How Does Bitcoin Work

Cryptography is the discipline of encoding information and securely transmitting it so that it can only be read by an intended recipient (advanced mathematics at its finest).  Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the minting of units of currency and verify the transfer of funds, while operating independently of a central authority.

The dollars in your bank account are virtual dollars just like bitcoin.  There are no dollars bills set aside somewhere representing your account balance.  If you want to spend your dollars you can write a check or use a debit or credit card.  Entries are then made in your bank’s ledger that your account has been reduced and another bank will record someone else's account has been increased.

If you use your debit or credit card, or send a wire transfer, there are multiple entities that will charge either you or the recipient a fee to process the transaction.  This is where fiat currencies and bitcoin differ.  There is no charge to send or receive bitcoin to or from anyone anywhere in the world, even for small amounts like a nickel.  Small transactions like this could never be done with a debit or credit card.  Sending money for free becomes particularly important if you want to send funds to someone in another country.  Conventional methods will incur substantial fees from several different banks, clearing houses, and governments, and take days to accomplish.  Bitcoin is free and instantaneous.

So how can bitcoin make these transfers for free, and who keeps track of all this?  The answer is the thousands of bitcoin miners all over the world that maintain the blockchain, which is the bitcoin ledger.  The blockchain acts just like a bank’s ledger adding to your wallet when you receive bitcoin and subtracting when you transfer or spend it.  What is the motivation for these independent miners to do this?  It’s because they can earn newly released bitcoin for collectively verifying the accuracy of the blockchain.  BCU will teach you how it all makes perfect sense.

Fortunately students don’t need to know cryptography to use bitcoin.  A basic understanding of the blockchain and its function is all that is required.  BCU will teach its students everything they need to know to buy, sell, use, store, send, and receive bitcoin.  It’s an absolutely amazing story with consequences far beyond cryptocurrencies.  Do not miss it.

 

Eric Schmidt (Google Executive Chairman and 138th richest man in the world), “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”

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