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Definitions and Key Concepts of Bitcoins

Definitions and Key Concepts of Bitcoins

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Definitions and Key Concepts of Bitcoins

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  1. Definitions and Key Concepts

  2. Cryptography refers to the practice and technique of using encryption for secure communication and transmission of data and information. • In a P2P network, a group of computers is connected to enable the sharing of resources and information by users, and there is no central location for the network. This is diametrically opposed to a typical client-server network, where the central server controls the level of access by users to shared network resources. Popular applications of the P2P concept are Skype and file-sharing services such as BitTorrent.

  3. 3) Bitcoin mining refers to the computationally-intensive task of generating Bitcoins. While any computer can be put to the task of Bitcoin mining by using a free mining application, in reality a great deal of computing power is required to solve the extremely complex algorithms involved and to share those solutions with the entire Bitcoin network. The mining process is quite complicated and involves advanced concepts such as cryptographic hashes and nonces. In simple terms, Bitcoin miners use powerful computers to track and compile pending Bitcoin transactions every 10 minutes into a new block. These miners then set to work doing the intensive number-crunching required to verify all the transactions in the block. This is a competitive process, and the first miner to solve the algorithms and verify the transactions transmits the results to the entire Bitcoin network. Upon confirmation by the rest of the network, the block is then added to the block chain. Each block includes a certain number of Bitcoins in a “coinbase” transaction that is paid out to the successful miner.

  4. 4) Public key encryption combines a public key and a private key. While the public key is available to anyone, the matching private key is stored securely in the digital wallet and is generally password-protected. Each Bitcoin transaction is signed by the private key of the initiating user, providing mathematical proof that it has indeed originated from the owner of the address, and preventing the transaction from being altered once it has been issued. Since the key pair is mathematically related, any data or information encrypted with a private key may only be decrypted or deciphered with the corresponding public key and vice versa.

  5. And the last: 5) Double-spending means spending the same digital currency twice, something that is impossible with physical currencies. Thank you for reading! My sources: • http://www.coinsetter.com/bitcoin-price • http://www.forbes.com/sites/investopedia/2013/08/01/how-bitcoin-works/

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