What is Bitcoin?

Bitcoin is a decentralized cryptocurrency that can be directly transferred between users in peer-to-peer transactions, without the need for an intermediary.

On the backend, Bitcoin is a decentralized public ledger that records every transaction and current balances of all the nodes in the Bitcoin network.

To earn the trust of nodes participating in transactions using Bitcoin’s network, there needs to be a consensus mechanism for all nodes to agree on a single order of transactions, so no node can spend their money twice (Double Spending Problem). This is achieved through Proof of Work, where all the nodes constantly try to compute a double-SHA256 hash of a block of transactions, which must be less than a dynamically adjusted target depending on the number of computational power present in the entire network. The nodes computing Proof of Work are rewarded Bitcoins as compensation, which serves as an incentive to use the system.

Decentralized cryptocurrencies such as Bitcoin facilitate transactions between people who would otherwise have no means of conveniently transacting with one another for reasons that include geographical separation, expense, and other inconveniences of legal systems.

They also provide considerably more privacy and anonymity to both parties than traditional digital payment methods like credit cards and bank wire transfers.