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How does bitcoin work?

by Abbey

As we all know, bitcoin is a popular cryptocurrency, or we can say a digital coin. Many small and large companies use bitcoin as a payment method to accept bitcoin payments. Even small physical stores are also using this currency to take advantage of these digital coins.  A bitcoin balance is attached to the public key of its owner. When bitcoins are transmitted from user A to user B, A signs a transaction with his private key and broadcasts it over the network which identifies his signature and credits B’s address which in turn can receive funds. In order to prevent A from transmitting funds already used to user C, a public list of all past transactions is collectively maintained by the network of Bitcoin nodes. Thus, we will check before any transaction that the bitcoins sent have not already been spent.

There are many benefits of using bitcoin like less transactional fees as compared to other online payment methods; there is no control of any individual or group, no tax, and many more benefits. But do you know how bitcoin works? No? so do not worry. In this article, we will talk about how bitcoin works, so without wasting time, let’s understand the working of bitcoin.

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The basic rules of Bitcoin

  1. The number one rule is difficult to produce. This is the same use of traditional money or gold because they are also difficult to produce. In bitcoin, there are too complex algorithms that took a lot of time and power.
  2. Rule number two is the same rules applies in traditional money is a limited supply. There are 21 million bitcoins available in the market.
  3. Rule number three is that bitcoin is recognized by the value like the current value of the bitcoin, and we will spend bitcoin for shopping by matching the values of products we want to purchase and the current value of bitcoin.


Bitcoin Characteristics:

There are the following characteristics of bitcoin, and by reading these characteristics of bitcoin, you can understand the basic working of bitcoin given below:

  1. The number one characteristic of bitcoin is complex algorithms. Yes, to produce more bitcoin for enough supply, miners have to solve the complex mathematical algorithms that cannot be solved by the common person. Miners are those who are experts at mathematics and programming. It takes a lot of computation power to solve an equation.
  2. You read that it is very difficult to produce new bitcoins because the algorithms are too complex because no one can be a miner, so it is impossible to replicate bitcoins. So there are no chances of duplication or fraud.
  3. The third characteristic of bitcoin is the finite supply of bitcoin. In the market, there are 21 million bitcoins available, so that is the reason the price or value of the bitcoin is increasing. As compared to bitcoin, the supply of other cryptocurrencies is too high means in billions, and their value is growing too seldom.
  4. You know there are hundreds of bitcoin exchanges that provide the facilities for trading and spending bitcoin so go with BitProfit. It means that you can send or pay bitcoin to other people or online stores that can accept bitcoin as a payment method. Certain websites integrated the bitcoin payment method to make it easy for people to pay through bitcoin because of its decentralized system.

Deflation currency

Why bitcoin is the deflation currency? So let’s understand. You know who are miners, in brief, miners are the individuals who are solving the complex mathematics equation to validate the bitcoin transactions, and are they get salaries for solving the complex equations? No, they don’t get it, they get a reward as a bitcoin, and they get 6.25 BTC to validate and broadcast a block (a set of validated transactions). It takes a lot of computer power to create a bitcoin by solving the complex equations, and once the miners have produced bitcoin, no one can add or create additional coins into the bitcoin network. So the supply is limited, and you know the price or value of the bitcoin continues to increase. So It is not an inflation currency. In simple words, the price or value of the currency will not decrease.

Recorded in Digital Ledger

All the transactions that occurred are recorded in the digital ledger; here, a digital ledger means blockchain. In simple words, blockchain is the platform where all the transactions are going into the process to validate, and after getting verified, they will be broadcasted, and now anyone can see the transactions. It is also called a public ledger because anyone can see the account of sender and receiver and how much amount they have spent and received.

From the above information, we have learned that bitcoin has three common rules. The first is difficult to produce, like cash, limited in supply, and the third one is recognized by the value. It is a deflation currency that means the value of bitcoin will increase over some time.

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