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In laymans terms, how does Bitcoin work?
How is Bitcoin structured so that users are guaranteed that there will not be an inflation of Bitcoins?
Without a master server, how does a Bitcoin network ensure the integrity of its data?
Without a master server, how does a Bitcoin network ensure the integrity of its data?
technology
factual
In laymans terms, how does Bitcoin work?
To answer your 2 questions in your question description.Question 1
How is Bitcoin structured so that users are guaranteed that there will not be an inflation of Bitcoins?
The inflation of Bitcoins are controlled automatically using an algorithm. Bitcoin will only ever have 21 million Bitcoins (BTC) generated; after that no more money will be added into circulation. New Bitcoins (BTC) are generated through mining.
The government or banks CANNOT print more money out of thin air!
This means that the devaluation of currency is less likely for you the consumer, as inflation moves at a steady rate. Correct me if I'm wrong here! It also means that you don't want to get yourself in debt of Bitcoins, as the government won't be able to help you through inflation and taxing.
Question 2
Without a master server, how does a Bitcoin network ensure the integrity of its data?
Through the information being stored on people computers. It's like Bittorrent, but for money. That's why it's called Bitcoins. It's because of P2P.
I am giving you a basic laymans terms answer to a complicated question. There's a lot I don't know about this, and you'll have to congratulate Satoshi Nakamoto for making such a complicated system, open source, and not be open to intrusion or manipulation. He's a hacker.
Bitcoins has no master server like PayPal keeping a log of all transactions. Instead this database is stored on people's computers, like it is on Bittorrent. The creator of Bitcoin is very clever, by solving the double spending problem.
If I have a £50 note, and give it to you; you know that after I've given it to you, I can't spend it again, because I don't have it anymore. With no master server, Bitcoins are decentralised, unlike PayPal. If money is just a bunch of 1's and 0's, how can Bitcoin make sure that people don't spend the money twice? Couldn't hackers create money out of thin air on their computers? They can't because Bitcoin has solved the problem of double spending.
All Bitcoin transactions are logged publicly, and by doing mining, you are checking the authenticity of all Bitcoins, whilst solving scientific algorithms in the background when you use your computer. To solve the problem of double spending, transactions have to be logged publicly. There is no way to solve the double spending problem, other than to do that.
Let's explain how this works. Unlike paper money that you, a person, keep in your wallet; when you keep bitcoins that you, a person, keep in your bitcoin address, each individual Bitcoin is identified with 2 things.
Here's an example of a Bitcoin address.
1N9vKDweKCF9Yibapky7UmqRJ8PKgnvM2s
Here's where you can publicly check the transactions.
http://blockexplorer.com/address/1N9vKDweKCF9Yibapky7UmqRJ8PKgnvM2s
To explain this more accurately, (bold text is added by me)
I hope that answers your questions. I'm sure my answer can be expanded to be even more complicated, as Bitcoin is very advanced and clever.