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Bitcoin Tech Explained

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IN THIS CHAPTER

Understanding the Bitcoin network

Finding out about public-key cryptography

Sending messages to the Bitcoin ledger

Understanding how cryptography proves you own your Bitcoin

How Bitcoin works is a mystery to most of the world. Don’t let it be so to you! If you’re going to get involved with Bitcoin — perhaps invest in it — then you really should know what you’re working with.

Understanding the specifics of how Bitcoin functions as “money” — as well as other aspects of this cryptocurrency — is important. First, it’s always nice to sound intelligent when someone asks you, “So what is Bitcoin, anyway?” (It’s so embarrassing to admit that you’ve just invested in something and have no idea what it is!) But more importantly, if you don’t understand how Bitcoin works, it’s hard to keep it safe. Thousands of people have had their Bitcoin stolen from them, or have simply lost access to it, primarily because they really don’t understand how it works. (It’s so sad to know exactly where your Bitcoin is, but never be able to touch it!)

So in this chapter, we explain just that. How Bitcoin really works at a high level. We explain the specifics of securing your Bitcoin in Chapter 5. But for now, let’s start with a high-level, Bitcoin-101 explanation of what’s actually going on when you buy, sell, and store Bitcoin.

Before we get started, though, be prepared. This is complicated stuff that you don’t need to remember in order to buy and sell Bitcoin. We’ve tried to simplify it as much as we can, and we believe that grasping this information is necessary to your understanding of a few important points, which are themselves valuable in helping you keep your Bitcoin safe. We want you to understand, at the very least, the background information that explains these critical issues:

 Bitcoin is stored in the blockchain, not in your Bitcoin wallet.

 The Bitcoin wallet stores information about your addresses in the blockchain.

 The wallet stores the private and public keys that allow you to control your address (and thus control your Bitcoin).

Bitcoin For Dummies

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