What is Bitcoin?
Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. For further information explore the bitcoin loophole.
Research produced by the University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.
What is Bitcoin Mining?
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the blockchain. It enforces a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system. Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a “subsidy” of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system through mining.
What is a Bitcoin Wallet?
A Bitcoin wallet is a software program where Bitcoins are stored. To be technically accurate, Bitcoins are not stored anywhere; there is a private key (secret number) for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. Bitcoin wallets facilitate sending and receiving Bitcoins and give ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms; desktop, mobile, web, and hardware are the four main types of wallets.
What is a Bitcoin Address?
A Bitcoin address is like an email address, people can send bitcoins to your bitcoin address just like they would send an email to your email address. A bitcoin address is also referred to as a “public key.”
What is a Private Key?
A private key is like an email password; only with it can the owner of the bitcoin address spend the bitcoins from that address. It is important to note that anyone who knows your private key can also access and spend your bitcoins. That is why it is important to keep your private key secret and secure. A private key is a long string of numbers and letters that look like this: 5KJvsngHeMpm884wtkJNzQGaCErckhHJBGFsvd3VyK5qMZXj3hS
What is a Bitcoin Transaction?
A Bitcoin transaction is a transfer of value between Bitcoin wallets that gets included in the blockchain. Bitcoin transactions are verified by Bitcoin miners through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin value is propagated by servers called Bitcoin nodes, each keeping a ledger of all Bitcoin transactions and minting new Bitcoins by verifying these transactions. Each node gets some new Bitcoins as a reward for verifying the transactions and thus helping to propagate them across the network.
What is the Blockchain?
The blockchain is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central authority: maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software. Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications. Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes.
To achieve independent verification of the chain of ownership each network node stores its own copy of the blockchain. This allows bitcoin software to determine when a particular bitcoin was spent, which is needed to prevent double-spending. A conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, but the blockchain is the only place where bitcoins can be said to exist in the form of unspent outputs of transactions.
