The Bitcoin client will automatically create a Bitcoin address for you when you first run it. When you receive Bitcoins into your Bitcoin wallet, they will be stored at that address until you spend them or transfer them to another Bitcoin Address. Your Bitcoin wallet contains a collection of Bitcoin addresses. Each address has a matching private key that allows Bitcoins to be spent from that address. Every Bitcoin address is different, just as every Bank account number is different. click here for more information about bitcoin.
– Bitcoin transactions are sent from and to electronic bitcoin wallets and are digitally signed for security.
– Bitcoin wallets keep a secret piece of data called a “private key” for each Bitcoin address. A Bitcoin address is an encoded hash of the public key that you receive with your Bitcoin wallet when you buy Bitcoins.
– When someone sends you bitcoins, they are essentially signing off ownership of the coins to your wallet’s unique address.
What Happens When You Send Bitcoins?
Satoshi Nakamoto figured out how to let two entities confidently trade directly with one another, without the need for a trusted third party. Bitcoin accomplishes this feat by publishing all Bitcoin transactions on a shared public ledger called the “blockchain“. This removes the problem of what happens if Eve broadcasts a copy of Adam’s transaction to Charlie before Adam sends his transaction to Carol. In Bitcoin, only the owner of Bitcoins can confirm that they have been transferred to another address. Because of that, it is not possible to spend coins that don’t belong to you, because other people on the peer-to-peer Bitcoin network will recognize that your signature was authorized by someone who genuinely owns those coins and will ignore any invalid attempts at double-spending.
How does Bitcoin work?
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.
Creation of Bitcoin
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. Bitcoin can also be held as an investment. Bitcoin is a decentralized system of open source software, meaning that there are not any servers or central authorities that control Bitcoin. Bitcoin is pseudo-anonymous, transactions can be traced back and forth but it is difficult to establish a real identity behind them.
Bitcoin was invented by Satoshi Nakamoto in 2008, while he worked on the team of the digital currency department at Bitcoin Foundation. Bitcoin works on a peer-to-peer network, transactions take place between users directly through the use of cryptography without any middlemen thus making it safe and secure from phishing scams which have been found quite often in centralized banking systems.
Peer to peer network
Bitcoin works on a peer-to-peer network, meaning that transactions are verified by the nodes in the network. This system is Bitcoin’s security feature, as it prevents anyone from tampering with or reversing transactions. Bitcoin transactions are also anonymous, protecting Bitcoin users from potential transaction malleability. Bitcoin is money that can be sent from one Bitcoin user to another Bitcoin user anywhere in the world without needing a bank or any other financial institution. Bitcoin was created in 2009 by Satoshi Nakamoto, an unknown person or group of people, and since then over 100 billion US dollars worth has been exchanged using Bitcoin.
The Bitcoin network requires a very specific set of conditions to successfully verify a transaction. It is this ‘trustless’ verification process where Bitcoin derives its security; because when you run the program on your computer the entire network has to validate your copy/paste/transaction and approve it before your miner will start validating it to add to the blockchain. Bitcoin transaction verification without mining is certainly possible (Bitcoin Core v0.10 supports it), but Bitcoin mining serves two purposes:
It ensures transactions are only verified if they should be, which would otherwise leave Bitcoin open to attack; It introduces new Bitcoin into the system, allowing Bitcoin to act as full-fledged money rather than a trading commodity that’s subject to inflation (which is what happens when you issue more currency).
To understand Bitcoin mining better, let’s look at how it works in practice. The blockchain records all Bitcoin transactions in history. This means that every detail of every Bitcoin exchange ever made involving the same coins is available for anyone with access to the blockchain’s current version and an internet connection to see.