How does Coinbit work?

This question often confuses new Coinbit users. Here is a quick explanation to it.

The basics for a new user

As a new user, you can get started with Coinbit without understanding the technical details. Having installed a Coinbit wallet on your device, you will have your first Coinbit address generated. You can create more if you need. You can disclose your Coinbit addresses to your friends so that they can pay you or vice versa. This is pretty similar to how email works, except that Coinbit addresses are only used once.

Balances - blockchain

The entire Coinbit network relies on the blockchain — a shared public ledger. Blockchain includes all confirmed transactions. Therefore, Coinbit wallets can calculate their spendable balance and new transactions can be verified to be spending coinbits that are actually owned by the spender. The chronological order of the blockchain and its integrity are enforced with cryptography.

Transactions - private keys

We define a transaction as a transfer of value between Coinbit wallets that gets included in the blockchain. Coinbit wallets keep a secret piece of data, the so-called “private key” or “seed”, which is used to sign transactions, providing a proof that they have come from the wallet’s owner. The transaction also cannot be altered by anybody once it has been issued — the signature prevents it. All transactions are broadcasted between users and usually are confirmed by the network in following 10 minutes, during so-called “mining”.

Processing - mining

We define mining as a distributed consensus system which confirms waiting transactions by including them in the blockchain. It enforces a chronological order in the blockchain, allows different computers to agree on the state of the system, and protects the neutrality of the network. Transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network in order to be confirmed. These rules prevent previous blocks from being modified because doing so would invalidate all blocks that follow. Mining also creates the equivalent of a competitive lottery that prevents adding new blocks easily one after another in the blockchain. Therefore, anyone can control the parts of the blockchain or replace them to roll back their own spends.

Down the rabbit hole

Though being rather concise, this summary of the system is quite precise. Nevertheless, you can read the original paper that describes the system’s design, the developer documentation, and the Coinbit wiki to get into the details.