How Does BitCoin Work?

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Each bitcoin is basically a computer file which is stored in a digital wallet app on a smartphone or computer. People can send Bitcoins to your digital wallet, and you can send Bitcoins to other people. Every single transaction is recorded in a public list called the blockchain. This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undo-ing transactions. 

In order for the Bitcoin system to work, people can make their computer process transactions for everybody.

The computers are made to work out incredibly difficult sums. Occasionally they are rewarded with a Bitcoin for the owner to keep.

People set up powerful computers just to try and get Bitcoins. This is called mining.

But the sums are becoming more and more difficult to stop too many Bitcoins being generated.

If you started mining now it could be years before you got a single Bitcoin.

You could end up spending more money on electricity for your computer than the Bitcoin would be worth.

There are lots of things other than money which we consider valuable like gold and diamonds. The Aztecs used cocoa beans as money!

Bitcoins are valuable because people are willing to exchange them for real goods and services, and even cash.