What is bitcoin and how does it work. Say there’s a coin that’s currently worth hundreds of US dollars, but it’s not made of gold, or platinum, or any precious metal. In fact, it’s not the kind of coin that you can hold in your hand or stick in a piggy bank. It’s a digital currency which means it only exist electronically.

Bitcoin doesn’t work like most money. It isn’t attached to a state or government, so it doesn’t have a central issuing authority or regulatory body. Basically, that means there is no organization deciding when to make more bitcoins, figuring out how many to produce, keeping track of where there are, or investigating fraud.

So how does bitcoin work as a currency or have any value at all? Well bitcoin would not exist without a whole network people and a thing call cryptography. Bitcoin is a fully digital currency and you can exchange bitcoin between computer in peer to peer network. Then you might ask if bitcoin is a digital currency then what stop you from making a bunch of counterfeit copy and become fabulously rich. Unlike mp3 or video file bitcoin isn’t a string of data that can be duplicated. It used blockchain which is an entry of huge global ledger. Blockchain is a central ledger records every bitcoin transaction that has ever happened.

To understand more about blockchain, let’s assume an example Robin send 5 bitcoins to Bruce Wayne, so who are the people will keep track of this record since there is no regulatory or official group of people to update the ledger? Answer is it’s decentralized. In fact, anybody can volunteer to keep the blockchain up to dare with all the new transactions. It all works because there are a lot of people keeping track of the same thing to make sure all transactions are accurate. So, for every transaction you are announcing a couple of things to the bitcoin network 1) your account number 2) the account number of the person you are sending bitcoins and 3) how many bitcoins you want to send. Hence all of the users who are keeping copies of the blockchain will add your transaction to the current block.

Moving next you might ask, so what is stopping from Bruce Wayne from pretending he is someone and just sending himself all of the bitcoins? The answer is cryptography and that’s why we call it as cryptocurrency. Specifically, bitcoins stay secure because of keys, which are basically chunks of information that can be used to make mathematical guarantees about messages. For example, when you create an account on the bitcoin network, there will be a wallet and that account is linked to 2 unique keys which are a private key and a public key. The private key can take some data and basically mark it, also known as signing it so that other people can verify those signatures later. So, let’s say Robin wanted to send 3 bitcoins to Bruce Banner, then he signs that message using his private key, then he sends that signed message out to the bitcoin network and everyone can use the public key to make sure his signature checks out. In that way everyone keeping track of all the bitcoin transaction knows to add Robin’s transaction to their copy of the blockchain.

Since we have successfully identified “who” is sending the bitcoins but the “when” matters as well. For example, if you had a thousand dollars in your bank account and try to buy two things for a thousand dollars each at the same time, the bank would honor the first purchase and deny the second one. If the bank didn’t do that, you will be able to spend the same money multiple times. So, if Robin only have enough money to pay Bruce Wayne or Alfred, but he is trying to pay them both, please note there is a check built into the bitcoin system. Both the bitcoin network and your wallet automatically check your previous transactions to make sure you have enough bitcoins to send in the first place.

Next there will be a timing issue because lots of people are keeping copies of the blockchain all over the world and this induced to network delays. This mean that people wont always receive the transaction request in the same order. A bunch of people with a bunch of slightly different block to pick but non of them are necessarily wrong.

So how bitcoins solve this problem? To add a block of transaction to the chain, each person maintaining the ledger has to solve a special kind of math problem created by cryptographic hash function. A hash function is an algorithm that takes an input of any size, and turns it into an output with a fixed size. To solve this, volunteers spend thousand of dollars on a special computer built to solve this hash function called SHA 256. These volunteers also know as miners are not doing for free because bitcoin has a built-in system to reward whoever first that solve the problem.

In conclusion bitcoin is a kind of cryptocurrency and like US dollar is a kind of FIAT currency. In 2009 when the first bitcoin was created it was perceived no value but until today the price of one bitcoin is equal to USD 11,588.00. Is it worth to invest in bitcoin? Ask yourself.