What Is Bitcoin, and How Does it Work?


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How Bitcoin Works

by Michael Crider on November 7th, 2017

In layman’s terms: Bitcoin is a digital currency. That’s a concept that might be more complex than you realize: it isn’t simply an assigned value of money stored in a digital account, like your bank account or credit line. Bitcoin has no corresponding physical element, like coins or paper bills (despite the popular image of an actual coin, above, to illustrate it). The value and verification of individual Bitcoins are provided by a global peer-to-peer network.

Bitcoins are blocks of ultra-secure data that are treated like money. Moving this data from one person or place to another and verifying the transaction, i.e. spending the money, requires computing power. Users called “miners” allow their computers to be used by the system to safely verify the individual transactions. Those users are rewarded with new Bitcoins for their contributions. Those users can then spend their new Bitcoins on goods and services, and the process repeats.

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