How Bitcoin Works: The Technology Behind the Cryptocurrency

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Bitcoin is a cryptocurrency that was introduced in 2009. As bitcoin continues to grow in popularity, many people still do not know how bitcoin works. Bitcoin is an innovative payment network to give consumers complete control over their money. The bitcoin protocol allows for secure transactions without any trusted third party or central server. This blog post will discuss what bitcoin is and how it works.

Let's get started.

The Blockchain

The Blockchain

The bitcoin protocol is based on the blockchain, a public ledger of all bitcoin transactions. The blockchain is maintained by computers that verify and record bitcoin transactions. The genius of the bitcoin protocol is that it solves the double-spending problem without requiring a central authority.

To understand how this works, let's take a closer look at the blockchain structure. You must use this Bitcoin prime software for trading the bitcoins.


The bitcoin network is built on a blockchain. As we all know by now, a blockchain is a novel form of public ledger technology that securely records historical transactions and can be used to convey value between parties without relying on trust or reliance upon centralized intermediaries.

This means bitcoin allows for decentralized verification of payments (transactions) which makes it an attractive alternative currency solution for many users skeptical about how our current system operates due to its lack of transparency and censorship resistance.

As such, bitcoin has been heralded as the first “token” supporting what some consider true micro-transaction capabilities with no middleman involved for these tokens to change hands.

It simply means that they're not subject to fees typically associated with more traditional methods of sending payments.


Bitcoin mining

Bitcoin mining is the process by which new Bitcoin is created. Miners are rewarded with Bitcoin for verifying and committing transactions to the blockchain. Mining is important because it ensures the security of the Bitcoin network.

The bitcoin mining process involves three steps:

  • Finding a suitable block header
  • Validating the block header
  • Computing the Merkle root hash


As noted previously, miners are compensated with Bitcoin for validating transaction blocks. Once 210,000 blocks are mined, or roughly over four years, this prize is decreased in half.

This one is known as the halving or “the halvening.” Again, this system is designed to be deflationary for the pace during which new Bitcoin is issued into circulation.


A hash is a string of numbers and letters that bitcoin uses to keep track of bitcoin. If you could change one letter in bitcoin, it would completely change all of the numbers in its hash.

This makes changing any amount from bitcoin impossible. It creates an unbreakable code for each bitcoin transaction so no hackers can ever get through.

Bitcoin Transactions

Bitcoin Transactions

Bitcoin transactions are made by digitally “signing” a hash of the previous transaction and the public key of the next party with bitcoin cryptocurrency wallet software.

This signature is broadcast to bitcoin miners who verify its authenticity, update Bitcoin's ledger (the blockchain), and include it in a new block.

The Bottom Line

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a dispersed public ledger called a blockchain. Bitcoin is unique because there are a finite number of them: 21 million.

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