How Bitcoin Works
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How Bitcoin Works
Bitcoin operates on blockchain technology, a decentralized ledger that records all transactions across a global network. This system eliminates the need for banks or central authorities, allowing individuals to transact directly with one another.
Every Bitcoin transaction is verified by miners, who use powerful computers to solve complex mathematical problems. Once verified, transactions are grouped into blocks and added to the blockchain in a secure and permanent manner. This ensures transparency and prevents fraud, such as double-spending.
Bitcoin has a fixed supply of 21 million coins, making it a scarce asset. Unlike government-issued currencies, which can be printed indefinitely, Bitcoin’s supply is capped, which contributes to its deflationary nature over time.
Bitcoin transactions rely on cryptographic keys. Each user has a public key, which serves as their Bitcoin address, and a private key, which must be kept secret. The private key is used to authorize transactions, ensuring that only the rightful owner can spend their Bitcoin.
Another key feature of Bitcoin is mining, which secures the network and enables new Bitcoin to be created. Miners are rewarded with Bitcoin for verifying transactions and adding blocks to the blockchain. However, mining requires significant computational power and energy consumption.
Bitcoin’s decentralized nature provides benefits such as censorship resistance and financial sovereignty. However, security remains an important consideration. Users must protect their private keys, avoid scams, and be mindful of price volatility.
Understanding how Bitcoin works is fundamental to grasping its potential. Future posts will cover how to buy Bitcoin securely, store it properly, and explore investment strategies.
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