But how does bitcoin actually work?

What does it mean to have bitcoin?

Many people have now heard of Bitcoin, that it is a fully digital currency, with no government to issue it and no banks needed to manage accounts and verify transactions and yet many people, including among those, Bitcoin holders don’t know how to answer this question, at least not in full. So we are going to talk through it step-by-step until you have a clear picture of how it works, describing the process in a way as if you are thinking of this for the first time, like creating your own cryptocurrency.

Warning: from now on it can get a bit technical.

Digital Ledger

To start off we will simulate a small situation we would like to simulate, image you and your friends are using an excel file to keep a track of all the times someone gives or receives money from another. Your file may look something like:

Because you trust your friends there is no need of a central authority, or any third party to validate the transactions. We use the system of trust among each other to validate the transactions. Now if you want to scale your ledger, and you start…