How Bitcoin works – episode 1: the Bitcoin island

As mentioned in the introduction, Bitcoin belongs to the category of abstract token money. In its essence it is a system that records ownership of tokens called “bitcoins”. The banking system operates in a very similar way, but in most people’s minds it still records ownership of a physical token – banknotes. A 100 US dollar balance of a bank account equals ownership of a 100 US dollar bank note, the numbers represent something tangible in the real world.

How Bitcoin works – intro

Understanding how Bitcoin works on the technical level can be a little tricky. For most people it usually takes a lot of time and studying as Bitcoin combines a lot of innovative approaches to solve the problems of a free market monetary system. These approaches often don’t have any parallels in technologies we are already familiar with so we have to challenge ourselves with understanding completely new concepts.