A coin that is worth thousands of dollars, but it is not made of gold, a digital coin.

It is a digital currency, which means it exists electronically, talking about bitcoin.

Bitcoin does not work like most money.

It is not attached to a state or government, so it doesn’t have a central issuing authority

or regulatory body.

Basically, that means there’s no organization deciding when to make more bitcoins, figuring

out how many to produce, keeping track of where they are, or investigating fraud.

So how does bitcoin work as a currency, or have any value at all?

Well, bitcoin wouldn’t exist without a whole network of people and a little thing called

cryptography.

In fact, it’s sometimes described as the world’s first cryptocurrency.

And here’s how it works.

Bitcoin is a fully digital currency, and you can exchange bitcoins between computers in

a worldwide peer-to-peer network.

The whole point of most peer-to-peer networks is sharing stuff, like letting people make

copies of super legal music or movies to download.

If bitcoin is a digital currency, what’s stopping you from making a bunch of counterfeit

copies and becoming fabulously wealthy?

Well, unlike a video file, a bitcoin isn’t a string of data that can be duplicated.

A bitcoin is actually an entry on a huge, global ledger called the blockchain, for reasons

we’ll get to in a minute.

The blockchain records every bitcoin transaction that has ever happened.

So when you send someone bitcoins, it’s not like you’re sending them a bunch of

files.

Instead, you’re basically writing the exchange down on that big ledger – something like,

you sends one bitcoin.

Bitcoin does not have a centralized authority to tracking of everything.

Even though the blockchain is a central record, there’s no official group of people who

update the ledger and keep track of everybody’s money like a bank does – it’s decentralized.

Anyone can keep the blockchain up to date with all the new transactions.

Tons of people do.

It all works because there are lots of people keeping track of the same thing, to make sure

all transactions are accurate.

You can think of each page as a “block of transactions.”

Eventually, your notebook will have pages and pages of information – a chain of those

blocks.

Thousands of people are separately maintaining the bitcoin blockchain, how are

all the ledgers kept in sync?

Bitcoins are safe thanks to cryptography, which is why it’s called a cryptocurrency.

Bitcoin stays secure because of keys, which are basically chunks of information

that can be used to make mathematical guarantees about messages.

When you create an account a, wallet, that account is linked to two unique keys: a private key, and a public

key.

The bitcoin network and your wallet automatically check your previous transactions to make sure

you have enough bitcoins to send.

But there’s another problem that might happen with timing:

Because lots of people are keeping copies of the blockchain all over the world, network

delays mean that you won’t always receive the transaction requests in the same order.

So now you’ve got a lot of people with different blocks to pick

from, but none of them are necessarily wrong.

Each person maintaining a ledger has to solve

a special kind of math problem created by a cryptographic hash function.

A hash function is an algorithm that takes an input, and yields an

output with a fixed size.

Whoever solves the hash first gets to add the next block of transactions to the blockchain,

which then generates a new math problem that needs to be solved.

If multiple people make blocks at roughly the same time, then the network picks one

to keep building upon, which becomes the longest, and most trusted chain.

These people spend thousands of dollars on special computers built to solve

problems, and run their electricity bills sky high to keep those machines running.

What do they get out of maintaining the blockchain?

Bitcoin actually has a system to reward them.

When you win the race to add a block to the blockchain, new

bitcoins are created, and awarded to your account.

You know the ledger-keepers by name: miners.

Every bitcoin was created to reward a bitcoin miner.

The last bitcoin – probably be mined in the year 2140.

Keeping the supply of bitcoins limited will raise their value over time.

 

Now, do you want to be a part of this change and educate yourself, so you can benefit from this new

 digital technology that is here to stay.

For more info:  Click here