What is Bitcoin and how does it work?
what can anyone imagine a thing- the value of which was zero around ten years back and today, its value has touched almost 50k Dollars! I'm talking about Bitcoin, which has recently touched its all-time high price point due to which it is being talked about in the market is booming of the name of bitcoin
What is Bitcoin actually and when it starts?
12 years ago, on 31st October 2008, a person named Satoshi Nakamoto published a paper on the Internet Satoshi's main motive was clearly evident from the first line of the paper A version of electronic cash that would allow payments to be sent directly from one party to another party without going through a financial institution.
Cryptocurrency is a digital asset over which central banks or financial institutions have no control or regulation, For instance, the US dollar is controlled by the central bank of the US. The Indian Rupee is controlled by the RBI But there is no central bank or any main financial institution that controls the bitcoins/cryptocurrencies Back then, the cryptocurrency was merely an idea in the mind of that person. But now, there is trading worth Millions on its crypto exchange just like shares are traded on the normal stock markets.
In order to understand the paper of Satoshi and the context of cryptocurrency, we will have to understand some concepts of our economic history Our financial systems are based on trust The currency notes and coins have value in our society because they are guaranteed by the government and the central bank.
Do you now understand the original idea/vision of Satoshi? Satoshi imagined Bitcoin as an alternate financial system that would be based on software technology and would be outside the control of third parties You might be able to recall the Global Economic Meltdown of 2008 Mega investment bankers like the Lehman brothers had become bankrupt
How Many Types of Cryptocurrencies?
Cryptocurrencies were born right after this scenario Bitcoin was the first to arrive. And then many other cryptocurrencies surfaced- Ethereum, Litecoin, and Ripple In fact, at the beginning of the year, more than 2000 cryptocurrencies were available on the internet Let us move on to the main point now: How does crypto- technology work? If truth be told, in order to understand this, one needs to have knowledge of advanced mathematics and computer science.
How does Bitcoin work?
If you want to start investment or trading, then basic knowledge would suffice Let us take the example of Bitcoins There is one public account in digital form, of all the bitcoin transactions- this is called a 'ledger' A copy of this ledger exists on all the systems that are a part of the Bitcoin network Those that run this system are called 'Miners' The job of the miners is to verify transactions Say, A has to transfer 2 Bitcoins to B's account Miners will have to confirm whether A actually does have 2 Bitcoins in his account or not To complete the transaction, miners will have to solve a complicated mathematical equation You might have studied about variables back in school.
Every Bitcoin transaction has a unique variable The job of the miners is to calculate it It's not that they sit with a pen or paper to solve the equations All these calculations are carried out on the computers automatically because they are extremely complicated and their combinations run in crores which is why these miners require computers with very complex and high processing power Once the equation is solved, the other computers within the network confirm it and this transaction is added to the chain A block of transactions gets created. And hence, the technology is called 'block chain' And what do miners get in exchange for this? They get the most valuable thing- Bitcoins!
This system is called 'Proof of work' The miners have to prove the computation work they do in order to get awarded the Bitcoins in return If all this explanation went straight above your head like a bouncer, then do not worry! Because understanding the philosophy, vision, and future of crypto technology is far more important than understanding the working of crypto technology.
Blockchain: Bitcoin is powered by open-source code known as a blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of more than 6,000 cryptocurrencies that have followed in Bitcoin’s wake.
Private and public keys: A bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions, providing proof of authorization.
Bitcoin miners: Miners — or members of the peer-to-peer platform — then independently confirm the transaction using high-speed computers, typically within 10 to 20 minutes. Miners are paid in bitcoin for their efforts.
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But just like any other investment, this too entails risks. And those who criticize this as a form of investment say that Bitcoin is a digital currency. It has no inherent value of its own Everything is happening on the computer It could still be referred to as a "niche product" that does not have widespread acceptance in society Cryptocurrency is not yet a medium of exchange, that is, you cannot go to the nearby shops and buy bread and eggs with Bitcoins But this trend might change in the future because there are several restaurants and hotels in the Western countries that have begun to accept Bitcoins as an alternative form of payment
Buying Bitcoin: The pros and cons
There is a technical challenge here that makes it difficult to use Bitcoins as a medium in daily transactions The Bitcoin transactions on the blockchain take time to get confirmed. One block process takes around 10 minutes for the computers to calculate So, you can understand that it is not practical to wait for 10 minutes for a transaction to get completed in daily life But at the same time, there are some present-day use cases for Bitcoins where they work better than our traditional ways The best example of this is our Foreign Funds transfer When you have to transfer money from one country to another, the banks deduct a lump sum in the name of foreign transfer fees They charge a lot of fees and take a lot of time to transfer money from one country to another
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Bitcoins are more economical in this case. Bitcoins do not charge any transfer fees and ten minutes is a much lesser time as compared to the 1 to 2 days that the banks take A similar thing applies to the credit card fees Cryptocurrency can be more economical than credit card fees This is why banks, credit card companies and remittance companies have been against the Cryptocurrencies and are so even today because Cryptocurrency can become a rival to their business model In the last few months, especially due to the Covid pandemic, situations have changed.
While several industries and mutual funds have been struggling, the value of Cryptocurrencies like Bitcoins and Ethereum has been on the rise From the 1st of March, until November 30, the value of Bitcoin has risen more than 120%, that is, it has more than doubled in value Paypal, the world's biggest digital payments company, has introduced the feature of crypto transactions in November J P Morgan Bank used to be the biggest foe of Bitcoins. When Bitcoin was on a bull run in 2017, that is, when its price was rising exponentially, the CEO of J P Morgan had said that it was a fraud And now, just a few months ago, JP Morgan has opened corporate accounts for famous crypto exchanges like Coinbase and Gemini Trust So you can see how the doors that had earlier been shut for cryptocurrency have now been opening up An open-mindedness is being observed with regard to cryptocurrency in the general public and the financial industry
The reality is that cryptocurrency has some negative points as well that are mainly related to money laundering and security In the dark web on the internet, people had started accepting payment in Bitcoins for buying weapons and drugs It became very difficult for law enforcement agencies to track transactions because they were outside the traditional financial system Issues related to hacking also surfaced Another reason is that anyone can come up with their own cryptocurrency. This is why, a lot of bogus and fraud companies took money from the public with a promise that once trading started in that particular currency, the value of their money would double/triple so they claimed that the money invested would double/triple-
Where can I buy Bitcoin?
Cryptocurrency exchanges. There are a number of exchanges in the U.S. and abroad. Coinbase is the largest cryptocurrency exchange in the U.S., trading more than 30 cryptocurrencies.
Investment brokerages. Coinmama was the first mainstream investment broker to offer Bitcoin and other cryptocurrencies
Bitcoin mining. You can earn bitcoins through mining, but the technical expertise required and computer cost put this option out of reach for most.
Peer-to-peer purchases. True to its original spirit, you can buy bitcoins directly from other bitcoin owners through peer-to-peer tools like Bisq, Bitquick, and LocalBitcoins.com.
Bitcoin ATMs. There are more than 7,000 bitcoin ATMs in the U.S. (search Coin ATM Radar to find one near you).
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