Say there’s a coin that’s currently worth hundreds of US dollars. Still, it’s not made of gold or platinum or any precious metal it’s not the kind of coin you can hold in your hand or stick in a piggy bank it’s a digital currency which means it only exists electronically, this is about Bitcoin. Bitcoin doesn’t work like most money it isn’t attached to a state or government it doesn’t have a central issuing authority or regulatory body basically that means there’s no organization deciding when to make more bitcoins figuring out how many to produce keeping track of where they are or investigating fraud so how does Bitcoin work as a currency or have any value at all well. Bitcoin wouldn’t exist without a whole network of people, and a little thing called cryptography, in fact, it’s sometimes described as the world’s first cryptocurrency and here’s how it works.
The networking system
Bitcoin is a fully digital currency, and you can exchange bitcoins between computers in a worldwide peer-to-peer network the whole point of most peer-to-peer networks is sharing stuff like letting people make copies of super legal music or movies to download if bitcoin is a digital currency what’s stopping you from making a bunch of counterfeit copies and becoming fabulously wealthy well unlike an mp3 or a video file a Bitcoin isn’t a string of data that can be duplicated. Bitcoin is actually an entry on a substantial global ledger called the blockchain for reasons we’ll get to in a minute the blockchain records every Bitcoin transaction that has ever happened, and as of late 2016 the complete ledger is about 107 gigabytes of data so when you send someone bitcoins it’s not like you’re sending them a bunch of files instead you’re basically writing the exchange down on that big ledger something like
With Bitcoin, there’s no central bank to notice anything weird going on to shut down fraud like if it looked like suddenly you spent your entire life savings on beef jerky so what’s stopping anyone from pretending to be someone else and just sending himself all of someone else’s bitcoins because bitcoins are kept pretty safe thanks to cryptography which is why it’s considered a cryptocurrency specifically Bitcoin stays secure because of keys which are basically chunks of information that can be used to make mathematical guarantees.
In the Bitcoin system, both the Bitcoin network and your wallet automatically check your previous transactions to make sure you have enough bitcoins to send in the first place but there’s another problem that might happen with timing because lots of people are keeping copies of the blockchain all over the world. Network delays mean that you won’t always receive the transaction requests in the same order so now you’ve got a bunch of people with a bunch of slightly different blocks to pick from, but none of them is necessarily wrong.