What Is Bitcoin?

Bitcoin is a completely decentrally organized currency that can not even be compared to any of the previously implemented monetary systems. As a result, the media are having a hard time explaining the system.

How does Bitcoin's Blockchain technology work?

This transaction book is sent back and forth on the Bitcoin computer network and constantly updated. It is called the "blockchain". The reason: The book consists of several "blocks" that are processed separately. You can think of it as simplified as the pages of a paper transaction book. Every 10 minutes a new block with new transfers is added.

In this blockchain is everything that is needed for the Bitcoin network. Overall, the blockchain has several gigabytes in size. Since it is stored on many computers at the same time, you need not to be afraid that, for example, a power outage leads to money being lost.

So bitcoin is mainly a decentralized, digital accounting system. Once you understand this, everything is much easier to understand.

Where to store bitcoins?

Mainly this file contains an access key to your own account. One can imagine this as a rather long password with 51 characters. Similar to the password or PIN you need to enter when accessing a traditional bank ATM or online banking account.

If you own this private key, you can access the account and transfer money with it. It does not matter if the key is on the computer or elsewhere.

The key can be copied for security. For example, the backup can be stored on a USB stick or even written down on a piece of paper and stored in the safe. If you have a particularly good memory, you can also delete everything and keep the key in mind - this is called "Brainwallet" ("purse in the brain"). There are programs that simplify this by generating a key from any sentence that is easier to memorize.

So it does not matter where the key is. The key is that the key is the right one, otherwise you will never get closer to your account. And you must not pass on the key to unauthorized persons, otherwise, they can empty the account with transfers to their own accounts - from any computer or even smartphone in the world!

Although the wallet also contains some other data, such as the transaction history of your own account. However, this is only needed so that the Bitcoin software does not constantly have to scour the entire network - the blockchain. Even without this transaction history, the "bitcoins" in the wallet can easily be restored with the private key.

How to make sure that no transfers in the blockchain can be forged?

For transfers from one Bitcoin account to another, the private key is used to "sign" or "sign" the transactions. The signature ensures that only the owner of the account - the owner of the private key - can make a transfer.

The principle of digital signatures is one of the foundations of secure communication on the Internet and is used in many places, for example in encrypted e-mail transmission. The key is used as the basis for a code used to encrypt a message.

But how does the Bitcoin network recognize that a transfer has been validly signed?

For this purpose, there is a second key, the "public key". The public key can be used to decrypt the contents of a message encrypted with the associated private key. The public key works only together with a private key, never with another.

The public key may be distributed arbitrarily because it does not entitle to sign a transfer. Also, it is never possible to "hijack" a private key.

A short form of the public key is the Bitcoin address. This is known to the entire Bitcoin network and is stored in the blockchain. Again, this is a chain of arbitrary characters, but much shorter than the full public key or even the private key.

What exactly happens in the Bitcoin network?

For every transfer made from a bitcoin address, the public key signature is used

Sender decrypted for confirmation. If the "decrypted" content corresponds to the format of a valid transfer, this proves that the private key was used for encryption.

Conclusion

Valid transfers are only possible with the private key belonging to a bitcoin address. This will be used to sign the transfer. The system uses the associated public key to recognize valid transfers.