How Does Bitcoin Work?

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Bitcoin (source: newscientist.com)

How Does Bitcoin Work?

All Bitcoin transactions are recorded in a block of data and all these data blocks are chained or linked together in a blockchain. This blockchain is created by a large interconnected number of decentralized computers and each of these decentralized computers maintains an up-to-date copy of this blockchain in its memory.

These decentralized computers are not located in just one geographical area but rather are distributed all over the world. All these interconnected computers maintain a common record of each Bitcoin transaction. So, if one person sends Bitcoin to someone else located halfway around the world, this transaction will become part of the blockchain.

And, it will be recorded by every single interconnected computer that is working to place the next block into the blockchain. Working together, these interconnected computers act as a decentralized network. This decentralized network is not controlled by any central bank, government, or organization.

Blocks must first be verified and then they are entered into the blockchain. This blockchain functions like an electronic ledger where ledger entries cannot be changed or modified. In principle, this Bitcoin ledger functions similar to a ledger that a financial institution may use to log the flow of funds into and out of the accounts held by the institution.

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