Trading Concepts

How Bitcoin Works

As the world’s first and most popular cryptocurrency, Bitcoin eclipses all others when it comes to public usage and recognition, market capitalization, and trading volume.

Bitcoin pioneered the cryptocurrency space, and for now remains the standard by which others are measured.

The payment aspect of Bitcoin has continued to grow at a brisk pace since its 2009 inception, as both individuals and institutions have increasingly come to view the cryptocurrency as an accepted method for executing payment transactions.

How bitcoin works

As a decentralized currency that is entirely digital and disconnected from any government or central bank, Bitcoin has several key characteristics:

  • Bitcoin utilizes a worldwide network of encrypted peer-to-peer transactions that are verified and securely recorded in a “blockchain,” which is a digital public transaction ledger devoid of any central authority. All confirmed and verified Bitcoin transactions are included in this blockchain.
  • Bitcoins are created through a process called “mining,” which uses computer processing capacity to form units of the cryptocurrency. In order to add new Bitcoins into the global network, miners must follow strict cryptographic rules specified by the system.
  • Digital “wallets” are used to store Bitcoin credentials for each user and enable users to store, transfer, and spend their currency, at which point these transactions are recorded in the blockchain. Bitcoin wallets use secured “private keys,” which are used to sign and provide proof of transactions.

How bitcoin works

But the most rapid growth for Bitcoin has developed in its use as a globally traded financial asset. Bitcoin’s unprecedented appreciation in value over the relatively short period of its history, especially in recent months, has been responsible for generating profits for many early adopters of the cryptocurrency.