Bitcoin wallet balance

I suppose you already heard something about Bitcoin. Very simply said – it is one of so called crypto currencies with an independent decentralized payment system. But how does it really work?

The very basics

Very important to note is the fact, that any part of any Bitcoin unit is essentially by design bound to the Bitcoin payment system. Any Bitcoin unit in any wallet exists only as a data part of a so called block chain. It represents a data layer of a decentralized payment transaction system and contains information about all Bitcoins and transactions ever made. No single Bitcoin unit can exist or be spent without this payment system. A proposal of a decentralized payment system was originally the key idea, that the introduced.

Transactions

Let’s have a look on block chain. It is a database shared between more or less independent nodes with computing power that confirm Bitcoin transactions. So it is “only” a public chain of special data blocks. What do the blocks contain? First of all a suitable block has to be found. The block must fulfill very restrictive conditions. A new block must also “fit” to previous blocks in chain in order to additionally verify all transaction in previous blocks. If a new block is found (approximately each 10 minutes), it is publicly announced to other nodes in the network. Now actual Bitcoin transaction are added to the new block and confirmed. You can imagine block chain as a big shared accounting book with a lot of pages where a new page can be added only if it meets really special requirements allowing increase the undeniability of all previous pages. It is suitable to emphasize that each new block increases security of all transactions stored in previous blocks!

Wallets

Where exactly are your own Bitcoins located? How does this work with block chain? The answer is again – everything is in the block chain. It contains all transactions (Bitcoin transfers) between different Bitcoin wallets (public address with corresponding private key pairs). If you consider common bank account, you will very simply get information about its actual balance. A Bitcoin wallet balance information is not stored in a single point like this. You must get through all actual blocks and find all Bitcoin transactions (incoming and outgoing) related to your wallet addresses and dynamically count actual sum.