Bitcoin is a form of digital asset or currency which has gained popularity and acceptance around the world since its creation in 2009.
Unlike assets like gold, or traditional government-issued currencies like the dollar or euro, Bitcoin is completely virtual and works without a central authority, such as a bank or government, to support it.
How does it work?
Bitcoin uses a technology called ‘blockchain’, which is a public, decentralized record of all transactions made on the Bitcoin network.
Each transaction is verified and recorded in a ‘block’ by a network of computers, called nodes, through a process known as mining.
This process helps secure the network and to create new bitcoins as a reward for miners.
In simpler words: imagine that you have a book where you write down every time you lend or receive money from your friends.
Every time someone makes a transaction, that is, every time someone lends or receives money, you write it down in this book.
Over time, this book fills with entries showing who owes whom money and how much.
In the world of Bitcoin, this book is what is called ‘blockchain’ or chain of blocks.
The Bitcoin blockchain works similarly to the ledger in the example, but instead of being in one place, it is distributed and accessible to everyone on the Bitcoin network.
Every time a transaction is made in Bitcoin, is recorded in a ‘block’ with the information of said transaction.
Once a block is full of transactions, it is closed and linked to the previous block, forming a chain.
That’s where the term ‘blockchain’ comes from.
This chain continues to grow with each new transaction, forming a complete and uninterrupted record of all transactions made.
The attractive thing about this system is that it is decentralized. That is, it is not controlled by a single entity, such as a bank or government.
Instead, the system is distributed over a network of computers around the world.
Each computer that is part of this network has a copy of the blockchain, making it almost impossible to alter records.
If someone tried to change a transaction in one block, they would have to change the same transaction in all subsequent blocks in every copy of the blockchain on the network, which is a practically impossible task.
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