Everyone loves Bitcoin – well, almost everyone. These days, the best way to know someone loves you is if they send you some BTC out of the blue 🥰. You immediately start jumping for joy and you start to think about when you’ll be able to buy a Lambo with your money.
But, besides the jumping and the happiness, have you ever tried to think about how Bitcoin works? 🤔 What are the gears and spins that go into motion before someone can send Bitcoin to you? In this post, we’ll look into how Bitcoin works.
How Does Bitcoin Work?
To understand how Bitcoin works, it’s important to keep some things in mind. These include:
The Blockchain ⛓️
The blockchain is one of the most important components in the Bitcoin puzzle. Whenever a transaction is made, it is added to a “block” of other transactions. All of these blocks are “chained” together.
So, blockchain. Voila!
- The blockchain contains information about all Bitcoin transactions
- Every Bitcoin wallet is connected to the blockchain which helps them update their wallet balance
- Anyone can have a copy of the Bitcoin blockchain on their computer. Even you.
- Since the blockchain exists on thousands of computers, it’s difficult to hack it.
- When enough transactions are added to a block, it is added to the blockchain and processed.
Think of the blockchain as a group project on Google Docs. Everyone with the link to a Doc can check it out whenever they like. You can make changes to a Doc’s content, and everyone who has access to the Doc will see it. In the same way, every transaction sent to the Bitcoin blockchain is shown on every computer that has a copy of the blockchain.
Bitcoin Mining 🔨
Mining is the process of adding transactions to the Bitcoin blockchain. It involves solving complex mathematical problems and competing to be the first person to add the block to the blockchain.
To understand mining, think about banks. When you send money to someone using your bank app, it checks your bank account to know if you have enough money. The app also confirms the recipient’s bank account number. Once both have been confirmed, your transaction will go through.
Mining basically does all of this. You send money, and someone on the network confirms to see that all its details are correct. From there, your transaction goes through.
- It takes about 10 minutes on average for a Bitcoin block to be added.
- For their work, miners get Bitcoin as a reward.
- Currently, each block mined will earn you 6.25 BTC. Sweet, right?
- In Bitcoin’s early days, you could mine with a laptop or PC. Now, you need high-performance computers because there’s so much competition on the blockchain.
Mining is the real magic when it comes to how Bitcoin works. If your friend’s transaction didn’t get mined, you wouldn’t be able to get the Bitcoins they sent.
Bitcoin Wallets 👝
Then, there are wallets where you keep your coins. Bitcoin wallets work just like the physical wallet you’ve got in your pocket right now. The only difference is that the money that it stores isn’t physical – it’s all digital.
Here are a few things you should remember about Bitcoin wallets:
- Every wallet is connected to the Bitcoin blockchain. So, it automatically updates your balance after every transaction
- Anyone can download a Bitcoin wallet. Many apps can help you get one online.
- You can also get a wallet from a cryptocurrency exchange. When you open a Quidax account, you automatically get a Bitcoin wallet.
- Do your research and choose a secure wallet. You don’t want anyone to steal your Bitcoin
We have an article about how Bitcoin wallets work. You can check it out if you’re interested in the nitty-gritty details.
So What Have We Been Saying?
- Bitcoin is much more complex than just the send & receive process
- The technology powering Bitcoin is called blockchain
- It takes about 10 minutes for a Bitcoin transaction to be confirmed
- Miners are the ones who confirm Bitcoin transactions
- When your transaction is confirmed, your wallet notifies you