Bitcoin first came into existence in 2008 when a mysterious programmer named Satoshi Nakamoto registered bitcoin.org, a new domain. Later in 2009, Satoshi released a white paper which stated bitcoin: an electronic cash system. The white paper entitled that bitcoin’s principles eradicate the involvement of any financial institution and central authority by making sure secure and verified transactions. If you are looking for a financial company to fulfill your needs, then visit daily profit App  and get their different services.

The document released by Satoshi describes a new type of cryptocurrency that is purely based on the web. The individuals can send and receive bitcoins without any intermediary. The bitcoin system allows two users to exchange money just as they pass money for buying goods and services.  The exchange of money can be done using the bitcoin wallet that is used to store the bitcoins. The users can send or receive bitcoins by confirming messages, data, and transactions by utilizing a tool referred to as public-key encryption. The whole process is carried out without disclosing the information to third parties.

Let us move forward and understand the working of bitcoin.

How does bitcoin work?

bitcoin To understand the working of bitcoin, there are three concepts that are important to gain knowledge on, which are as follows:

Supply and Demand

The demand and supply concept comes in bitcoin because these are finite in number. Obviously, demand or value for a product increases when its supply or its count is limited. More and more people tend to demand bitcoin because of its limited supply, which increases its price. The production of bitcoin is fixed, and it will decrease with time. The founder of bitcoin, Satoshi, introduced the concept of halving bitcoin production every four years.

There are 21 million bitcoins that are created, and no more are to be created. There are more than 18 million bitcoins in today’s time that are in circulation, or we can say that they are created.

Cryptography

cryptography The bitcoin network is entirely based on blockchain technology. Bitcoin uses cryptography by utilizing blockchain technology. In ancient times when World War II happened, people tend to use cryptography a lot. Cryptography was used to convert the radio messages into unreadable or incomprehensible code so that no one else could read or understand. To read the original message, one needs to convert it back using the key to read the original message. This whole process was only possible via complex mathematical formulas.

In today’s time, bitcoins uses the same process of cryptography. It doesn’t use cryptography to convert the radio messages, and instead, it is used to convert the data of transactions. This is the main reason why it is known as a cryptocurrency. 

Decentralized Networks

First, let us discuss what a centralized network is, and then we will gain knowledge on a decentralized network. Like traditional currencies printed when required by central authorities and handled by financial institutions, traditional currencies like Dollar, Euro, and Indian Rupee are a centralized network. A centralized network is a network that is controlled by central authorities like everything is in one place, and one person or institution is the head.

A decentralized network is a network in which data isn’t present at a single place but is available everywhere. Bitcoin is a decentralized currency because it is not controlled by banks or governments and is controlled by its bitcoin community users. The users of it are not in a single place or limited to borders. 

How do these three concepts work?

bitcoin To understand the working of bitcoin, let us understand the working of these three concepts collectively. The transactions are recorded in a database, and because the bitcoin is a decentralized network, its database is shared. The database of bitcoin is recorded in a distributed public ledger, which is also known as a blockchain and is accessible to everyone.

All the messages, data, and transactions are recorded in a distributed ledger that is accessible to everyone, but the system maintains anonymity. No one can track the transactions or data of any other user, and only the users can know their cash flow from their bitcoin wallets.