How does Bitcoin work? What is blockchain?

Any money is used as a means of payment and circulation, as a means of accumulation and savings, and it has a value. These are exactly the functions that bitcoin performs. Therefore, Bitcoin is money.

Ordinary cash is tangible—you can touch it with your hands, put it in your pocket or wallet. Electronic money is equivalent to cash credited to a plastic card. Each individual country has its own national currency. The issuer is the central bank, which, being an independent structure, is to some extent subordinate to government authorities. It is the center that controls all cash flows.

Bitcoin is a decentralized currency; there is no single center and no control over cash flows. The digital equivalent of the legislative framework is open source, which cannot be reset or rewritten. But if there is no control function, how can you trust this currency? Trust is provided by the blockchain.

What is blockchain?

Translated as a chain of blocks. Each block in the chain stores a portion of the compiled encrypted information about bitcoin transactions, a timestamp, and a link to the previous block. Every user can view the transaction information, but only someone who has a special private key—known only to them—can update the information. And only if these private and public keys match is this transaction option added and stored in the block.

The maximum block size is 4 megabytes, but in practice it's usually within 1 megabyte. The block size depends on the type and amount of information; more information means a larger block. It takes about 10 minutes to form a block. If the block is large, it will take longer; if the volume is small, the block will be closed earlier. The system is configured so that the values are averaged to 10 minutes.

Blockchain technology

This task is solved by blockchain technology, which Nakamoto called a peer-to-peer electronic payment system in a report on October 31, 2008. This is a P2P technology—a decentralized network in which each computer is both a server and a client. The information is synchronously copied to the computer databases of all network users and stored there.

This technology is also called a distributed registry system. The system does not allow data to be substituted or corrupted. If you make adjustments to any copy of the block, the system will immediately recognize it, a crash will occur, and all users will see it. This is how security is ensured and fraud is prevented.