What is Bitcoin and How does it work ?
We all must have heard about Cryptocurrency or Bitcoins and how they are used on the dark web. Now the question that arises here is What is Bitcoin and How does it work?
In this article I am going to explain about Bitcoin / Cryptocurrency.
In general, when you make an online payment, then this payment is processed and gets transfer from one bank account to another, using one or more financial bodies or banks.
As you can understand, this is a centralized structure where one entity is managing all the payments which are also responsible for the securities and safety of our payments.
But this centralized structure is not private. Let us suppose that you can trust this centralized structure or you can trust your bank.
But can you trust the employees working in it? Can you trust the hackers or can you trust various agencies having access to all of your sensitive information? The list is very long whom you cannot trust. So, the idea of keeping everything centralized is not safe. At this place, cryptocurrency comes into light.
Cryptocurrency is not controlled or managed by a single entity. In this, the middle man or the centralized structure required for the transaction is eliminated. And that is replaced by a decentralized peer to peer structure also known as the blockchain.
How it Works?
Let us understand this with an example:
Suppose you have to spend some money on your friend. What you will do is, just create a crypto wallet which is similar to creating a PGP account. Now the wallet will be associated with two keys, a private key, and a public key.
And then you will create a message or request like “Transfer 1 Coin”, you will sign this request with your private key, which will generate a signature or a fingerprint, to make sure that whoever inspects this request will know that this request to transfer one coin in your account is actually generated by you because you are not going to share your private key with anyone else.
Now you will also include your public key, which is mathematically related to the private key and therefore it can be used to verify the signature or fingerprint of the request without revealing the private key to anyone.
Now, whenever the request or message is inspected by anyone, he/she can verify the signature with the help of the public key. He/she will understand that this message is actually generated by you, therefore he/she can transfer the one coin.
Once the message or request is generated by you then you will send this message or request to the crypto network.
This network is a collection of computers with high specifications, which is created to keep a record of every transaction done using this cryptocurrency.
These records of transactions are known as the blockchain, which is a public record that contains all transactions made by using this cryptocurrency.
Each computer on the network contains these blockchains.
You send the message of transferring one coin, it will get verified. And if it gets checked out, then it will be added to the blockchain.
This message will be added as a new block to the existing blockchain stored by each one of the miners or computers.
So, as you can clearly see that it is a decentralized structure. And instead of the real names, wallet addresses are used for transactions.
If you connect to this network by hiding your real identity, connected using tor, and keep yourself anonymous, then your transaction cannot be traced at all.
So, that is all about bitcoin as of now. I hope you find this article helpful and informative. If I missed something or you have any queries and doubts, tell me in the comment section.