How BTC works:



Blockchain Technology


  • Bitcoin transactions are recorded on a public ledger called the blockchain. The blockchain is a decentralized and distributed database that contains a chronological chain of blocks, each containing a list of transactions.





Decentralized Network


  • The Bitcoin network is decentralized, meaning it doesn't rely on a central authority, such as a government or financial institution. Instead, it operates on a network of nodes (computers) that work together to maintain the blockchain.



Transactions


  • When someone initiates a Bitcoin transaction, it is broadcast to the network. Transactions include information such as the sender's address, the recipient's address, the amount of Bitcoin being transferred, and a digital signature.



Mining


  • Miners are participants in the network who use powerful computers to solve complex mathematical problems. These problems, known as proof-of-work, secure the network by validating transactions and adding new blocks to the blockchain.



Block Creation


  • Validated transactions are grouped into blocks by miners. Each block contains a reference to the previous block, forming a chain. Once a miner successfully solves the proof-of-work problem, the new block is added to the blockchain.




Consensus Mechanism


  • Bitcoin uses a consensus mechanism known as proof-of-work. This requires miners to compete to solve mathematical problems, and the first one to solve it gets the right to add the next block. This ensures that the network reaches a consensus on the state of the blockchain.




Bitcoin Ownership


  • Bitcoin ownership is represented by private and public key pairs. The private key is known only to the owner and is used to sign transactions, while the public key is shared with others for receiving funds. A Bitcoin address is derived from the public key.



Limited Supply



  • Bitcoin has a capped supply of 21 million coins, making it a deflationary asset. This scarcity is programmed into the system to control inflation and mimic the scarcity of precious metals.



  • Decentralized Validation


    • The decentralized nature of Bitcoin ensures that no single entity has control over the entire network. Changes to the protocol require consensus among the majority of participants.



Security and Anonymity


  • Bitcoin transactions are secured through cryptographic techniques. While transactions are recorded on the public blockchain, the identities of users are pseudonymous. Users are identified by their wallet addresses rather than personal information.