Blockchain's application lies beyond building tamper-proof records. It can be used to make autonomous and automated systems that can work without human intervention. Bitcoin is an automated system that allows for the transfer of cryptoassets (bitcoin), directly between users without any intermediaries.
There are no signup forms to create a wallet. Instead, user keys are generated using cryptography. Here, there are two keys: the public key and the private key. The public key is like a username and the private key is similar to a password. These keys look like a long string with a combination of letters and numbers (for example, 18XgQU8FJbi8Vje6658hUKjeKjbbDS6eDa).
Privacy is one of the key features of Bitcoin. Since no user information is provided to the Bitcoin system, the system doesn't know any details about its users. Unless users expose their public key, they remain anonymous.
If a user wants to send money to another user, the sender needs to create a message, sign it and broadcast it. The broadcast message is later verified and committed to the ledger.
The following image depicts how a transaction makes its way to Bitcoin's tamper-proof ledger:
If Sosha wants to send 5 Bitcoin to Sneha, the message would look like the following:
Message: I am sending 5 Bitcoin to Sneha
Signature: Sosha's signature
Public Key: Sosha's public key
The signature is generated using a cryptographic function that takes Sosha's public key, private key, and message as input. Then, it generates the signature as output.
Now, anyone on the bitcoin network can verify it with another crypto function, which takes the public key, signature, and message as input. If the message is modified, the cryptographic function will throw an error.
Every 10 minutes, the bitcoin network groups new transactions as a block. This new block is only added to the blockchain once it is mined. To mine the block, the system creates a computational puzzle that should be solved by the miners. Here, humans don't solve the puzzles; instead, mining devices do.
Miners compete to solve this puzzle, and the first miner who solves this puzzle is rewarded with x number of Bitcoins. Presently, the reward is around 12.5 Bitcoin. These coins are minted out of thin air, and this is how new coins are added to the system.
Once a block is mined, it is permanently added to the blockchain. These blocks of transactions are visible to anyone. This results in transparency that, in turn, results in trust. Anyone can look up any blocks on the blockchain and also the transaction that occurred in the block. Here's the summary of block #544473:
Censorship resistance is a key feature of this innovation. Since there are no central servers, governments cannot enforce a ban on the system. To prevent bitcoin systems from functioning, all of its users' computers must be shut down. Since there are millions of such nodes in the network, it is almost impossible to achieve this.