Bitcoins - General Concepts

To start with a basic idea of how the system works, the most important concepts on which the Bitcoin protocol is based are described below.

Participants In terms of the actors involved in the system, three types of participants can be distinguished:

Normal users: these are users of the Bitcoin system. They buy and pay for goods and services using bitcoins, producing system transactions.
Miners: are special users who dedicate computing power to validate new transactions, creating what are known as transaction blocks. The calculations they have to perform are very expensive, so they are rewarded for them. Developers: who are in charge of maintaining and improving the BTC software.

Bitcoin Addresses A user’s virtual address that contains Bitcoin coins and is used to pay and receive payments, similar to a bank account. The same user can have as many Bitcoin addresses as needed and they are identified with a public key.

A Bitcoin address is basically a transcription of a public key. The associated private key is used to sign transactions and the public key is used to identify the address and validate signatures.

The public key is similar to a bank account number. We can give it to anyone to send us money, without the risk of them being able to withdraw our funds. The public key is used to generate addresses to receive, consult and view the status of our funds.

The private key works as a kind of key, a PIN or password that we must not reveal to anyone, since it gives us the right to spend the cryptocurrencies contained in an address. Thus, the owner of the private key will be the owner of the funds and will have full control over them.

Wallets Virtual space, equivalent to a physical wallet, where a user’s Bitcoin addresses and the payments made with them are stored and managed. Wallets are therefore a grouping of public and private key pairs.

There are different types of wallets: Cold wallets, hardware or paper wallets are undoubtedly the ones that provide the highest level of security when it comes to safeguarding our funds. They operate offline and therefore there is no risk of them being hacked or hacked. The best known hardwares wallets are Trezor and Ledger.

Online wallets or hot wallets are platforms that operate directly from a website and in most cases, the custody of private keys is in the hands of third parties. However, many allow extra layers of security to be configured in order to provide greater confidence in their users.

There are also simpler wallets such as SPV wallets or light wallets. The main purpose of these wallets is to make wallet management simpler and require fewer resources in their execution and work.