The Bitcoin network, in general, operates similarly to centralized monetary institutions. Still, there are some big differences. The biggest difference is in the fact that there is no central authority that verifies transactions. That’s not to say transaction’s don’t get verified – transactions get verified by the general consensus of the users within a network. Before the blockchain technology was implemented for the first time back in 2008, it was impossible to design a safe and legitimate digital cryptocurrency, because thefts and frauds couldn’t be prevented.
Blockchain technology is a revolutionary invention. It works in a way that ensures all transactions get verified in a block, and after the block is complete, another begins which creates a chain. Previous transactions cannot get altered since alteration requires the consensus of the block for all of the transactions until that point.
Although Blockchain is a revolutionary transaction the speed of the network is concerning – it requires a high-level user activity order to function properly and is generally quite slow. This is why it is frequently mentioned that in order for Bitcoin to grow, adoption rates must go up. An important characteristic of Blockchain is that it must be decentralized – that is where the concept of mining gets really important.
For example, Bitcoin is less and less decentralized considering the fact that it’s impossible to mine Bitcoin from your home. Bitcoin mining works by issuing new coins to miners in exchange for the computational power they and their hardware provide the network. Computational power is important because it is needed for the calculation of the algorithm that is used for the transactions. Still, since there is a finite amount of coins, it is important that network doesn’t lose any of the power and find another way to compensate the miners when the last coin is mined. Some suggest that the answer is installing a small fee per transactions, but that is opposite to the sole concept of the Bitcoin as a decentralized transaction system.