Friday, 20 March 2015

How Bitcoin Works

Hey guys!

I said that I'd write a post about how Bitcoin works, so here it is.

To be able to store Bitcoin, you need to create a wallet. There are many wallets to choose from, and I chose Coinbase's online wallet, as you never have to deal with keeping your keys safe. So, there are 2 keys that get generated when you create a wallet. The public key and the private one. The public key can be told to anyone, as it deals with incoming transactions, and there's no point not letting people be able to pay you. The other one should not be told to anyone, as it deals with outgoing transactions, so you don't want people knowing that, as then they could take your Bitcoins (not a good thing!)

The Block Chain

When you make a transaction, it's data is added to the block chain. The block chain is a big list of all the transactions ever made, all added into one string of data. After this, bitcoin miners start mining, hashing the transactions made in different combinations, looking for a certain combination that starts with a load of zeros. If a miner finds a combination like this, then the block is ended and all the transactions start flowing onto the block after this. With this happening, it means that every transaction ever made is woven into the block chain. The only way to hack this would be to own more than 50% of the whole bitcoin network's hashrate, so that they could change some transactions and re-hash and catch up everyone else's real hashing. If the network is 50 or more % faster, then if anyone tried to edit the block chain they would get left behind by everyone else. At one point a bitcoin pool reached 40% of the network's hasrate, but they put a limit on, as they foresaw that if they ever reached 51% then everyone would lose their trust in bitcoin, leading to a crash in bitcoin prices.

Hopefully this has improved your understanding of how bitcoin works.

Make sure to keep checking here to see the latest tech news!


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