Bitcoin is a digital currency that is untraceable. Banks don’t need to manage transaction or even government has no issue with it.
Bitcoin is invented by Satoshi Nakamoto that’s why the smallest unit of bitcoin is known as Satoshi. It is a one hundred millionth of a single bitcoin (0.00000001 BTC). Feb 2011 – April When Bitcoin takes parity with US dollar and today 1 Bitcoin equals 19806.99 US Dollar. So how it is growing?
How Bitcoin works?
Think about a communal ledger where you keep track of your payments with your friends and now when you trust your friends more and the world around you less, what you’re gonna do is add some security to the ledger. Digitally you add Cryptography to your ledger, So Ledger – Trust + Cryptography = Cryptocurrency
Bitcoin is a first implement example of cryptocurrency.
Well, actually a ledger is bigger than what I told you as an example. The ledger contains every user’s payments information. Example.
John paid $100 to Ethan
Bob paid $20 to Mariah
So, this is what a ledger is. This ledger is accessible to anyone(like a website), anyone can write to the ledger also. So here might a pop a question, that what if
you add a line that indicates you paid to someone for some sort of service.
This is where the cryptography comes in, Digital signature is unique for each user. So everyone who adds a line to the ledger will add his digital signature also after the message for verification. Here is another question that pops out.
Couldn’t you copy the signature of someone? whatever data makes that signature can be read and copied by the computer. So how do you prevent that!
Every user generates a public key, private key pair. The private key is also known as a Secret key, as the name suggests this secret key is something that you wanna keep to yourself. In the real world, your handwritten signature is always the same on all documents, but digital signature is much stronger because it changes for each line of the ledger. your digital signature is commonly 256bit long.
Producing a signature involves a function that needs both of the message itself and your secret key. The secret key ensures that only you can produce the signature. There is a second function that used to verify the message, this is where the public key comes into play, all it does is gives an output that is either true or false to indicates that the message provided by the private key associated with the public key. It’s almost impossible to produce the secret key, there is no strategy better that guessing random signature, which you can verify using the public key that you can get. But the secret key is a way too much large number to guess.
Well, What I said earlier that the ledger is accessible to anyone, like a website.
But this would be centralized cryptocurrency. Think about what happened if someone owns and control the ledger. To prevent this, Every user owns a copy of Bitcoin ledger. After some transaction entered in the ledger the user has to broadcast his own copy of ledger to everyone to update their ledger with that one block of the message received. But when you receive a block of the transaction, how could you believe that everyone has the same block of the transaction.
There you need a Hash function. So what is a hash function?
A Hash function is used to encrypt a message. The input to hash function can be any message or file and the output is some kind of fixed length like 256 bits. This output is called the Hash or Digest of the message. The output looks random, but it’s not random, it is calculated by many computational calculations. If you give input to hash function with a message, it gonna give same output every time. but if slightly change the input the whole hash will be different. the cool thing about this hash that it is irreversible. all you can do is guess to inverse the output.
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