The name “bitcoin” is derived from the online id of a person, supposedly because he/she did some work to make it popular online. With that background in mind, you’d think that the inventor of such a unique currency would also be a rich person. Actually, Nakamoto does not have any money and all he has is his “bitcoin”. But do you really know what this thing is?
To better understand what happens when you transact business with your peers on the bitcoin network, you have to first understand how the bitcoin system works. Basically, every transaction on the network is created on the public ledger called theblockchain. This is a database that keeps a record of every transaction that has ever been made. Transactions are not only recorded on the chain, they are also enciphered within the chain for the future.
Every transaction starts with someone sending you money in the form of coins. A bitcoin transaction is nothing more than a request to another party for cash. Once the request is made, you tell the recipient that you agree to the transfer and then you add the amount of money so that the desired number of coins can be transferred from you to them. Once this transfer has been made, the transaction is recorded on the public ledger known as theblockchain.
Transactions on the bitcoin network are all recorded on the chain along with the transaction fees that you pay. Transactions must wallet, which means, you must add it to your existing wallet. If you wish to make a new wallet, all you need to do is create a new account. Then, you create a new index file called theblockchain.
Another way to explain how the bitcoin works is to consider it as a type of digital currency. Digital currencies work in a way that allows you to exchange one for another without ever leaving your computer. It is very similar to a stock, however, instead of shares being bought and sold on the stock market, they are bought and sold digitally. It is not easy to understand how the bitcoin works; it is easy to recognize how it works though.
There are two types of bitcoins. The first is the original bitcoins, or the classical form of the decentralized ledger system. The second type is referred to as the peer-to-peer bitcoins or the network bitcoins. The main difference between the classical system and the peer-to-peer systems is that with the classical system, every transaction is recorded on the public ledger, known as theblockchain, while the network system relies on the cryptography of the bitcoin transactions to be kept private. While you can use the classical system of record to trade your classical bitcoins, if you want to move your bitcoins off-line, you have to get them translated into another type of currency.
Every transaction on the bitcoin network is made possible by a “miner”. A miner is someone who owns a special kind of software that grants them permission to mark part of the bitcoin network as unspent. Once this happens, anyone who wants to make an off-line transaction has to get permission from the owner of this unspent block. This is a security feature that is in place to discourage people from using the bitcoin network to run off-line activities.
As long as there are miners on the bitcoin network, there will be a steady stream of unspent blocks. Transactions can only occur once the miner has found a new unspent block. However, in the event that he removes his mining capabilities from the system, then all current transactions on theblockchain will be reversed. The government and other parties with strong oversight can easily catch someone unspentiting their transactions, and they can shut down the bitcoin network forever if they wish.