How does Bitcoin Work Behind the Scene? – Mazn Adnan Shkoor

In order to send Bitcoins, a reference to the user’s wallet is needed. This is required for every transaction across the network.

Where do Bitcoins come from in the first place?

It is crucial to balance the deflationary nature of Bitcoin. A reward is given to those who solve the mathematical problem of each block. The activity of running the Bitcoin blockchain software to obtain these Bitcoin rewards is called “mining.” These rewards are given as an incentive to users due to their contribution to supporting the network with their computing power to process transactions and stabilize the blockchain network.

However, the blockchain requires an enormous amount of computing power to process transactions. Therefore, a typical computer might need a very long time, sometimes a year, to mine one Bitcoin. Therefore, working as groups speeds up the process of guessing the right number and getting the reward, which shared among the participants. These groups are called mining pools.

Since the overall network computing power increases rapidly, the blockchain system readjusts its mining difficulty of solving the next block to target 10 minutes on average for the entire network. This would enhance network security and network performance.

Moreover, the Bitcoin network has the tendency of reducing the mining reward by halving the amount of reward every four years. This process is called “Bitcoin halving.” Therefore, to encourage miners to participate in proving computing power to the network, a small reward fee can be dedicated to verify and add each transaction to the block. Therefore, transactions associated with a higher reward are usually processed faster than low reward. For instance, if you want to proceed your transaction more quickly than other transactions, you need to provide a higher transaction fee, so that your transaction gets prioritized to be selected.

The user has complete control of their Bitcoins. There is no central authority that holds or limits your Bitcoins.

There is no restriction in sending transactions anywhere in the world, and the transaction fee is very low compared to traditional bank transfer.

Bitcoin transactions are quite fast compared to traditional bank systems. It might take minutes to transfer Bitcoin from one user to another.

The transactions are available to the public, resulting in complete transparency.

Blockchain technology can be leveraged to build decentralized applications.

Transactions are sent and received anonymously. This would provide privacy to users. However, anonymity could be used to allow illegal activity on the network.

Many exchange platforms enable users to buy and sell cryptocurrencies. However, Bitcoin is not traded easily for goods and services.

Bitcoin is considered as extremely volatile, which makes it difficult for users to depend on Bitcoin for daily transactions.

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