The Magic of Bitcoin – A Technical Overview

The future of digital currency is bitcoin. This emerging technology is the latest and greatest application of the Internet. As its name implies, this is a payment system that uses a decentralized network of computers to process transactions without an intermediary. Although many companies are pushing hard to see this technology implemented as a global payment system, the Internet remains untapped as the ultimate medium for sending and receiving payments.

In order to keep the trust in the hands of those who use the currency, the transaction verification of transactions should be completely transparent. By fully disclosing how transactions are processed, the public can come to understand that the service has no vested interest in keeping them in the dark. Thus, there is less room for deception.

Unlike traditional banking systems, virtual currency does not lend itself to the anonymity of regular currency. It is a virtual or digital commodity that can be purchased with traditional currencies. Transactions between users of the currency are executed within a decentralized network, like a large database that provides secure access to the network. The use of encryption allows only users with a valid digital signature to access the database.

Users also need to have access to a special website that keeps track of the public ledger of transactions. This site is also responsible for maintaining the integrity of the system by maintaining the records of all the transactions that have been made. While traditional banks operate on the basis of trust, users need to first demonstrate their identity in order to participate in the system. Thus, when using a traditional system of banking, users will have to open a new account and provide full identification information and confirm that they are the owner of the account.

In contrast, bitcoins do not require users to reveal any personal identifying information and they do not require any sort of identification when making any proprietary transactions. They can instead be received or transferred by users via a process called “wallet generation”. Instead of presenting a new identification to the merchant, a user simply creates anew wallet.

A wallet is a collection of private keys or codes that can be used to access the ledger of virtual currency transactions. For users, having these keys is like having a license to conduct transactions without having to reveal his or her identity to another party.

A private key is a wallet address that is used to spend the coins. The address represents a unique identifier, a string of letters and numbers, that is only known to the creator of the address. The address is encoded in a public address, which is used to send a transaction to another address, also encrypted.

A public address is where the recipient of the transaction sends the bitcoins to. This address, like the private key, is also based on an algorithm that allows for unlimited number of outputs. When an address is sent bitcoins, a corresponding address from the public address is generated. As more addresses are generated, more value is created.