What Bitcoin is and how this cryptocurrency works? This is the question that has been asked most in Google in recent years. Understanding how it works has been a great challenge, so we have prepared this guide to help you. In 10 minutes, you will learn how virtual currency works.
If you prefer, you can listen to our podcast as well. It is the easiest way to understand how it works:
What is it?
Bitcoin is money equal to the Real, the dollar, and the Euro. The difference is that it is entirely digital; that is, it exists only on the internet. Because it is digital, it is perfect for online transactions, because it is anonymous, fast, cheap, and safe.
That is, it is a digital currency, which allows the sending and receiving of values without territorial and quantity limitations, without having to pass through third parties such as banks, PayPal or credit card operators. It’s an internet currency.
It is not a physical good, it is generated entirely digital, but this does not mean that the digital currency does not exist or has weak security. The mathematical properties on which it is based are as real as any physical good.
Who runs Bitcoin?
Bitcoin is not issued or controlled by any government, central bank, person, or company. In other words, it is not possible to generate more coins just by typing more numbers into the computer.
New coins can only be created through mining, and there is a limit to coins to be created. Don’t you get it? There will only be 21 million bitcoins, and about 80% of the coins have already been created.
Despite a few coins, the cryptocurrency can be divided into up to seven decimal places. One hundred million parts of bitcoin, his last unit, is called satoshi in honor of his creator.
The supply of new cryptocurrency units takes place through a process called mining. This term is used because of similarity to gold since both are scarce goods that cannot be produced by humans, only extracted.
How Does Bitcoin work?
Basically, Bitcoin transactions consist of the recording of coin inputs and outputs.
But what do these records say? Basically, they are data that say the following: “Lucas sent 0.5 pieces of Bitcoin to Neto on 09/02/2018 at 6: 00 p.m.”. This is basically a Bitcoin transaction, equal to the record in a bakery box, for example.
Now imagine that thousands of people make the same kind of transactions every day. It’s certainly a lot of records. But where are they stored?
The records of Bitcoin transactions are stored in blocks. Every 10 minutes, a new block appears that should store the new transactions that are made on the network.
This new block connects to the previous one, forming a chain of blocks dependent on each other.
That is, the information is inserted in a block that connects to the previous block of other transactions already registered. Does it seem hard to understand? The image below shows how this is done.