How Bitcoin Works

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Bitcoin is an online payment system based on software which was described by Satoshi Nakamoto in 2008. It was described as the open-source software in the year 2009. With the use of own unit of account, the payments are recorded in the public ledger, which is known as bitcoin. Without the single administrator or central repository, the payments work peer to peer, which led to the US treasury in order to call it as bitcoin decentralized currency. With its disputed status of currency, media reports refer bitcoin as digital currency or cryptography.


Peer to peer technology is used by bitcoin in order to operate with the banks or central authority and manages transactions which are collectively carried out by the network. It is an open source platform as its design is public, everyone can take part, and nobody can control or own the bitcoin. With its number of unique properties, Bitcoin allows various exciting uses which are not provided by any of the previous payment system (Lee, 2017).

How bitcoin works?

As the new user, bitcoin can be started without any understanding of technical details. Once the installation of bitcoin is done on the mobile phone or computer, first the bitcoin address is generated and the user can create more addresses whenever required. The created address can also be disclosed in order to safely operate bitcoin. Bitcoin is similar to the working of email. The only difference is that user can get only one address of bitcoin.

Private keys-Transactions

A transaction is considered as the transmission of value between the wallets of bitcoin which are involved in the blockchain. In the bitcoin wallet, a secret piece of data is stored which is known as a private key which is used in order to sign the transactions and provide a mathematical proof of owner of the wallet. The signature is also used in order to prevent the data from any threat. All the different bitcoin transactions are broadcast between different users of bitcoin in order to confirm the network. This process is further known as mining.

Block chain-balancers

The entire network of blockchain lies on the shared public ledger. Different types of confirmed transactions are also included in the blockchain. The bitcoin wallets are used to calculate the new transactions as well as the current balance owned by the spender. The chronological order, as well as the integrity of the blockchain, is enforced with the use of cryptography.


A distributed consensus system which is used in order to confirm the waiting transactions of the blockchain is referred to as mining. It also enforces the chronological order in the blockchain, allows different computers in order to agree on state of art, and protects the network neutrality. There are very strict rules of cryptography which are implemented in the bitcoin and verified by the networks. These rules are able to prevent the blocks from any modification and also validate the blocks. The equivalent competitive lottery is created by the mining process which prevents individuals from adding new blocks easily in the blockchain. Hence, with this, no individuals can access or control the blockchain and cannot replace parts to roll back their own spends.


A bitcoin can be sent from tablet, computer, mobile or another device to everywhere or anyone present in the world. It is considered an innovative payment method and also a new kind of money. There is a need to aware about the use of bitcoin as it might become one of the important developments in the world.


Lee, T. (2017). Want to really understand how bitcoin works? Here’s a gentle primer. Retrieved from

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