BITCOIN, how does it work?

June 5, 2017

As I research and learn more about Ransomware and its ugly demand of payment to an unknown recipient through BITCOIN I wonder how does BITCOIN work?!  How can so many be paying so much and none of it is traceable? 


Actually, BITCOIN is not anonymous, each transaction is stored on the network and can be seen by the public.  But, all you see is the transaction to and from the Bitcoin addresses – BITCOIN owners are pseudonymous. 


To Own, one needs a BITCOIN wallet on a mobile or desktop device.  The wallet keeps a secret piece of data called private key (mathematical verification) which is used to sign transactions.  BITCOINS are acquired by, one, a transfer in the BITCOIN block chain (or ledger) which is a balance transfer from one owner to another OR by purchasing them from an exchange or friend. 


A BITCOIN transaction is an announcement to the system that one owner is transferring a balance on the ledger to another owner.  The transactions are grouped into a block competing to be the first one confirmed as a legit transaction.  Once a block is confirmed, the ledger (block chain) is updated to reflect recent transactions. 


Wrapping it up – the BITCOIN system is a public ledger.  It denotes who (numericially) owns each unit of BITCOIN available.  Transactions are debiting one and crediting another address.  The public key cryptography ensures transactions are secure.


There's more to learn, but hopefully this was a simple overview.


Hey, don't forget to give a reference for a chance to win a YETI cooler!  More details here.

Return to DTCI Tips Main Page