Bitcoins - A look at how they work

A recent discussion on the forum concerned the use of bitcoins and I wondered exactly what are bitcoins. I've done a little research and this is what I've found on the Bitcoin website (quoted). You firstly need to set up a bitcoin wallet on your computer or alternatively, you can do it on your mobile phone. This will generate your first Bitcoin address. Balances - block chain The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography. Transactions - private keys A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining. Processing - mining Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends. (End of quote) Basically Bitcoin is a digital currency that uses peer-to-peer technology to operate. No banks or centralized authority are used which makes it cheaper. I also saw that you can get started and earn bitcoins for free by bitcoin mining and clicking on ads. There are currently 12.2 million bitcoins in circulation and bitcoins are created at a decreasing rate until they finally reach the maximum of 21 million bitcoins. At this point, bitcoin miners will be supported by transaction fees. Trying to understand how this works is quite confusing although I imagine if you signed up to it, all would become clear over time. You can view a "reasonably" helpful video here https://www.youtube.com/watch?v=Um63OQz3bjo