Understanding the basics of Bitcoin

Bitcoin can be quite daunting for new users but you don’t need to know all the technical details to use it. Once you understand a few basics, it is no more complicated than email. After all, how many people know how email actually works?

In fact, to use Bitcoin all you really need to know is wallet addresses. To send bitcoin, you just need to know an address to send to, while to receive you just need to share your address. However, if you are interested, the following are the three basics of Bitcoin.

Block chain

The block chain is the basic element of the Bitcoin network and it is where all transactions that take place on the network are stored. It can be thought of as a shared public ledger which is distributed across all nodes (computers using the Bitcoin protocol) on the network.

Every block that is created and added to the chain also contains a hash of the previous block. This hash is a unique result calculated from the data in the previous block and allows each block in the chain to be verified.


All transactions on the Bitcoin network are simply a transfer of value between users. A transaction can only be initiated by the sender and their wallet will use a private key to sign it. This provides mathematical proof that the transaction came from the owner of the wallet and prevents it from being altered once on the network.

Transactions are initially unconfirmed and can be reversed. Confirmations begin in the following ten minutes through a process called mining. As processing is carried out, the transaction is given a confirmation score which indicates how hard it is to reverse the transaction. A score of three is considered secure for small transactions, six for large transactions.

Processing (aka mining)

Bitcoin mining is the process that is used to confirm transactions by including them in the block chain. Quite simply, miners run an insane number of calculations at insane speeds to create blocks which adhere to the strict cryptographic rules of the Bitcoin system. The miners are rewarded with newly minted Bitcoins through a competitive lottery system which in turns keeps the processing of transactions going and hence, Bitcoin alive.

Obviously there is much more to it than noted here, but I hope this information has been useful and inspires you to find out more about this “technological tour de force” (as Bill Gates describes it) known as Bitcoin.