Arham sahil
4 min readNov 30, 2023

How does $Bitcoin work?

Ok, so now you know what bitcoin is, let’s look at how it actually works.

There are two main components of Bitcoin: the Bitcoin network and the Bitcoin blockchain.

The Bitcoin network is an online peer-to-peer electronic payment system operated and maintained by a globally distributed community of contributors known as “nodes.

A node is simply a person or group of people who verify and/or record transactions on the Bitcoin blockchain.

Anyone in the world can participate in the network and become a node, provided they have access to electricity and an internet connection.

The Bitcoin blockchain is the database where all transactions are recorded.

A blockchain is a type of distributed, public-ledger technology that involves storing transaction data in digital blocks that are connected in a chain.

When a person wants to send bitcoin to another user — usually to a device running specialized software, called a digital wallet — the person must broadcast the transaction to all nodes in the Bitcoin network.

It’s like shouting “Hey everyone, I’m now giving this person 0.5 BTC!”

Inside the transaction, the person sending bitcoin attaches the new owner’s crypto wallet address to the number of coins being sent. This address is known as a “public key.”

There are two types of keys that make up a digital crypto wallet:

• A private key: A secret code known only to the wallet owner used to access the contents of the wallet.

• A public key: A publicly visible address used for sending and receiving cryptocurrency

An easy way to think of these two keys is this: A public key is like your home address — anyone can find it and post items to it.

Your private key is like the key to open your front door. It’s something you keep safe so only you can access your house.

The transaction is then digitally signed by the sender to show the transfer is legitimate, and a small fee is attached to incentivize miners to add it to the blockchain.

Special nodes on the Bitcoin network, called “mining nodes,” then compete to win the right to add that transaction, along with several others, to the next block in the blockchain.

Because bitcoin’s blockchain is public and can be run by anyone, it needs a system that ensures mostly good actors participate.

It does this by requiring mining nodes to have skin in the game by dedicating computing power, time and electricity to create a code that unlocks the next block in the blockchain. This is known as “Proof-of-Work.”

For example, Bitcoin uses a type of hashing function known as SHA-256, which takes any input and turns it into a 64-character code.

If we take the word “CoinDesk” and turn it into a SHA-256 hash code, we get:
7e7a91f75a4a765b2cecab3d093f3dfd586f2539ac0544765650b9a27c139e42

Here’s the interesting part. If we change the input by a single character we get an entirely different hash. For instance, the hash for “FoinDesk” is,

1ac19a9538d961d0df467764685481c7b83dbb9a7efd81ade098b541eb2d801

Because every hash generated is completely random and unique it’s nearly impossible to predict what hash you’ll get from each input.

This is what makes finding the right code to unlock the next Bitcoin block so difficult. It’s basically just trial and error until you stumble across the right hash.

When a miner successfully creates the right hash, they win the right to add a new batch of transactions to a block and add it to the chain.

A new Bitcoin block is created approximately every 10 minutes.

As a reward for their efforts, they receive an amount of bitcoin known as a “block reward,” and any fees attached to the transactions they include in the new block.

Bitcoin block rewards are released according to a programmed schedule.

Every 210,000 blocks, the amount of bitcoin given to miners is halved in a process known as a “halving.”

This system slowly reduces the supply of new bitcoin entering circulation until eventually there are no more coins left to mine.

Once a transaction is broadcast to the network all nodes in the Bitcoin network verify it, the successful mining node adds it to a new block in the blockchain and full nodes record it permanently.

This is what makes transactions on the blockchain “immutable.” Because every node in the Bitcoin network around the world records the same copy of transactions, anyone wanting to change one of those transactions would have to hack into everyone’s device and change it, which is virtually impossible.

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Arham sahil
Arham sahil

Written by Arham sahil

Sharing my experience about the #Cryptocurrency #Bitcoin #Web3 #Trading.Specially for the beginners who have courage and want to make their career .