Bitcoin is an innovative payment network and a new kind of
money.
Bitcoin (₿) is a
decentralized digital currency, without a central bank or single administrator,
which can be sent from user to user on the peer-to-peer bitcoin network without
the need for intermediaries. Transactions are verified by network nodes through
cryptography and recorded in a public distributed ledger called a block chain.
The crypto currency was invented in 2008 by an unknown person or group of
people using the name Satoshi Nakamoto. The currency began use in 2009 when its
implementation was released as open-source software.[
Bitcoin uses peer-to-peer technology to operate with
no central authority or banks; managing transactions and the issuing of bitcoin
is carried out collectively by the network. Bitcoin is open-source; its design
is public, nobody owns or controls Bitcoin and everyone can take part. Through
many of its unique properties, Bitcoin allows exciting uses that could not be
covered by any previous payment system.
How Bitcoin
Works
Units
and divisibility
The unit of account of the bitcoin system is a
bitcoin. Currency codes used to represent bitcoin are BTC[a] and XBT. Its
Unicode character is Bitcoins are divisible to eight decimal places Small
amounts of bitcoin used as alternative units are millibitcoin (mBTC), and
satoshi (sat). Named in homage to bitcoin's creator, a satoshi is the smallest
bitcoin unit in the ledger, representing 1⁄100000000 bitcoins; one hundred
millionth of a bitcoin. A millibitcoin equals 1⁄1000 bitcoins; one thousandth
of a bitcoin or 100,000 satoshis.
Blockchain
The bitcoin blockchain is a public ledger that records
bitcoin transactions. It is implemented as a chain of blocks, each block
containing a hash of the previous block up to the genesis block[c] of the
chain. A network of communicating nodes running bitcoin software maintains the
blockchain 215?219 Transactions of the form payer X sends Y bitcoins to payee Z
are broadcast to this network using readily available software applications
Transactions
Transactions? are defined using a Forth-like
scripting language. Transactions consist of one or more inputs and one or more
outputs. When a user sends bitcoin, the user designates each address and the
amount of bitcoin being sent to that address in an output. To prevent double
spending, each input must refer to a previous unspent output in the blockchain.
The use of multiple inputs corresponds to the use of multiple coins in a cash
transaction. Since transactions can have multiple outputs, users can send
bitcoins to multiple recipients in one transaction. As in a cash transaction,
the sum of inputs (coins used to pay) can exceed the intended sum of payments.
In such a case, an additional output is used, returning the change back to the payer.Any
input satoshis not accounted for in the transaction outputs become the
transaction fee.
Mining
The process that maintains this trustless public
ledger is known as mining. Undergirding the network of Bitcoin users who trade
the cryptocurrency among themselves is a network of miners, who record these
transactions on the blockchain.
Recording a string of transactions is trivial for a
modern computer, but mining is difficult because Bitcoin's software makes the
process artificially time-consuming. Without the added difficulty, people could
spoof transactions to enrich themselves or bankrupt other people. They could
log a fraudulent transaction in the blockchain and pile so many trivial
transactions on top of it that untangling the fraud would become impossible.
Bitcoin
Transactions
For most individuals participating in the Bitcoin
network, the ins and outs of the blockchain, hash rates, and mining are not
particularly relevant. Outside of the mining community, Bitcoin owners usually
purchase their cryptocurrency supply through a Bitcoin exchange. These are
online platforms that facilitate transactions of Bitcoin and, often, other
digital currencies.
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