Bitcoin explained simply
In just ten years, the flagship cryptocurrency Bitcoin has garnered a wide range of prominent and notorious monikers:. Bitcoin is…the future of money, Internet drug money, the future of the financial industry, a speculative bubble, a global currency, a direct threat to the U. Dollar, a looming environmental disaster, to name a few. An often completely unprecedented legal situation exists at almost every twist and turn in the cryptocurrency industry.
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Bitcoin explained simply
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- Bitcoin Explained - Chapter 9: Advantages and disadvantages of Bitcoin
- What Is Blockchain? The ‘Transformative’ Technology Behind Bitcoin, Explained
- What's a crypto wallet (and how does it manage digital currency)?
- NFTs, explained
- Demystifying Cryptocurrencies, Blockchain, and ICOs
- In Global First, El Salvador Adopts Bitcoin as Currency
- What is Bitcoin? Cryptocurrencies explained
- Still Don't Get Bitcoin? Here's an Explanation Even a 5-Year-Old Will Understand
- Inside Afghanistan's cryptocurrency underground as the country plunges into turmoil
Bitcoin Explained - Chapter 9: Advantages and disadvantages of Bitcoin
But the real significance of bitcoin isn't just its rising value. It's the technological breakthrough that allowed the network to exist in the first place. Bitcoin's still anonymous inventor, who went by the pseudonym Satoshi Nakamoto, figured out a completely new way for a decentralized network to reach a consensus about a shared transaction ledger.
This innovation made possible the kind of fully decentralized electronic payment systems that cypherpunks had dreamed about for decades. As part of our recent efforts to shed light on the mechanics of the popular cryptocurrency, today we'll provide in-depth explanation of how bitcoin works, starting with the basics: how do digital signatures make digital cash possible? How did Nakamoto's invention of the blockchain solve the double-spending problem that had limited earlier digital cash efforts?
We'll also explore more recent happenings like the block size debate that has divided the bitcoin community into two warring camps.
And finally, we'll look at the future and talk about why bitcoin's design could make it a uniquely fertile platform for innovation in the coming years. As you're about to see, there's simply a lot to cover. Until the s, all publicly known encryption schemes were symmetric: the recipient of an encrypted message would use the same secret key to unscramble the message that the sender had used to scramble it. But that all changed with the invention of asymmetric encryption schemes. These were schemes in which the key to decrypt a message known as the private key was different from the key needed to encrypt it known as the public key —and there was no practical way for someone who only had the public key to figure out the private key.
This meant you could publish your public key widely, allowing anyone to use it to encrypt a message that only you—as the holder of the private key—could decrypt. This breakthrough transformed the field of cryptography because it became possible for any two people to communicate securely over an unsecured channel without establishing a shared secret first.
Asymmetric encryption also had another groundbreaking application: digital signatures. In normal public-key cryptography, a sender encrypts a message with the recipient's public key and then the recipient decrypts it with her private key. But you can also flip this around: have the sender encrypt a message with his own private key and the recipient decrypt it with the sender's public key.
That doesn't protect the secrecy of the message since anyone can get the public key. Instead, it provides cryptographic proof that the message was created by the owner of the private key. Anyone who has the public key can verify the proof without knowing the private key. People soon realized that these digital signatures could make cryptographically secure digital cash possible.
Using the classic example scenario, let's suppose Alice owns a coin and wants to transfer it to Bob. She'll write a message that says, "I, Alice, transfer my coin to Bob," and then sign the message by encrypting it with her private key. Now Bob—or anyone else—can decrypt the signature using Alice's public key. Since only Alice could have created the encrypted message, Bob can use it to demonstrate that he's now the rightful owner of the coin. If Bob wants to transfer the coin to Carol, he follows the same procedure, declaring that he's transferring the coin to Carol and encrypting the message with his private key.
Carol can then use this chain of signatures—Alice's signature transferring the coin to Bob, and Bob's signature transferring the coin to Carol—as proof that she now owns the coin. Notice that none of this requires an official third party to authorize or authenticate the transactions. Alice, Bob, and Carol can generate their own public-private key pairs without help from third parties. Anyone who knows Alice's and Bob's public keys can independently verify that the chain of signatures is cryptographically valid.
Digital signatures—combined with a few innovations we'll discuss later—let people engage in banking without needing a bank. The generic digital cash scheme I described in the previous section is very close to how real bitcoin payments work. Here's a simplified diagram of what real bitcoin transactions look like:. A bitcoin transaction contains a list of inputs and outputs.
Each output has a public key associated with it. For a later transaction to spend those coins, it needs an input with a matching digital signature. Bitcoin uses elliptic curve cryptography for digital signatures. For example, suppose you own the private key corresponding to Public Key D in the diagram above. Someone wants to send you 2. The person will create a transaction like Transaction 3, with 2. When you're ready to spend those bitcoins, you create a new transaction like Transaction 4.
You list Transaction 3, output 1 as a source of the funds outputs are zero-indexed, so output 1 is the second output. You use your private key to generate Signature D, a signature that can be verified with Public Key D. These 2. Now they can only be spent by the owners of the corresponding private keys. A transaction can have multiple inputs, and it must spend all of the bitcoins from the corresponding outputs of earlier transactions.
If a transaction outputs fewer bitcoins than it takes in, the difference is treated as a transaction fee collected by the bitcoin miner who processed the transaction more details on this later. On the bitcoin network, the addresses people use to send each other bitcoins are derived from public keys like Public Key D. The exact details of bitcoin's address format are complicated and have changed over time, but you can think of a bitcoin address as a hash a short, seemingly random string of bits that serves as a cryptographic fingerprint of a public key.
Bitcoin addresses are encoded in a custom format called Base58Check that minimizes the risk of mistyping. A real-world transaction looks like this:.
This transaction took 6. One output address got a bit more than 5 bitcoins, while the other got slightly less than 1 bitcoin. Most likely, one of those output addresses belongs to the sender—sending "change" back to themselves—while the other belongs to a third-party recipient. Of course, real bitcoin transactions can be more complex than the simple examples I've shown so far.
Probably the most important feature not illustrated above is that in place of a public key, an output can have a verification script written in a simple bitcoin-specific scripting language. To spend that output, a subsequent transaction must have parameters that allow the script to evaluate to true.
This allows the bitcoin network to enforce arbitrarily complex conditions governing how the money can be spent. For example, a script could require three different signatures held by different people and also require that the money not be spent prior to some future date. Unlike Ethereum, bitcoin's scripting language doesn't support loops, so scripts are guaranteed to complete in a short amount of time. You must login or create an account to comment.
Skip to main content Enlarge. While that happens, we're resurfacing some classic Ars stories like this explainer on everything you've wanted to know about Bitcoin but may have been afraid to ask. Because with the cryptocurrency's value reaching a new record high not even two weeks ago , it's perfectly reasonable to want the basic intel.
This piece first published on December 15, and it appears unchanged below. Dan Farber. Further Reading Bitcoin: Seven questions you were too embarrassed to ask. Further Reading A relatively easy to understand primer on elliptic curve cryptography. Timothy B. Lee Timothy is a senior reporter covering tech policy, blockchain technologies and the future of transportation. He lives in Washington DC.
Email timothy. Channel Ars Technica.
What Is Blockchain? The ‘Transformative’ Technology Behind Bitcoin, Explained
This article explains what bitcoin is all about and how and what you should know about it. Introduction Bitcoin and cryptocurrency are the talks of the year. The growth of Bitcoin has attracted so many new investors from around the globe. But what amazes me is how few people really understand what Bitcoin is all about.
What's a crypto wallet (and how does it manage digital currency)?
Subscriber Account active since. Scarcely a news cycle goes by without some mention of Bitcoin. But even by its own standards, the cryptocurrency was having an intense moment in the fall of But while it has certainly attracted plenty of attention , not just of late but throughout its year-old life, Bitcoin still remains a mystery to casual and experienced investors alike. This shouldn't really be the case, since the basics of Bitcoin and how it works are relatively easy to understand. Here's a brief Bitcoin biography: An overview of its origins, operations — and how to invest in it. Bitcoin is a cryptocurrency, an electronic version of money that verifies transactions using cryptography the science of encoding and decoding information. As Bitcoin educator, developer, and entrepreneur Jimmy Song explains, Bitcoin is "decentralized, digital, and scarce money":.
Cryptocurrencies can be broadly categorised into four types based on their utility. There are more than 15, cryptocurrencies today and more are yet to be added. The age of majoritarianism has birthed a second wave of identity politics across India. As five states are ready to go to polls At no time do the politics of identity play out more spectacularly than during an Indian election.
Demystifying Cryptocurrencies, Blockchain, and ICOs
But what is blockchain exactly? Blockchain technology first established its reputation as a decentralized, virtually tamper-proof database technology used as a booking system for the cryptocurrency Bitcoin. But the times when blockchains were only used for Bitcoin transactions are long gone. Now that the initial hype about the new technology has slightly subsided, different economic sectors are investing in research and further development of a variety of blockchain applications. Blockchain has developed into a cross-industry information technology , which can be used for a wide variety of purposes.
In Global First, El Salvador Adopts Bitcoin as Currency
Blockchain technology is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset. By inherent design, the data on a blockchain is unable to be modified, which makes it a legitimate disruptor for industries like payments, cybersecurity and healthcare. Our guide will walk you through what it is, how it's used and its history. Blockchain, sometimes referred to as Distributed Ledger Technology DLT , makes the history of any digital asset unalterable and transparent through the use of decentralization and cryptographic hashing. A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This creates a decentralized distribution chain that gives everyone access to the document at the same time.
What is Bitcoin? Cryptocurrencies explained
Many thousands of articles have been written purporting to explain Bitcoin, the online, peer-to-peer currency. Most of those articles give a hand-wavy account of the underlying cryptographic protocol, omitting many details. Even those articles which delve deeper often gloss over crucial points. My aim in this post is to explain the major ideas behind the Bitcoin protocol in a clear, easily comprehensible way.
Still Don't Get Bitcoin? Here's an Explanation Even a 5-Year-Old Will Understand
Bitcoin is a new currency that was created in by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men — meaning, no banks! Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in Bitcoins can be used to buy merchandise anonymously.
Inside Afghanistan's cryptocurrency underground as the country plunges into turmoil
Cryptocurrency, sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don't have a central issuing or regulating authority, instead using a decentralized system to record transactions and issue new units. Cryptocurrency is a digital payment system that doesn't rely on banks to verify transactions. Instead of being physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets. Cryptocurrency received its name because it uses encryption to verify transactions.
By now you've probably heard about the cryptocurrency craze. Either a family member, friend, neighbor, doctor, Uber driver, sales associate, server, barista, or passer-by on the street, has probably told you how he or she is getting rich quick with virtual currencies like bitcoin, Ethereum, Ripple, or one of the lesser-known 1,plus investable cryptocurrencies. But how much do you really know about them? Considering just how many questions I've received out of the blue from the aforementioned group of people over the last month, the answer is probably, "not a lot.