Firstly, Bitcoin isn’t a coin, it’s not something made up of precious metal like gold and silver, its a digital currency, which means it only exists electronically.
It doesn’t work like other currencies, there are no government bodies putting a check on it.It works on peer to peer network and cryptography.Bitcoin is an entry on a peer to peer network and more specifically blockchains, these are the series of computers dedicated to keeping the record of all the bitcoin transaction.
So when you send someone bitcoins, it’s not like you’re sending them a bunch of files.Instead, you are basically writing the exchange down on that big ledger-something like, “James sends Harry 4 bitcoins”.
The blockchain is a central record but there are no official group of people who update the ledger and keep track of everybody’s money-it’s decentralized.
Bitcoins are pretty safe thanks to cryptography.when you create an account on the bitcoin network, the account is linked to two unique keys, a private key, and a public key.
Suppose I am James and I want to send a message to the network that says, “James sends 6 bitcoins to Lara”.I will sign that sign that message with my private key, which only I have access to, then my signed message in the message will travel and everyone use my public key to make sure my signature checks out.In other words, if the public key works, that’s proof that the message was signed by my private key and is something I wanted to send.
That way, everyone keeping tracks of all the bitcoin trading knows to add to my transaction to their copy of the blockchain.
Bitcoin has a built-in system to keep a check on your bitcoin balance, hence you can not fake the transaction, the volunteers who add a block of the transaction in blockchain network, maintaining the ledger has a to solve a special kind of math problem created by a cryptographic hash function.
A hash function is an algorithm that takes an input of any size and turns it into an output with a fixed size.Hash function bitcoin uses is SHA256, which stands for Secure Hash Algorithm 256-bit, originally developed by United States National Security Agency.whoever solve the hash function first gets to add the block of the transaction to the blockchain, which then generates a new math problem that needs to be solved.
These volunteers spend thousands of dollars on special computers to solve these SHA256 problems, bitcoin has a built-in system to reward these volunteers, every time you add a block to the blockchain,12 and a half new bitcoins created in the air and awarded to your account, these bitcoin ledger keeper are also called miners.
It’s also worth noting that every 210,000 blocks, the number of coins generated when a new block is added goes down by half.According to current projections, the last bitcoin- probably around the 21 millionth coin- will be mined in the year 2140. And the idea of keeping a supply of bitcoins limited will raise their value over time.