Bitcoin Explained with Emoji
In Part 1, we learned that Bitcoin is a decentralized currency, not generated or owned by any government or financial institution, and what hashing is. Now, we’ll learn how Bitcoin miners use hashing to literally make money, and how cryptography allows bitcoins to be trustworthy, unique and impervious to copying even though they are completely (and irreversibly) transferrable.
Bitcoin, like the United States dollar, fluctuates in value. People trust currencies even when their value floats — which just means a currency’s value that’s dependent on supply and demand in comparison to other currencies, as opposed to it being “fixed” and determined by a government or other centralized body.
When U.S. dollars were backed by gold, people trusted the money because it could be exchanged for a precious metal. Now people trust the dollar largely because of the credibility of the U.S. government. They also trust the government to back the banks, in case anything goes awry.
Bitcoin is designed to be highly trustworthy, but not because of gold or any government. Instead it relies on mathematics — specifically, the clever use of two technologies: hashing and public-key encryption.
Hashing & Bitcoin’s Blockchain
Bitcoin’s blockchain is a public ledger of every bitcoin transaction. It is a sequence of blocks, and each block contains a group of bitcoin transactions. You might visualize the blockchain as a series of packages, each containing the transactions that occurred during a period of about 10 minutes:
Or you might visualize the packages stacked on top of each other, with the earliest block of transactions at the bottom and the most recent at the top. Tamper with any block in the stack and all the blocks above it tumble down, making tampering easy to detect.
Each block has a unique hash — a “fingerprint” in the form of a very large string of numbers expressed (in hexadecimal) as a gobbledygook string of characters. For example, the hash of a block might be “00000000003e95b0ac78cb961d0.”