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Over the past few years the attention given to bitcoin and other cryptocurrencies has increased considerably. Although bitcoin was created only in 2009 it already managed to change the people's perception of money and financial systems throughout this time.
What is Bitcoin?
Bitcoin is a type of digital money or cryptocurrency as it is also referred to. It possesses a number of very specific characteristics:
- Decentralization. In contrast to traditional currencies, bitcoin has no connection with any state or bank. Issuance and transactions of this currency occur in a decentralized manner through the Bitcoin network.
- Transparency and openness. The transactions carried out in the network of bitcoin are open and can be verified in the form of a special registration called the blockchain. However user anonymity is respected at the same time.
- Immutability. Once the information is put in the blockchain, it cannot be altered or erased. This guarantees the dependability of storage of data.
- Limited emission. The amount of bitcoins is predetermined by the algorithm and cannot be more than 21 million. This factor keeps bitcoin away from inflation.
In this way, bitcoin represents a digital currency that is no longer controlled by anyone and it has a clear and everlasting transaction registry. The main characteristic that differentiates it from the traditional money is the lack of a single issuing authority.
How does Bitcoin work? The Blockchain
Every bitcoin transaction is recorded in a public ledger which is known as a blockchain. This is a series of blocks that are attached to each other through a cryptographic hash.
Most commonly each block consists of:
- a collection of transactions
- a hash of the prior block
- its own hash
Hashes are the ones that ensure the security of the entire chain. If one changes the information in one block, its hash will be changed too, and it will be instantly noticeable.
New blocks are added to the blockchain through a process of mining.