

So, what do you need to create something like Bitcoin?


  1. All transactions should be made over the Internet

Decentralized Information Sharing Over Internet



Cryptocurrency and Toptal






P2P Protocols

There are a few requirements that a good hashing algorithm needs:

  3. Same input will always produce same output



Digital Signature








How Bitcoin and Cryptocurrency works


How to send Bitcoin/Money



  1. I have 100 Topcoins
  4. I want to keep the remaining 89 coins



Miners - New Breed of Agents





There are two inputs for calculating this HASH value:

  1. Transaction record data
  2. Miner’s proof-of-work




Blockchain - The Global Cryptocurrency Ledger



The first ring in the Bitcoin blockchain is called the Genesis Block



Controlling The Money Supply






Start “Printing” Your Own Currency








About the author

Demir Selmanovic, Bosnia and Herzegovina
member since May 23, 2014
Hiring? Meet the Top 10 Freelance Bitcoin Developers for Hire in February 2017


Eki Eqbal
Thanks for sharing, now Bitcoin makes sense to me :) "You can compare hashing to getting answers from politicians. Information you provide to them is clear and understandable, while the output they provide looks like random stream of words." -> Genius :)
This was a great explanation of how bitcoin works. But, I still dont know on what its value is based on. I mean how its determined that a specific amount of such currency is worth this much?
Barun Saha
Nice article, and great illustrations! However, how does one "earn" virtual money? And how is it related to physical currency?
Demir Selmanovic
Value of any currency is a matter of more complex economics related to it's use. Bitcoins are even less valuable than the paper bills and "real" money, considering that Bitcoins are just digital information and paper bills had to be printed. Value comes from the items related to actual coins and what they represent.
Demir Selmanovic
Easiest way to earn Bitcoins is to have someone pay you in Bitcoins, just like you would get paid in any currency. Relation between any two currencies, including Bitcoin, in simplest possible explanation is "how much of some goods can you buy in Bitcoins vs other currency". You can always check to check latest status.
Hi, great article :) I think I don't fully understand the part of mining and the "proof-of-work" part. You wrote: """Once your account balance is confirmed, they will generate a specific HASH value. This hash value must have a specific format; it must start with certain number of zeros.""" So, a miner receives a transaction record data, confirms somehow the balance of the user, and generates a Hash. """ There are two inputs for calculating this HASH value: 1. Transaction record data 2. Miner’s proof-of-work """ So, the miner has to find, *for each transaction*, a numerical "seed" that after passing through an algorithm produces a hash result starting by X zeroes? What would be that hashing algorithm? the same hash used to sign the transaction record received? Thank you in advance! PS: Do you know any more good sources to read deeper about bitcoin mining?
Demir Selmanovic
Hi Miguel, You understood the text well. Proof of work has to be calculated for each transaction (or several transactions in a batch). Hash value calculated over combination of transaction data and this proof of work has to start with X zeros. Bitcoin is using SHA256 for Blockchain hashing ( Not sure what kind of resources you are looking for. But I guess the best way to check internals is
Petr Mlčoch
From book "ECONOMICS OF GOOD AND EVIL" : 'Currency is merely an expression of confidence, that owner will receive from acceptor services or items corresponding to the value printed on it. Both of them have to share this confidence.' If you have 10 dollars, you have nice piece of paper in galaxy far far away. You have to find someone, who believes in it's value.
Chris DeRose
There's a a number of fairly innacurate statements in here. I'd recommend my own series on the matter as a better starting point. (Search for "Chris DeRose American Banker")
Chris DeRose
It's value is set by the market. Same as any other commodity (such as gold)
Chris DeRose
That is incorrect. Bitcoin has intrinsic value (it's redeemable for real estate on the World Wide Ledger) whereas paper money does not have any intrinsic value. The seniorage costs do not factor into the valuations of these currencies at all.
Chris DeRose
Unfortunately, this analogy is completely wrong. Hashing is a process of attesting to the rendering of useable value into thermodynamic waste. This function is what attests to 'stake' in a block. This stake is what the network uses to determine who spent the most on attesting to their truth.
Chris DeRose
Mining is a process by which miners assert truth by burning energy. The hashing function is a signature that asserts how much energy was burned by the miner. Balances are not tracked by miners per-se, Bitcoin is a triple ledger accounting system, by which 'checks' are written against the output of unspent checks. Miners merely track the unspent checks in the system, and the balances unspent on those checks. I go into this system at great length here:
Joshua Unseth
Re-wrote this crappy article.
Joshua Unseth
I re-wrote this crappy article.
Joshua Unseth
I re-wrote this crappy article. So now it makes sense:
Joshua Unseth
Demir, you are wrong about how mining works. You should read my re-write of your article to clear up confusion.
David Krmpotic
On the facts that you and you alone own your money (no banks), that you can send money directly without middlemen and that it is scarce and thus not prone to inflation / printing money. These things are valuable even if Bitcoin is just math and a concept.
Demir Selmanovic
Hi David, I agree with you 100% and these are great and VALUABLE things. However, this alone does not put full value to Bitcoin directly. If you consider just these characteristics, than any of 700+ implementations would have the same, or similar, value as they all provide the same thing.
Demir Selmanovic
Analogy is related to hashing as a process of mapping a digital arbitrary size data to fixed size data ( It has nothing to do with actual use of hashing in any specific case. So I still think that this analogy is perfect :)
David Krmpotic
I forgot to mention "being the first real cryptocash". This is also valuable.
Chris DeRose
Hashing is for notarization and/or identity. While certainly both functions 'truncate' the corpus into a fixed field size, to suggest that this truncation alone is the goal, completely glosses over the economic complexity of this operation. As for politicians, I do not see how they fit into an analogy relating to notorization, identity, or even truncation.
Donny Mitsov
Very helpful explanation of the basics of bitcoin.
Hua Li
Bitcoin is accepted globally, inflation free. Especially when inflation or regional chaos occur, bitcoin gradually is recognized as the way of storing value, as the same as gold.
Hua Li
The cost of the used electricity for mining bitcoin is the basic value, and the revolutionized function acting as money the traditional fiat cannot compare with.
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Demir Selmanovic
JavaScript Developer