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Bitcoin is an open source peer-to-peer electronic cash system developed by Satoshi Nakamoto that's completely decentralized, with no central server or trusted parties. Users hold the crypto keys to their own money and transact directly with each other, with the help of the network to check for double-spending.
Proof-of-work
To preserve the integrity of BitCoin, users must not be allowed to double-spend their tokens. To prevent this, all transactions are broadcasted over the network.
To keep this information reliable, it is protected against errors caused by failures of communication or deliberate sabotage. To resolve possible conflicts in the record, it is necessary to determine what data was produced first, and what data was produced later.
BitCoin solves this problem (without a trusted timestamp authority) by using a proof-of-work system, similar to that used by HashCash. Whenever a BitCoin user makes a transaction, their node broadcasts the transaction to the network of nodes. When transaction data is received through a node, the node begins a proof-of-work calculation in an attempt to create a block containing the transaction. All nodes essentially race to create a block, as the first one to create a block gets BitCoins as a reward. Once a node successfully creates a block, it broadcasts the block to the network. Other nodes receive the block, perform a proof-of-work check, and add it to their chain if it is valid. As more transactions occur, blocks are created and added ad infinitum. The longest proof-of-work block chain is acknowledged to be the oldest and most reliable account of the online transactions.
This mechanism is claimed to be virtually tamper-proof. For an attacker to manipulate the record, he must outpace all of the other nodes on the network to produce the longest proof-of-work. This becomes exponentially more difficult as time passes.
BitCoin is a completely peer-to-peer network, and every node is able to enter or leave the network at will. When a node joins the network, the longest proof-of-work is automatically accepted as the most reliable one.
See also
External links
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