How Bitcoin Works

Bitcoin is a digital currency that operates on a decentralized network of computers worldwide. This network, often referred to as a peer-to-peer network, means that no single entity, like a bank or government, controls Bitcoin. Instead, transactions are verified by network participants, ensuring transparency and security.

All Bitcoin transactions are recorded on a public ledger known as the blockchain. The blockchain is like a giant digital ledger that keeps a record of every single transaction ever made with Bitcoin. This ledger is distributed across the entire network, so everyone has a copy of it, making it very difficult to alter or hack.

New Bitcoins are created through a process called mining. In mining, powerful computers solve complex mathematical problems. When a problem is solved, a new block of transactions is added to the blockchain, and the miner is rewarded with newly created Bitcoins. This process not only generates new Bitcoins but also helps verify and secure transactions on the network.

Mining can be highly competitive and requires significant computational power, which is expensive. To improve their chances of earning rewards, miners often join forces in groups called mining pools. In a mining pool, miners combine their computational resources to solve problems more quickly. When the pool successfully mines a block, the reward is distributed among the participants based on the amount of computational power they contributed.