Module 2: How Bitcoin Works

In this module, we will learn how Bitcoin works in more detail. We will cover the following topics:

  • The Bitcoin protocol
  • Bitcoin mining
  • Bitcoin transactions
  • Bitcoin addresses
  • Bitcoin wallets

The Bitcoin protocol

The Bitcoin protocol is the set of rules that govern how Bitcoin works. The protocol is open source, meaning that anyone can view and contribute to it. The protocol is designed to be secure, decentralized, and transparent.

Bitcoin mining

Bitcoin mining is the process of adding new blocks to the blockchain. Miners are rewarded with Bitcoin for their work. Mining is a computationally intensive process, and it requires specialized hardware.

Bitcoin transactions

Bitcoin transactions are recorded on the blockchain. Each transaction includes the sender's address, the recipient's address, and the amount of Bitcoin being sent. Transactions are verified by miners and added to the blockchain.

Bitcoin addresses

Bitcoin addresses are used to send and receive Bitcoin. An address is a 26-character string that is used to identify a Bitcoin wallet.

Bitcoin wallets

Bitcoin wallets are used to store Bitcoin. A wallet is a software application that stores your Bitcoin private keys. Your private keys are used to sign transactions, which authorizes them to be added to the blockchain.


In this module, we learned how Bitcoin works in more detail. We covered the Bitcoin protocol, Bitcoin mining, Bitcoin transactions, Bitcoin addresses, and Bitcoin wallets. We hope that this module has given you a better understanding of how Bitcoin works.

Read before moving on

The bitcoin whitepaper could prove to become the most important paper in recent history. It can be a little complex, but in total its only 8 pages long (with diagrams). It's okay if you don't understand all of it right now, its still worth a look.

Module 2 Quiz

  1. What is the Bitcoin protocol?
  2. What is Bitcoin mining?
  3. What are Bitcoin transactions?
  4. What are Bitcoin addresses?
  5. What are Bitcoin wallets?
Module 1: Introduction to Bitcoin
What is Bitcoin? Bitcoin is a digital currency that was created in 2009 by an anonymous person or group of people under the name Satoshi Nakamoto. Bitcoin is a decentralized currency, meaning that it is not subject to government or financial institution control. Bitcoin is also a peer-to-peer curre…
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