What is Bitcoin Technology?

Bitcoin technology, the phrase makes many people go a bit fuzzy mentally. It can seem difficult to grasp the underlying technology that makes something like BTC actually work. However, it is not as complicated a concept as people imagine it to be.

Breaking down bitcoin technology as an idea is not as hard as it would be to, for example, program some software. Someone has already done the programming for you in this case, all you have to do is metaphorically turn it on and follow the instructions to understand how it is all used. In short, read on and all will become clear.

So, what exactly is bitcoin technology? The technology behind bitcoin breaks down into two parts. The first part is called a wallet, and it dictates how the actual bitcoins move. The second part is called a blockchain and it is what a bitcoin is made from and how it holds value in spite of being non-physical. Once you know how those two things work, you have a basic grasp of what bitcoin technology is and does. 

How Can You See and Spend Bitcoins

Bitcoin is an amazing system, a truly ingenious advance in public accountability in addition to being spendable currency. Accessing it is as simple as using your bitcoin wallet, which is just a program that allows you to talk to bitcoin’s network. It is software that lets you send and receive information like a one rate box allows you to send and receive packages, but more personalized.

Your bitcoin account or wallet has two main components that allow you to make these transactions. Your Public Account is exactly what it sounds like, it is available for anyone to see and shows how many BTC you have. So imagine your box is made of bulletproof glass. Anyone can see inside, but they can’t get to the contents. In this case, imagine the box has a one-way mail slot in the side, so anyone can use this to give you bitcoins.

In order to access the account and send money, you need a password aka “Private Key,” which tells the software that it is you accessing the information and allows you to actually use it rather than simply viewing. If you continue to think of this as a locked box, then your key opens the box and lets you move your money to a new location. Without the key, you can’t get in and touch the money.

Once spent, your bitcoins then transfer to another of these see-through boxes, but that box belongs to another user. You can’t reach it anymore once it’s gone, but anyone who knows where to look can follow the exchange and see where the BTC went.

Blockchain explained

As the name indicates, a blockchain is a chain of information blocks. In this case, the information is made up of records that show account activity and where all the BTC are at the moment that block was generated. This is the recording of what all those wallets are doing.

Blockchains are made up of information. The information has identifying markings and contains all the records of where every bitcoin spent goes and where it came from. Since blockchains are information, think of them like books on a library shelf. Like a book, there are layers to the blocks in a chain.

The first layer is the block’s hash. Think of a hash as a unique identifier on the front cover, a number that shows the “name” of the book. No other book has this name. This book is part of a group, a connected chain. For the purpose of this explanation, imagine the chain as a bookshelf. This shelf (chain) has only books with neon yellow covers. So the neon yellow bookshelf has all the books in the neon yellow set, all the blocks in the chain for this one blockchain.

The second part or layer of each block is the data, in this case, the identity (public account address) of senders and receivers of bitcoins and the sum in the accounts. It shows everything that moved, where it came from and where it went. Think of this as the pages of the book.

The final layer of a block is the hash from the previous block. Think of this as the back cover. The front says, for example, “Hi, I’m Neon Yellow #3.” The back would then say, “I belong next to Neon Yellow #2 on the Neon Yellow Shelf.”

To change a block, to insert different information, you have to change the cover of the book. Changed blocks/books are easy to identify because they don’t match. Changing the data is like changing the number, color or the location of a book in this perfectly organized and color-coded library. It would no longer connect to the rest of the chain (it would not fit on the shelf) because it wouldn’t match. Taking a block out won’t work because that also breaks the chain and anyone could see something was just missing.

Computer programming and finances are both more than a little complicated. However, understanding technology doesn’t have to be a headache. You don’t need to mint a dollar to save or spend it, and bitcoins are no different than a dollar. It may seem less secure when anyone can see where the money is, but in reality, it keeps anyone unauthorized from moving it because everyone can see what is happening. That’s the genius of bitcoin technology, complex programming to create something beautifully simple.

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