Bitcoin - Wikipedia, the free encyclopedia

In a Berlin bar where they accept bitcoin. The future of currency?

Every node in the Bitcoin network collects all the unacknowledged transactions it knows of in a file called a block , which also contains a reference to the previous valid block known to that node. It then appends a nonce value to this previous block and computes the SHA-256 cryptographic hash of the block and the appended nonce value. The node repeats this process until it adds a nonce that allows for the generation of a hash with a value lower than a specified target . Because computers cannot practically reverse the hash function, finding such a nonce is hard and requires on average a predictable amount of repetitious trial and error . This is where the proof-of-work concept comes in to play. When a node finds such a solution, it announces it to the rest of the network. Peers receiving the new solved block validate it by computing the hash and checking that it really st...

Full article: http://en.m.wikipedia.org/wiki/Bitcoin