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Imagine you have a precious coin made of solid gold. This coin is incredibly valuable because gold is a scarce and durable material. You can hold the coin in your hand, carry it around, and use it to buy goods and services. This is how money has worked for thousands of years - physical objects with inherent value that can be exchanged.
But what if you could have a "digital gold" coin that works the same way, but exists only as computer code? That's the basic idea behind Bitcoin. Bitcoin is the world's first digital currency that allows people to buy goods and services and exchange money without involving banks, credit card issuers or other third parties.
Bitcoin is a completely decentralized digital currency, meaning it operates without any central authority like a government or financial institution controlling it. Bitcoins are created, distributed, traded, and stored with the involvement of a network of users. This network is called the Bitcoin network.
Here's how Bitcoin works at a high level:
1. Bitcoin is based on a peer-to-peer network where transactions take place between users directly, without an intermediary. This means anyone can send and receive Bitcoins from anywhere in the world.
2. New Bitcoins are created through a process called "mining" where powerful computers around the world compete to solve ‘complex’ math problems. The first computer to solve the problem is rewarded with new Bitcoins.
(I put ‘complex’ between quotes because the problems are in fact easy, but they require a massive amount of computation power to solve)
3. All Bitcoin transactions are recorded in a public log called the "blockchain", which is shared by all the computers in the network. This allows Bitcoin's software to verify the legitimacy of each transaction, preventing users from spending coins they don't own, making copies or undoing transactions.
4. Bitcoin wallets are used to store, send and receive Bitcoins. These wallets are secured with cryptographic keys that prove ownership of the Bitcoins.
The key innovation of Bitcoin is that it solved the "double-spending" problem that had plagued previous attempts at creating digital cash. In traditional digital payments, there was always a risk that the same digital cash could be spent twice. But with Bitcoin, each transaction is verified and added to the public ledger, eliminating the risk of double-spending.
In essence, Bitcoin is digital money that is secured by cryptography and operated by a decentralized network of computers around the world. It offers an alternative to traditional fiat currencies and payment systems, providing users with more control, privacy and freedom in their financial transactions.
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Thuiswinkel Waarborg