Bitcoin is a digital currency that became popular in 2013. This currency is not controlled by the Bank or any other institution. This decentralized currency is designed to keep our money from those who want to take profits.
Bitcoin consists of three parts: block chain, mining network, and wallet. In order to understand how Bitcoin works, we must understand how each part works.
Block Chain
Block chain is a list of every Bitcoin transaction that ever happened. Before the transaction goes into the block chain, then the transaction has not been completed. As the name implies, block chain is a series of blocks. The block contains a set of new transactions and is connected to the previous block. Everyone can validate the block chain by following all records that record every transaction up to the first transaction when Satoshi Nakamoto makes Bitcoin.
Up here, you might think hard, who's in charge of managing this block chain. The answer is: no. No single organization or individual holds a copy
block chain itself. Bitcoin is made to be well distributed, so there is no fault point that can damage the block chain either intentionally or unintentionally. Block chain is held by every computer that mines Bitcoin.
Mining Bitcoin
The people who mine Bitcoing (miner), are the ones who keep the old deals and make sure the new transactions are recorded. Their task is to create (or mine) new blocks. These blocks keep new transactions going. As compensation has mine these new blocks, they are given some Bitcoin. Such incentives ensure that there are enough people to do the mining so that Bitcoin's networking system keeps on going.
Wallet
Wallet is a part of Bitcoin that is often seen by users. The term wallet (wallet) itself is less precise because the wallet actually does not save Bitcoin. Wallet only keeps a private key that allows the owner to add transactions to the block chain in a public key address. Bitcoin is stored as a transaction record in the block chain.
The greatness of this currency is a cryptographic technique that protects the user. Let's look more closely at how this technique works.
Bitcoin security mostly comes from hashing, and this hash is used to link blocks that one with another block on block chain.
Deal with Bitcoin
When making a transaction with Bitcoin, we send the transaction to the miner network. To keep that no one can transact using our wallet unnoticed, there is some security in place.
Bitcoin transactions occur between two or more wallets. As explained earlier, these two wallets are just a public / private key pair used to encrypt data. The way these two key pairs work ensures that all data encrypted with a public key can be read with a private key, and vice versa.
Bitcoin, we do not have a pile of money that can go up and down like in the Bank. Instead, we have a bunch of Bitcoins that can be traced to the first miner. When making a transaction, we must reference the transaction when getting the Bitcoin (can refer more than one). Next, we must digitally mark each referenced transaction. That is, we areh out the details of the transaction and mengkripsinya with private key. Since the public key will always be connected to our address (as well as the referenced transaction), it will be ensured that only we have the authorization to make the transaction.
In order for a miner to be paid for his work to add a block, there are two things that must happen: they must make sure the hash is valid and the block is recorded in the block chain. The first requirement is purely a technical challenge, while the second condition will force them to examine all possibilities. If a block chain contains invalid transactions (eg, someone transacts with a coin they do not own), the next miner who gets the item from the miner will refuse it so he will not get paid. Therefore the miner will check each transaction to ensure its validity before being added to a block.
When a miner receives a block from another miner, they will get an incentive when they find fault for two things. First, if they reject a block, that means they still have a chance to mine it for themselves. Secondly, if they accept blocks that other miners have rejected because they are invalid, then the mining they do will be useless because this block will not go into
block chain.
Hashtag
Hashing - often known as one - way encryption - is a method for converting data in an irreversible but verifiable way. Let's look at a very simple hashing example with modulus operator 10. Example this, we divide a number by 10 and the rest of the result for this is its hash - so the number 45 has a hash of 5.
There are two crucial functions that must be possessed by the hash. The first is easy to verify. Each time it is done, the process must be fast and produce the same result. The second function is irreversible. If someone says the value of a hash is 5, we should not know that the original value is 45.
Even so modulo 10 is a bad hashing algorithm technique because it allows the same hash value from different data sources. A good must have two elements. A slight change in the initial value will cause the hash value to change dramatically.
Hash is often used in computer security.
Examples are storage
password on Linux. The Linux system never stores the password, but the stored value is the hash value.
the computer will formulate the hash value of the entered password and compare it with the stored hash. If both hashes have the same value, then log in succeeds. Although it can see all the hashes on the system, it does not mean that the security standard is low because it is very difficult to reverse the hash values to their original values.
In the Bitcoin system, hashes are used to verify integrity
block chain, and it is evident that a miner is already mining a block. Hash job on
block chain is making sure no blocks are changed since they are mined.
Hashcash
Hashcash is a system used by miners to verify that they have added a block before the block is inserted into the block chain. The basic function is to make the block chain impossible to change.
This process depends on the hashing process, especially the SHA256 hash function. This function receives an input and outputs a 256-bit number. The number entered into the hash function is the header block (in which there is a
counter) and all hashes from other transactions.
The miner's job is to find a value for
counter where the output of the hash function is below a certain value. This value limit will adjust to the current difficulty setting, which normally changes every 2016 blocks.
to get the required hash value is by
computing power is great. As more hash values are obtained in a faster time, it will increase the likelihood of getting a fulfilling value. When the hash value is found, it means we have added the block and can send it to another miner on the network.
The speed of a network or a miner Bitcoin computer is seen from how many hashes it can try in units of time (usually counted in million hashes per second or GHs).
Miners do not have to worry about their work being taken because there is a hash of all transactions and one of those transactions is paid for the miner itself for mining the block. This result can not be captured without changing its hash value.
Fraud Prevention
Bitcoin mining benefits are controlled by two factors: difficulties in mining each block, and the amount of Bitcoin obtained by miner in each block. Both of these must be balanced by taking into account the increasingly growing computing power and Bitcoin value in the market.
The amount of Bitcoin given per block changes in the right value: starting at 50.5 per 210,000 blocks (about four years) to 21 million Bitcoin already mined, and no more Bitcoin can be given to mine the next blocks.
The level of difficulty varies every 2,016 blocks.
The Bitcoin network is designed to make new blocks an average of every 10 minutes. This time is chosen for two things: a shorter time will make transactions happen faster, but too short a time can also make more than one miner create a new block at the same time so there will be wasted resources because there are two block chains that compete for longer.
Most Bitcoin transactions today do not have transaction fees. It can not be determined whether this transaction fee will be the only way or there will be other features.
Satoshi Nakamoto
Bitcoin is now very well known and its value reaches billions of pounds, but for all that fame, there is one secret that is kept so tight: the identity of its creator. The creator of Bitcoin is known as Satoshi Nakamoto. It is not known whether Satoshi is a male or female, whether it consists of one person or group.
Satoshi was mining quite a bit of Bitcoin in its early days (possibly up to a million), so with the current exchange rate, he was already rich. Despite having a wealth of considerable value, until now Satoshi has never spent it at all.
Anonymous Transactions
Bitcoin became known as the currency of choice in conducting online transactions, especially for illegal online stores like Silk Road. However, Bitcoin is not designed as anonymous currency, and the fact that it can not be done because of the way the block chain works record all Bitcoin transactions and allow anyone to see any Bitcoin flow.
The only factor that makes Bitcoin popular as a means of anonymous transactions is because we can create a Bitcoin wallet without telling the identity of who we are. In this sense, the wallet will remain private, but the currency will remain public. This means that if we get anonymous coins (for example, we mine them or buy on an untracked path), spend it in an untracked way (for example, paying for something not delivered or personally related in any way), and not connecting a wallet with physical location (for example, using only wallet via Tor) then this transaction should be anonymous. But this anonymity must be done right. One just fails, then the transaction can be traced to the end.
Although anonymous transactions are possible to do with Bitcoin, cash is still the safest way. Block chain is a gold mine for big-data analysts and there will likely be laws governing it in the future.
Using Bitcoin
The benefit of a currency, for most people, is how to use it. Most of the world's currencies are used by involving metal circles or a sheet of paper, but there is nothing like that for Bitcoin.
To make a transaction, the first thing needed is a Bitcoin wallet.
This wallet is just a pair
public / private key used to mark the transaction. However, we need a safe place to keep this key because if it is lost all the coins will disappear from the face of the earth. The level of security depends on the amount of money you want to keep. There are different types
wallet for almost any computer device including smartphone alias. Keep in mind that there is no cost to create a wallet, so there is nothing to limit us to make some.
All Bitcoin wallets have the same workings, and store all the information needed to receive and send Bitcoin and view transactions ever made.
After creating a wallet, we need to get a coin. For most people, it means we need to buy from a place of exchange like Coinbase.
When buying Bitcoin we will be asked for a wallet address. When the bank transfer has been made, the spot will send the coin to the wallet.
Spending coins is a lot easier than buying them. More and more companies are accepting payments through Bitcoin. At checkout section there will be a wallet address to send coins. Keep in mind that we do not send transactions to the seller, but to the network.
The seller will receive a block chain from the network and check the transactions sent to a certain wallet.
Companies that receive money will usually wait until the transaction reaches six or more blocks, which will take up to an hour. When the transaction is completed, we will get the desired product.