What is Bitcoin, and how does it work?

What is Bitcoin, and how does it work?

Bitcoin definition: A number guessing game

The white paper described Bitcoin (BTC) as a “peer-to-peer electronic cash system.” But, where does Bitcoin come from?

According to the algorithms, new Bitcoin is generated and given to computer users who solve pre-specified mathematical challenges. The mathematical problems refer to a hash, which is a 64-digit hexadecimal number that is less than or equal to the target hash. So, Bitcoin is simply a number, such as 12345.

To illustrate, let’s assume Ms. Rose pulls a $1 bill from her wallet with the number G6607081974P. No other bill bears the G6607081974P number, considering the Federal Reserve System (in the United States) operates at a minimum degree of competence.

Since this money has a face value of $1, Ms. Rose can use it to purchase a cup of coffee.

Now, let’s say two people agree that bill R7607081974P is actually worth $4,000. The only difference between Bitcoin No.12345 and $1 Bill No. R7607081974P is that the $1 bill has a physical existence and a face value that is worth something. Bitcoin, on the other hand, has no intrinsic value and is simply a number. The number may have a value agreed upon by two persons, but it has no value in and of itself. Hence, Bitcoin is created by a group of individuals playing a number guessing game.