what is bitcoin cryptocurrency and how does bitcoin work
There are a lot more expensive things in the world other than gold and diamonds. And to occupy that space of expensive things. Bitcoins are on the race. Keeping aside the controversies and the financial debates on bitcoins. In 2017, Bitcoins occupied every individual’s mind.
Wondering what is a Bitcoin?
Bitcoin is simply a software that generates virtual cash.
It is a digital or virtual asset described as cryptocurrency. These are the coins that are stored in computers. Designed to work as a medium of exchange. It uses a cryptograph to manage all the transactions without any impact from central authorities. The transactions made are verified by a network of nodes through cryptography and recorded in a public ledger called Blockchain. Many blockchains were created using cryptography. These were invented by a group of people with the pseudo name “Satoshi Nakamoto”. The bitcoin software was released in 2009.
Bitcoin is the first cryptocurrency and the later generated are known as “alternate coins or altcoins”. The advantage of bitcoins is that they can be stored offline on personal hardware (cold storage) and the coins that are stored on the internet is called hot storage. In case, if personal data is lost. Then the currency is gone forever. So, be careful with your hardware.
Why are bitcoins used?
Bitcoins are cost-effective and instantaneous. When a transaction is completed even the workers are benefited from it. The transactions made are irreversible which doesn’t produce any threat. It’s high privacy rules seizes the Ilegal transactions. These are the most efficient and cheaper ways of transferring money.
Although the demand is somewhat low, many retailers still accept cryptocurrency as payment. As it is not a centralized system, the government cannot access or cut off the money. In the form of a bitcoin, you can securely store your cash.
Importance of Bitcoins
- Anyone can own a bitcoin account. Download the digital wallet app on your smartphone or desktop and create your account. Voilaa!! There you have your own digi wallet
- There’s no chance of getting into risk as bitcoins are virtual currencies
- The transaction fee is very low compared to the centralized banks
- There will be no money remittance even if you transfer a huge amount of money
- Quick and safe transfer
- It maintains the transparency as you can view your recent transactions made at any time
- Bitcoins are trustworthy and many are still engaging with them
- Advantageous for business as you can buy and sell the bitcoins
Reasons why bitcoins are valuable
- These are not created and controlled by any central bank
- No middlemen involved as the transactions are done between individuals
- The transactions are irreversible
How do they work
Bitcoins basically work on three principles
Blockchain works on public ledger technology. When a transaction is confirmed. The information is all stored in it. Bitcoins calculate the amount spent and displays the balance. This is done to verify the transactions that are actually owned by the spender. The order of transactions is maintained on the cryptography.
The transaction is the transfer of virtual money from one digital wallet to the other. Bitcoins are equipped with a private key. A private key is used to sign the transactions and will make sure that the transactions are done from the owner’s wallet. It displays the amount to spend bitcoins from a specific wallet. Signatures prevent the transaction from getting altered. The transactions are confirmed within 10-20 min with the processing method called mining.
Mining preserves the record of the pending transactions in a blockchain. Miners will make sure that the transactions are consistent, unalterable, complete and add new transactions into a block. Each block is connected with the other block by “hash”. The blocks are highly secured with the cryptography. So, the chances are low that the block can’t be re-modified. The cryptography prevents from replacing a new block. The benefit of mining is that the miners get benefited when a transaction is made. The miners are rewarded with a bitcoin on completion of a transaction.
How about Security?
Unlike mobile data backup, you can do it with the digital wallet too. It is essential to protect your wallet from computer failure, theft and human error. Storing them online without backup encryption isn’t a good idea. Use the advanced version of bitcoin software and secure it with a 16character password. As prevention is always better than a cure. Store all your data on the paper wallet to secure your bitcoins offline (cold storage) this arrests the thefts from hackers and malware. Another way to protect is to print the info on the digital wallet like private keys and maintain a physical record. Of course, security is paramount again.