Crypto for newbies: Bitcoin technology

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Crypto for newbies: Bitcoin technology
Crypto for newbies: Bitcoin technology

Bitcoin is based on the transfer of currency between public accounts using public key cryptography. All transactions are public and stored in a distributed database which is used to confirm them and prevent the possibility of spending the same coin twice.

Bitcoin is a peer-to-peer implementation of Wei Dai's b-money proposition and Nick Szabo's Bitgold. The principles of the system are described in the "white paper" published by Satoshi Nakamoto. The official client, Bitcoin Core, is free software that derives directly from the code written by Satoshi Nakamoto to implement the communication protocol and the resulting peer-to-peer network.

Every user participating in the Bitcoin network owns a wallet that contains an arbitrary number of cryptographic key pairs. Public keys, or bitcoin addresses, act as the sending or receiving points for all payments. Owning bitcoin means that a user can only spend bitcoins associated with a specific address.

The corresponding private key is used to affix a digital signature to each transaction so that only the user who owns that coin is authorized to pay. The network verifies the signature using the public key.

Crypto for newbies: Bitcoin technology

If the private key is lost, the Bitcoin network will be unable to recognize ownership of the money in any other way.

the relative sum of money will be unusable by anyone and, therefore, to be considered irretrievably lost. Cases of loss of assets due to loss of the private key have already occurred in the first years of the cryptocurrency's operation: for example, in 2013 a user complained about the loss of 7,500 bitcoins, worth $7.5 million at the time, for accidentally disposing of a hard drive that contained his private key.

Bitcoins contain their owner's public key. When user A transfers coins to user B, he renounces his ownership by adding B's public key to the coins in question and signing them with his own private key. He then transmits these coins in one message, the transaction, across the peer-to-peer network.

The rest of the nodes validate the cryptographic signatures and the amount of ciphers involved before accepting it. Addresses contain no information about their owners and are usually anonymous. Addresses in readable form are random sequences of characters and digits 33 characters long on average, which always begin with 1, 3 or bc1, of the form 1NAfBQUL4d2N7uu1iKxjwF8dESXTT3AKcq.

Users can have an arbitrary number of Bitcoin addresses, and in fact it is possible to generate them at will without any limits as their generation costs little computing time and does not require any contact with other network nodes.

Creating a new key pair for each transaction helps maintain anonymity. The algorithm used by Bitcoin to generate the keys is the Elliptic Curve Digital Signature Algorithm.


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