How does Bitcoin work?

Bitcoin is a decentralized digital currency that does not rely on banks or governments, but achieves secure and transparent transactions through blockchain technology and complex cryptography. Since its birth in 2009, Bitcoin has been widely regarded as a revolutionary payment and value storage tool. So, how does Bitcoin work? The following will analyze its core principles and key mechanisms.

1. Blockchain: The Foundation of Bitcoin

The operation of Bitcoin is based on blockchain technology. Blockchain is a distributed ledger that records all transactions in the Bitcoin network.

• Distributed network : The blockchain is jointly maintained by thousands of nodes (computers) around the world, and each node keeps a copy of the ledger to ensure that the ledger is tamper-proof.
• The composition of blocks : Each block contains a set of verified transactions and a hash value pointing to the previous block. All blocks are linked in chronological order to form a "chain", ensuring the integrity and security of data.

1. The operation of Bitcoin transactions

Bitcoin transactions are peer-to-peer and do not require intermediaries. The following is the basic process of a transaction.

• Transaction Initiation : Users initiate Bitcoin transactions through digital wallets, specifying the sender, receiver, and transfer amount.
• Broadcast to the network : Transactions are encrypted and broadcast to the Bitcoin network, waiting for miners to verify them.
• Transaction verification : Miners verify the legitimacy of transactions through the Proof of Work (PoW) mechanism.
• Recorded to blockchain : After verification, transactions are packaged into blocks and permanently recorded on the blockchain.

1. Mining: Bitcoin's Security Guarantee

The Bitcoin network verifies transactions and maintains cyber security through a "mining" mechanism.

• The role of miners : Miners are individuals or institutions that run Bitcoin nodes, they solve complex mathematical problems through computers, verify transactions and create new blocks.
• Proof of Work (PoW) : Miners need to find a hash value that meets specific conditions, which requires a lot of computing resources. Miners who find the correct answer will receive Bitcoin as a reward.
• Security : The PoW mechanism ensures the decentralization and anti-attack ability of the network, and tampering with transactions requires controlling more than 51% of the computing power, which is almost impossible.

1. Bitcoin's private key and public key

The security of Bitcoin relies on public and private keys in cryptography.

• Private Key : Each user has a unique private key, which is used to sign transactions and prove ownership of Bitcoin. The private key must be kept confidential, and if leaked, assets may be stolen.
• Public key : The public key is generated from the private key, used to generate the Bitcoin address, and is made public when receiving Bitcoin.

Through this encryption mechanism, Bitcoin transactions are both secure and anonymous.

1. Decentralization and transparency

The Bitcoin network has no central administrator, and all transactions are jointly verified and recorded by global participants.

• Decentralization : No authority controls the Bitcoin network and transactions are not subject to government or bank intervention.
• Transparency : All transaction records are stored on the blockchain and can be viewed by anyone, but the identities of both parties remain anonymous.

1. Total supply and scarcity

The total amount of Bitcoin is limited to 21 million and gradually released through mining. About every four years, the mining reward of Bitcoin is halved (i.e. block reward halved)*, which ensures the scarcity of Bitcoin and gives it characteristics similar to "digital gold".

Conclusion

The operation of Bitcoin combines blockchain technology, cryptography, and economic principles. By maintaining records through blockchain, verifying transactions through network consensus, and ensuring security through miner mining, Bitcoin achieves a global payment system that does not require centralized institutions. Its decentralization, transparency, and scarcity make it a unique digital asset and payment instrument, while also promoting the widespread application and development of blockchain technology.

*The actual halving time depends on the rate of block generation and the difficulty of the network. The exact time of the halving can be predicted by calculating the current block height and the number of blocks needed for the next halving.

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