How does it work and how is it built?

Bitcoin is built on a distributed digital record called a blockchain. A blockchain is a distributed database that is shared among the nodes of a computer network. It stores information electronically in digital format. So why exactly is blockchain important? Because of the technology it utilises. Once blocks are added to the blockchain, it actually becomes accessible to anyone who wants to view it, essentially acting as a public ledger of cryptocurrency transactions. This is increasingly important in Bitcoin’s case, because this manner of decentralisation allows no single person or entity to have entire control, rather, all users collectively retain control. With this in place, Bitcoin holders, buyers and sellers can enjoy payment freedom, ability to choose their own fees, fewer risks for merchants, security and control and transparency.

How does it actually work?

Bitcoin is a peer-to-peer digital currency, all transactions occur directly between independent, equal, network participants without the need of any centralised financial institution. With the growth of commerce on the internet, Bitcoin sought to present itself as a digital currency solution, eliminating the need for any oversight from third parties, central banks or even the government. As noted in Satoshi’s very own whitepaper, the need for mediation and reliance on financial institutions was proving costly, limited the minimum practical transaction size and cut off the possibility for small casual transactions. What he asserted was needed was an electronic payment system, using cryptography to keep it secure. That is, ‘an electronic payment system based on cryptographic proof instead of trust’.