New Step by Step Map For BitcoinSeptember 17, 2021
First, what is Bitcoin? Wikipedia describes it as public electronic money that is created and managed over the Internet. In the simplest terms, it is “virtual money” that is transferred over the Internet between users. It is also referred to as “online currency”. It is best to explain the concept by saying that you don’t need to engage with a government agency or financial institution when you make an online transaction. Instead of dealing directly with them, you exchange money online and there is no third party.
Let’s begin by letting us look at how a typical “real world” wallet works. You transfer money from your “real life” account to your bitcoin wallet. This basically means that you transfer money from your wallet to the wallet of the recipient. The process is quicker and easier because you don’t have to go through intermediaries. A typical transaction is the following: I send you my email address, you give me your phone number and you send me your email address. What actually happens is that we exchange something (your email address) in exchange for something (your phone number).
Let’s now take a look at the way something like an actual currency functions. Let’s say I’d like to buy a cup coffee because I am visiting the city for a meeting. To purchase the coffee I’d need to first sign up for an account at the local coffee shop. At that point I could put off my coffee until I get to my meeting and then I would pay for my coffee using my real-world bank account.
Let’s say I’m going to a location that is not connected to a bank system like London. What do I do? Simply put the bitcoin network works like a digital currency so I can buy my fuel with any digital currency I like. If I wish to travel to London using the pound I can choose to use the Euro or the USD. The good thing about this is that while it may have a higher exchange rate, since there is no central government that regulates these currencies, it behaves as a strong currency since there are no known threats to the value.
What happens in between these transactions? The transaction takes place between all the entities involved in the transaction, referred to as “miners”. These entities are the ones that ensure that everything is running smoothly. The “mining” process is what makes the transactions happen and keeps the entire network secure. This is accomplished by inviting individuals to join the bitcoin mining pool. They pool their resources and increase the speed at the that new blocks are mined.
Now we know what goes on behind the scenes, how does one determine if one is being “minted” or whether their transactions are monitored? Blockchain technology, a brand new technology that is designed to make all mining activity transparent, is actually in use. It works as follows once a person is mining blocks, they deposit it to the ledger, referred to as the “blockchain” along with all other transactions performed during the time. Each transaction is recorded and uploaded to the computer system of the specific ledger. This allows you to see the exact amount of transactions a person has completed and the way they are spending their money.
It sounds great in principle however there’s a important issue with this system that everyone needs to be aware of. Since there is no physical product, there is no way to actually look into the history of transactions made by a person. They may report suspicious transactions, but it’s not possible to verify whether the transaction is legitimate or not. The only way that people can safeguard their transactions is by performing their transactions using an offline computer, similar to an offline paper wallet. There are even online websites that will take care of this for you if you don’t want to make your transaction via the internet.
This bitcoin transaction system is essentially a protocol that people use to allow themselves to be traced via their transactions. This makes it nearly impossible for anyone to alter or double spend on another person’s transactions. This new technology isn’t compatible with all computers, so some of the biggest names in the field have missed the opportunity to make the leap to the next phase of computing power. There are many developers who are trying to develop software that will allow even the most basic computers to use the internet to conduct transactions. When the protocols are made accessible to the general public it will be much easier for people to transfer money from one wallet to another and to use their computing power in order to travel around the world using bitcoins instead of traditional currencies.
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