To a layperson, bitcoin is a digital currency that is created and held electronically. These bitcoins are sent and received using a mobile app, computer software, or service provider that provides a bitcoin wallet. The wallet generates an address, akin to a bank account number, except that a Bitcoin address is a unique alphanumeric sequence of characters where the user can start to receive payments. Usually, bitcoins may be obtained by buying them at a Bitcoin exchange or vending machine or as payment for goods and services. However, Bitcoin is revolutionary because the double-spending problem can be solved without needing a third party. In computer science, the double-spending problem refers to the problem that digital money could be easily spent more than once. Consider the situation where digital money is merely a computer file, just like a digital document. Alice could send $10 to Bob by sending a money file to him and can easily do so by e-mail. However, remember that sending a file actually sends a copy of the file and does not delete the original file from the computer. When Alice attaches a money file in an e-mail to Bob, she still retains a copy of the money file even after she has sent and therefore spent it. Without a trusted third-party intermediary to ensure otherwise, Alice could easily send the same $10 to another person, Charlie.Bitcoin solves the double-spending problem by maintaining a ledger of balances, but instead of relying on a single trusted third party to manage this ledger, Bitcoin decentralizes this responsibility to the entire network. Behind the scenes, the Bitcoin network constantly keeps track of bitcoin balances in a public ledger called the blockchain. The blockchain is a publicly accessible authoritative record of all transactions ever processed, allowing anyone to use Bitcoin software to verify the validity of a transaction. Transfers of bitcoins, or transactions, are broadcast to the entire network and are included onto the blockchain upon successful verification, so that spent bitcoins cannot be spent again. New transactions are checked against the blockchain to make sure that the bitcoins have not been already spent, thus solving the double-spending problem.
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