A quick overview of Bitcoin
I'll start with a quick overview of how Bitcoin works[2], before diving into the details. Bitcoin is a relatively new
digital currency[3] that can be transmitted across the Internet. You can buy bitcoins[4] with dollars or other
traditional money from sites such as Coinbase or MtGox[5], send bitcoins to other people, buy things with them at
To simplify slightly, bitcoins consist of entries in a distributed database that keeps track of the ownership of
bitcoins. Unlike a bank, bitcoins are not tied to users or accounts. Instead bitcoins are owned by a Bitcoin address,
for example 1KKKK6N21XKo48zWKuQKXdvSsCf95ibHFa.
Bitcoin transactions
A transaction is the mechanism for spending bitcoins. In a transaction, the owner of some bitcoins transfers
ownership to a new address.
A key innovation of Bitcoin is how transactions are recorded in the distributed database through mining.
Transactions are grouped into blocks and about every 10 minutes a new block of transactions is sent out, becoming part of the transaction log known as the blockchain, which indicates the transaction has been made (more-or-less) official.[6] Bitcoin mining is the process that puts transactions into a block, to make sure everyone has a consistent view
of the transaction log. To mine a block, miners must find an extremely rare solution to an (otherwise-pointless) cryptographic problem. Finding this solution generates a mined block, which becomes part of the official block chain.
