When you are considering getting involved with Bitcoin, you probably have a thousand questions on the tip of your tongue. Is Bitcoin safe? What is a crypto exchange? How secure is a Bitcoin wallet from companies like Luno? These are just three of the most popular questions asked by Bitcoin newbies. Another question is simpler but always worth knowing before getting involved. That question is how does Bitcoin work? This post is all about answering this question. Read on to learn the Bitcoin basics.
What Is Bitcoin?
Bitcoin is one type of cryptocurrency, a digital type of currency that is traded, invested in and used to buy products and services with a growing number of companies from KFC to Microsoft. It was invented by an unknown person who goes by the pseudonym of Satoshi Nakamoto. Bitcoin has shot up in value since it was launched, even reaching around £20,000 at the end of 2017.
Blockchain is special because it is decentralised. What this means is that no single authority such as a bank has control of it. It is completely in the public eye but simultaneously unable to be tampered with. This is because of blockchain technology and is what makes it an appealing way to make peer-to-peer payments around the globe efficiently – and often much more cheaply.
What Is a Blockchain?
The key behind Bitcoin’s success is its decentralised nature. To understand how Bitcoin works it is essential to understand what a blockchain is. A blockchain is, as the name gives away, a chain of blocks. Each block represents a piece of information and in the case of Bitcoin (blockchains have other purposes albeit Bitcoin is the most famous), they represent a single payment.
When somebody sends Bitcoin to another person, the payment is verified and recorded on the blockchain. Once verified it cannot be edited and will remain an authorised payment within the chain. It is available for all to see on the public ledger that is blockchain technology.
Verifying payments is what banks and card issuers usually do and when they do it they request a small fee. Due to Bitcoin working through an open-source and decentralised system without a governing authority, there is nobody requesting additional fees for each purchase made by a bank card or within a transfer. So, who verifies Bitcoin transactions on the blockchain?
Bitcoin Payment Verification
Bitcoin payments are verified on the blockchain by a series of computers spread around the world. These computers are part of Bitcoin mining farms that do this job in exchange for Bitcoin rewards. Thus, the people verifying payments are not centralised like a bank – although some scrutiny has been directed at mining farms for becoming part of larger entities that are centralising the system somewhat.
Now you understand the basics of how Bitcoin works. This is important knowledge before voyaging on your own Bitcoin ventures. Welcome to the crypto world!
