How does Bitcoin work?
The creator of Bitcoin used three main concepts that are essential to understand the principles of the world’s first cryptocurrency:
Supply and demand
When you access your Internet browser and type “www.google.com”, the computer starts a conversation with Google computers. Then, the two computers start to talk to each other and your browser displays images, buttons, etc. If Google’s servers were down for some reason, you wouldn’t be able to see these images and buttons. This is because the data is stored in a centralized network, in one place.
To understand how Bitcoin works, it is essential to understand what a decentralized network is. In a decentralized network, data is everywhere. If Google used a decentralized network, it would still be possible to access this data, because it would be everywhere and not just in one place. This means that Google would never go offline.
Supply and demand
Last week, when John visited the bakery, there was only one cake left. Four other people wanted it too. Usually, the cake costs only $ 2, but because four other people wanted the cake, he had to pay $ 10 for it. This is the main concept of supply and demand: when something is limited, it has more value. The more people want, the more the price will go up.
Bitcoin uses that same concept. The supply of Bitcoin is limited. Cryptocurrency is produced at a fixed rate, which will decrease over time – divided every four years.
Bitcoin has a limit of 21 million units; once there are 21 million Bitcoins issued, no new BTC can be created.
In World War II, encryption was widely used. It converted radio messages into code that no one could read. To read it, you had to convert it back to the original message. To do this, a key was needed. This was all possible through mathematical formulas.
Bitcoin uses cryptography in the same way. Instead of converting radio messages, Bitcoin uses cryptography to convert transaction data. That’s why BTC is called cryptocurrency.
Bitcoin does this using blockchain, which we will explain in more detail in the future.