What is Bitcoin and How Does It Work?

Digital payments have evolved at an astonishing rate in the last decade. With technological advances, the top online casinos such as Omnia Casino Germany offer a variety of payment options to their customers. In recent years, Bitcoin has created a lot of buzz on the internet. It is slowly becoming a part of our everyday lives. However, it is not alone and there are over 700 AltCoins around the world that use the same principle and various cryptography algorithms. This blog post will give you an insight into the working of Bitcoin.  

What is Bitcoin?

Bitcoin is a digital currency that can be sent from user to user on the peer-to-peer bitcoin network. Transactions are verified through cryptography and recorded in a public distribution ledger called Blockchain. It was created in 2009 by Satoshi Nakamoto, whose identity remains unknown to date. As it is a decentralized digital currency, no central authority or government has control over its operations.

Bitcoin network

The Bitcoin network is a peer-to-peer payment network that uses a cryptographic protocol. Using the Bitcoin cryptocurrency wallet software, users send and receive Bitcoin by broadcasting digitally signed messages on the network. All the transactions are recorded into a public database called as blockchain, with consensus achieved by the mining system.

Information sharing in this type of network is quite similar to information shared among family members. By sharing information with any one member of the network, it will reach all other members of the network. The only difference is that this information cannot be changed in peer-to-peer networks.

Hashing algorithm

A hash function is any function that can be used to map data of arbitrary size to fixed-sized values. Basically, it is a process of taking some information that is readable and making something that cannot be understood.

Any good hashing algorithm has some requirements:

  • A fixed output length of the hashing algorithm.
  • A small change in input data must produce significant output.
  • The same input will generate the same output every time.
  • There should be no way to reverse the output value in order to calculate the input.
  • The calculation of the HASH value must be fast.

Digital signature

A digital signature is a mathematical scheme for verifying the authenticity of digital messages. In a digital signature, all you need to do is append your personal data to the document you’re signing. As a small change in input data produces a significant difference in output, the HASH value created for the original document will be different from the HASH value created for the document with the appended signature.

A digitally signed document is the combination of the original document and the HASH value. In this way, a virtual identity is created. In order to make sure that the signature cannot be copied, developers provide a different method for others to validate the signed document. If you use your private key and original document to create a HASH value, you can rest assured that no one else can produce the same value for the HASH document.