What is Bitcoin? How does BitCoin Work?
Nowadays, Bitcoin is trending. You may have also heard this term. In this article, I will explain what is Bitcoin and how does it work. I will try to solve most of the basic queries about bitcoin and cover everything you need to know about it.
What is BitCoin?
Bitcoin is a form of digital currency created in 2009. The person who created the bitcoin used the alias Satoshi Nakamoto but no information about the real identity is known. The idea behind the currency was to develop a currency system independent of any central authority. The currency is electronically transferable with instant transfer on very low transaction fees.
This digital form of currency operates under encryption and the transactions are computed with the process of mining.
Unlike other currencies in the world, this is a purely digital currency and there is no central bank that prints it. There is also no system to control Bitcoin. It uses peer-to-peer technology. Your payment is sent directly to another person. Bitcoin was designed to have a maximum number of coins. Only 21 million Bitcoins can be created the original specification.
How Does Bitcoin Work?
Bitcoin is virtual currency that needs no bank. Once you own a bitcoin, it is like owning a physical gold coin. Bitcoin transactions are managed by Bitcoin Blockchain. Since the Bitcoin was invented, Bitcoin blockchain has operated without significant disruption.
Blockchain holds the record of each Bitcoin as Block. Roughly every 10 minutes, a new “block” is added in this chain holding the all of the transaction that has taken place in the last 10 minutes. These records reflect the public address of Bitcoin.
The public address is a 27 to 34 character string of uppercase, lowercase letters and the digits from 0 to 9. When you want someone to send you a Bitcoin, you need to tell him the public address. Each of this public address has a corresponding private key. Whoever has this key has the ability to spend that coin. Private keys are 51 characters long in the same format as a public address.
You can use your Bitcoin to purchase goods and services online. To spend an amount of bitcoin, you must use your private key to cryptographically sign the transaction at the time of sending it to another address.
When one person sends some Bitcoins to any other person, this transaction is then broadcast to the network and it writes a transaction into the block chain. This transaction confirms that your address no longer owns the spent bitcoins and now the bitcoins are held at the receiving address.
The computers that write new blocks to blockchain are known as miners.
There is no chargeback
There is one important thing about Bitcoin you need to know. Once the Bitcoin have been sent, they are gone. You cannot retrieve them. But it will also reduce the banking frauds where people make a purchase and then contact the credit card company to make a chargeback.
Why are people taking interest in Bitcoin?
There are few notable reasons why people are taking interest in Bitcoin.
- Get rid of transaction costs
- Take currency power away from banks and government
- Offers a certain amount of anonymity because they aren’t linked to names, addresses, or other personally identifying information.
- It’s completely transparent
- It’s fast
Is BitCoin Legal?
Bitcoin may be legal or may not be. It all depends on the country you are living. Few countries have legalized Bitcoin but few are still considering whether to legalize it or not. India might be one of few next countries to legalize this currency.
How to get Bitcoin for the first time?
If you also want to start using Bitcoin, you buy it from Bitcoin exchange in return for traditional currency. I will explain the whole process of buying and selling the Bitcoin in next article. I do not want to make this article complex by filling all information at one place.
The price of Bitcoin is determined by the demand and supply. As I already said, Bitcoins are limited to 21 million in number, increasing demand will increase the price.
A few years back, 1 Bitcoin was equal to 1 USD but now it is being traded for USD 1779. As the price depends on the demand and supply, it is expected to go up and will soon cross the value of USD 4000 in coming soon.
Why Are Bitcoins So Controversial?
Bitcoins are private and this is the reason we saw several controversies around Bitcoin in past. It offers a certain amount of anonymity. Since 2011, usage of Bitcoin has increased among criminal traders who are using it to hide their black money from the eyes of law enforcement. They invested millions of dollars in this. This is the primary reason why the Bitcoin price has gone up in recent years.
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