Bitcoin is a peer-to-peer payment system which was introduced as an open source software in 2009 developed by Satoshi Nakamoto. Bitcoins are the 1st decentralized currency as it is not controlled by any central bank. Bitcoin is considered gold for nerds. Just like gold cannot be controlled by any central bank, bitcoins can also be neither controlled nor printed more.
Characteristics of Bitcoin
1. Relatively anonymous: Well it is kind of anonymous. Users can usually hold multiple bitcoin addresses and they are not linked to names, addresses or other personally identifying information.
2. Extremely high speed: Bitcoin scales exceptionally well for larger quantities since it is completely digital. Anything from $0.01 to $1 billion can fit on a flash drive. Additionally, bitcoins can be transferred almost instantly anywhere in the world that is connected to the internet.
3. Low transaction cost across international borders: Your bank may charge you a $10 fee for international transfers but Bitcoin doesn’t charge even a penny.
How does Bitcoin work?
As a new user, you can get started with Bitcoin without understanding the technical details of its working procedure. Let us understand the working with an example. Jane wants to send Jimmy some Bitcoins but for that she needs to have a Bitcoin wallet. Wallets are basically the programs that sort and track your digital currency via your account settings.
The Bitcoin wallet will create a Bitcoin address which is a possible destination for your Bitcoin payment. Like email addresses you can have multiple Bitcoin address but each address can be used only once. A user can have multiple Bitcoin address.
Balances – Block Chain:
The block chain is a shared public ledger where all the transaction verification of Bitcoin are recorded. In this way the Bitcoin wallet can verify and confirm the transactions and amount spent. The entire Bitcoin network relies on this chain.
Transactions – Private Keys:
The Bitcoin wallet keeps a secret piece of data called private key. This key is used to sign the transactions. Now when Jane signs her transaction it provides a mathematical proof that they have come from Jane only, the owner of the wallet. The signature also prevents the transaction from being changed by anybody.
Processing – Mining:
People are sending bitcoins to each other all the time over the bitcoin network, but unless someone keeps a record of all these transactions, no-one would be able to keep track of who had paid what amount to whom. The bitcoin network deals with this problem by collecting all of the transactions made during a set period into a list, called a block. It’s the miners’ job to confirm the transactions made all the time, and write them into a general ledger.
When a block of transaction is created, miners put it through a unique process. They take information from each block and apply a mathematical formula to it, creating a completely different thing known as hash. Then they put this hash at the end of each block. Now because each hash is used to create hash of another block, tampering done with any block would also make the subsequent block’s hash wrong too.
Bitcoins seem to be a promising change in the internet currency world. As it offers a lot more convenience in money transaction, it also carries along with it the fear of misuse. Better and stronger measures are set to come to suppress the negative aspects of Bitcoin and it is set to make a revolution in which people transact!
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