Basics of Bitcoin & Cyptocurrency

title: Basics of Bitcoin & Cyptocurrency

Bitcoin is a collection of concepts and technologies that form the basis of a digital money ecosystem, including:

  • A decentralized peer to peer network (enabled by the Bitcoin protocol)
  • A public transaction ledger (the blockchain)
  • A decentralized mathematical and deterministic currency issuance mechanism (distributed mining and the “Proof of Work” concept)
  • A decentralized transaction verification system (transaction script)

The Bitcoin system is based on decentralized trust, thus it heavily relies on cryptographic technologies, such as:

  • Cryptographic hash functions (i.e.SHA-256 and RIPEMD-160)
  • Public Key Cryptography (i.e. ECDSA–
    the Elliptic Curve Digital Signature Algorithm)

Some Important Excerpts

  1. In Bitcoin, a transaction is a record informing the network of a transfer of bitcoins from one owner to another owner.
    • You may think of a transaction as the equivalent of a single line in a notebook page
    • You may think of a block as the equivalent of a page on taht notebook
    • You may think of blockchain as the quivalent of the whole notebook
    • All the users are able to read , write and get updated on that notebook.
  2. Ownership of bitcoins is established through digital keys, Bitcoin addresses, and digital signatures.
  3. Digital Keys are crated and stored offline and consist of a mathematically-related Private-Public key-pair, created using the Elliptic Curve Signature Algorithm(ECDSA)
  4. The Private key(Privkey) is initially generated at random, and is kept secret at all times. It is used by the current owner of bitcoins to digitally sign a Bitcoin transaction, when he authorizes the transfer to the new user. A transaction
  5. The Public Key(Pubkey) is generated from the Private Key using a one-way cryptpgraphic hash function. It is used by the owner to validate a transaction’s digital signature.

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