonymity, but also means that you have to be incredibly careful about their Bitcoins. Sent is sent, can not be refunded. It will forever be seen as a transaction on the network. If someone gets to your Bitcoins and sends them, you can forget to get them back.
How does the Bitcoin network work?
One could say that the Bitcoins network is a place where so-called miners try to solve mathematical and cryptographic problems. This is what they do to find a hash in what is called a Blockchain. When a mine has solved a problem, the main book will be updated by everyone. If you are a mine that has solved a problem, you will be able to create the next transaction block in the chain. When you do this you will be rewarded with Bitcoins.
Public and private keys
The coins found on the network will be linked to a public key. As the owner of this key, you also have a private key. The public key consists of a code that can have up to 34 characters and adds a hash feature for more security. With the hash, you get a new code and this is what works like a kind of address or maybe more like an account number to compare with bank transactions. The other key that is private is the password. With this key you will prove that you actually own the public key.
What you need to remember is that there is no one who owns the Bitcoin network. No one will tell you if you can join or not. This is a structure that has gained momentum in several virtual currencies created after the success of Bitcoin and which is still an over thought for many.
A bit about Bitcoin mining
Those who work as mines try to solve mathematical and cryptographic problems in order to create a new block in the block chain. Those who are mines will get Bitcoins as well as transaction fees from those who use the network. If two miners were to create new blocks at the same time, the network will choose the longest chain and the transactions included in the shorter chain will then be inserted in the next block. There is a limit to how many Bitcoins may exist, namely 21 million. This number is most likely to reach about 2140.