Bitcoin is a peer-to-peer electronic cash system. It’s a digital and global money system currency. It enables any two parties to transfer the digital assets across the internet, with fast transfer times and low fees. It allows for funds to be sent between parties that don’t know each other, and trust is not needed. Bitcoin was invented in 2009 by someone using the pseudonym Satoshi Nakamoto. You can read the bitcoin whitepaper here.
The mathematical field of cryptography is the basis for Bitcoin’s security.
A Bitcoin address consists of 26-35 letters and numbers, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. It is also possible to get a Bitcoin address using an account at an exchange or online wallet service.
Wallets are a way to easily interact with the blockchain and the bitcoin you own. One thing to note is that your bitcoin isn’t really stored with in your wallet. Your bitcoin is on the blockchain, secured by cryptography. Wallets are a simple way for users to interface with the blockchain and their addresses.
Rather than keeping track of identities, the Bitcoin protocol keeps track of addresses. Each address has two important pieces of cryptographic information, or keys: a public one and a private one.
The public key is the wallet’s address and is what is used when sending bitcoin. This can be thought of as an email address. If you want someone to send you bitcoin, simply give them your public key.
The private key is an encrypted password that gives the owner of the private key access to the bitcoin that they own, enabling the to send funds. This can be thought of as a password. For this reason, it’s crucial to keep your private key secret and secure.
The information private and public keys hold, can be turned into QR codes. QR codes make it simple to interface with the blockchain, as they can store the information in a small, black and white square, and most smartphones today can interpret the codes.
Bitcoin runs on blockchain technology. The blockchain is a distributed, decentralised, public ledger. This public ledger keeps track of every bitcoin transaction in a series of “blocks”. This means bitcoin has no central authority, and is completely transparent. No one owns the blockchain, everyone can access it.
The blockchain is maintained by a system of “miners”. These are powerful computers that are constantly solving algorithms to confirm transactions and create new bitcoins. Miners are given a reward for successfully mining new bitcoin, as well as transaction fees for any transactions they process.