Ever heard about Bitcoins or any other digital currencies? You would have seen them in an advertisement when browsing the internet or heard about them in news. In early 2018 bitcoins were frequently mentioned, as the price per coin has reached above $13000. So what is this Bitcoin Cryptocurrency? For a better understanding of the topic let’s know what is cryptocurrency in detail?
Cryptocurrencies are lines of codes that hold monetary value. They consist of complicated mathematical computations. Crypto is derived from the word Cryptography. It is a security process used to protect transactions that send these lines of codes. These currencies are not controlled by any centralized banks, so they use distributed ledger technology called blockchain. They are public lists that record every financial transaction to the database.
Bitcoin was launched in 2009 by an unknown software developer with pseudo-name Satoshi Nakamoto. It’s not clear whether it’s a group of people or a single person behind it. Currently, there are over 4000 altcoins or alternative bitcoins in the market but bitcoin was first in the lot.
What are these Bitcoins and how do they work?
You must have got an idea that Bitcoins are cryptocurrency, virtual money or digital currency. It is a computer file stored in digital wallets that enable sending and receiving bitcoins. As these currencies are encrypted by blockchain technology, it helps to track the transactions and makes it hard to spend or make copies of them.
Bitcoins are divided into 2 classes, bitcoin-the-token, and bitcoin-the-protocol. Both of them are referred to as bitcoin but Bitcoin-the-token is like virtual IOU, where you hold ownership of this digital concept but bitcoin-the-protocol is a distributed network that maintains the ledger balances of bitcoin-the-tokens.
If both the parties involved in the transaction are willing then bitcoins can be used to pay for things in the electronic mode just like digital cash. So where do these currencies differ from traditional paper currencies?
1.Decentralized
There is no centralized authority or government to control the transactions. Bitcoins are controlled by a volunteered group of coders in a public network run by computers across the world. Individuals who don’t like to have government or banks to control over their money are turning towards bitcoins. They solve the “double spending problem” of digital currencies, which makes it hard to copy or re-use bitcoins.
2.Anonymity & Limited Supply
Anonymity is what makes bitcoins desirable for many people around the world. Even though the transactions take place in an open network but the user can still stay anonymous. When the user sells or buys a bitcoin, the system automatically checks previous track of transactions and verifies whether the sender has bitcoin necessary for the transaction or not.
Law enforcement performs identity checks on the users before they buy or sell bitcoins. And for all future transactions, users are identified by the address of their digital wallets. Bitcoins are not produced in large amounts. The process of obtaining them is called mining. In mining, people make their computers to process transactions for everybody.
Usually, these computers are made to work out incredibly difficult sums. In return, the owner is rewarded with a bitcoin occasionally. It takes years for a user to earn a bitcoin. They supply of these coins is controlled by an underlying algorithm. As we know when demand grows and if supply remains the same then value increases.
3.Immutable and Microtransactions
Unlike other electronic transactions, bitcoin transactions cannot be reversed they are immutable. Since there is no centralized source to control the transactions there is no authority to reverse the transactions. Once a transaction takes place in an open network it can’t be modified. Although this may cause discomfort to some of the users it also proves that bitcoin transactions have an authenticity that cannot be tampered with.
Satoshi is the smallest unit of bitcoin, which is (0.00000001). In general money terms, it is one-hundredth of a cent. This shows that bitcoin can enable microtransactions which are not possible with traditional currencies.
How do people earn these bitcoins?
There are three ways to own a bitcoin
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- Buy bitcoins using real money.
- Sell things and accept bitcoins instead of money
- Created using a computer.
The pictures of bitcoins that we see online are not real as they are worthless without private codes printed inside them. Although bitcoin can be used to purchase things online, not all shops or stores are accepting them and they are illegal in many countries. Even with all these limitations, still many people around the world are interested to invest in this digital asset class.
