As we already know, Bitcoin is a cryptocurrency which is stored digitally on your laptop or smartphone in a wallet. Bitcoin is a digital currency which can be sent and received through using a Bitcoin address. If you send someone your Bitcoin address, they can send you Bitcoin. And if you receive someone’s Bitcoin address, you can send them Bitcoin.
All of these Bitcoin transactions are stored in the blockchain, which is a shared public database which Bitcoin relies upon. The blockchain makes it impossible to counterfeit or lie about having Bitcoin, as all transactions are recorded for the public to see. All transactions are permanently stored in the blockchain. This means if you received one or some Bitcoin, you would be able to trace it all the way back to its original owner.
The blockchain is by definition a decentralized, public ledger, but it’s more simple than it sounds. It is a chain of blocks, where the blocks are information, and the chain is the database which is available to the public. The blocks store information about each transaction, such as the date, time, and dollar amount. They also store information about who is involved with the transaction. Each block contains information which makes it unique, including a “hash” – an identifying code which allows us to tell it apart from the other blocks. This means that if a transfer of Bitcoin or any other cryptocurrency has happened which is very similar to a previous transaction, we can still tell the blocks them apart because of the unique hash.
The blockchain records when a transfer of value between Bitcoin wallets happens. Each Bitcoin wallet has a secret piece of data called a private key. This is used to sign transactions. This signature will be included in the block, proving that they have come from whoever owns the wallet. This means that the transaction is final and cannot be hacked or altered by anyone. All transactions take up to 20 minutes to be confirmed through mining.
Mining is used to find Bitcoin and confirm transactions of Bitcoin. Mining is used to create a chronological order of the blockchain, meaning transactions appear on the public ledger in the order of which they took place. In order to be mined and consequently confirmed, transactions will be packed into a block. The block has to include a very specific package of all relevant information to the transaction in order for it to be approved.
Due to mining and all transactions being recorded publicly on the blockchain, it’s difficult to copy Bitcoin, create counterfeit Bitcoins and steal/be stolen from. This makes Bitcoin an incredibly secure currency, which is a main factor to its growing popularity. The currency is decentralized, meaning it is owned by many different individuals rather than one larger entity, like regular money.
Due to Bitcoin being a currency, it naturally goes up and down in value. This is because of supply and demand. Bitcoin increases in value when the market believes it will increase in the future, and so people buy more of it and its value goes up. It depreciates in value when people start selling their Bitcoin.