What is Bitcoin?
Bitcoin is a digital currency which has no physical element like paper bills or coins. The verification is provided by the global peer to peer network. Bitcoin and its derivatives are called cryptocurrencies. The system uses advanced cryptography called Blockchain to verify the transactions and generate new coins. Before Blockchain was introduced, only centralized services were used.
However, the problem with the centralized system is that it stores all its data in one place, which makes it easy to target by the potential hackers. In the decentralized system, the information is not stored by one single entity; instead, everyone in the network owns the information. The decentralized system renders the middlemen and third-party useless. Bitcoin is one of the first cryptocurrencies that use peer-to-peer technology for instant payments. The people and companies who own and participate in the Bitcoin network are comprised of nodes and miners.
Miners are the people who process the transactions on the Blockchain and are rewarded for the same. Miners maintain the credibility of the Bitcoin network. A person who is interested in investing in Bitcoin can buy and sell it from the number of popular online markets called Bitcoin exchanges. Bitcoin exchanges are at risk from hackers. So, it’s important to keep your Bitcoin in a safe cold wallet.
Bitcoin uses Blockchain technology, and the blocks are secured and bound with cryptographic principles. The blockchain network has no intermediary. As it is a shared ledger, therefore, anything that is built on Blockchain is transparent.
One party starts the transaction and creates the block, which is verified by thousands of computers distributed via the internet. The verified block is thereafter added to the chain with unique and unalterable records. Falsifying the single record means falsifying the entire chain, which is virtually impossible.
Three main pillars of Blockchain technology are:
How it Works?
Bitcoin is a digital currency that has no physical existence like paper bills or coins. The value of Bitcoin is determined by a global peer-to-peer network. Bitcoins works on ultra-secure blockchain technology. There are people called “Miners” who allow their computers to verify individual transactions. Such miners are rewarded by Bitcoins for their contribution in verifying the transactions.
Bitcoin, like many other derivatives, is called cryptocurrencies, which use blockchain technology to generate new coins and verify the others which are transferred from one user to another. The cryptographic sequence makes the transactions impossible to fake and also making wallets of coins easily transferrable.
Every Bitcoin transaction is verified and recorded on the new block in the Blockchain. Each block has a cryptological code linked to it and which makes it easy to verify the previous block.
In a nutshell, Bitcoin transactions are secure, which makes it impossible to fake a transaction. However, it can be stolen by someone’s digital wallet using his password. Such information can be found through hacking or social engineering. As Bitcoin is not regulated as the fiat money is, the money is simply gone forever.
Advantages of Bitcoin?
The pseudo-anonymity and independence of Bitcoin have attracted many investors. The main advantage of Bitcoin is that its both digital money and the payment network. Such a system operates without any interruption from intermediaries, government officials, and other regulators. Here are some of the advantages of Bitcoin:
- Bitcoin is the open financial system where anyone can make payments with BTC at any time all around the world, even where there is no banking system.
- International transfer of money with Bitcoin is easy, cheaper, and faster than the traditional banking services.
- Bitcoin is the asset that cannot be stolen if taken proper care of its storage. Besides, Bitcoin transactions are uncensored, which means no one can stop you from conducting such transactions.
- Bitcoin is pseudonymous, which means anyone can open the wallet via the internet without any credit history or verification. It is especially beneficial for the underbanked regions and third world countries.