Let’s first define what Bitcoin is. Wikipedia describes it as a digital currency that is created and managed through the Internet. It is “virtual currency” that can be transferred between users through the Internet. In the terms of a layman, it is “online currency”. It is best to explain the concept by explaining that you don’t have to deal with a government entity or financial institution when you conduct an internet transaction. Instead of dealing directly with them, you can exchange money online and there’s no third party.
To begin , let us look at how a typical “real world” wallet functions. You transfer money from your “real life” account to your bitcoin wallet. This is essentially transferring money from your wallet to the wallet of your recipient. There is no need to go through any intermediaries, making the process easier and quicker. An example of a transaction is I give you my email address, I give you your phone number, and you provide me with your email address. So, what’s happening is that we are exchanging a thing (your email address) in exchange for something (your phone number).
Now let’s take a look at how something like an actual currency functions. Let’s say I’d like to buy a cup of coffee since I am in the city for a business conference. 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 arrive at my appointment at which point I would pay for my coffee with my bank account in the real world.
Let’s say I’m going to a country that doesn’t have access to a bank system such as London. What should I do? Simple, as the bitcoin network acts as a digital currency, I can pay for my fuel using any digital currency that I prefer. If I want to travel to London using the pound I can do so using the Euro or the USD. The great thing about this is that, although it may have a higher exchange rate, because there is no central government that governs these currencies, they function as a highly secure currency as there are no known threats to the value.
What happens to all these transactions? The transaction is actually performed between all the entities involved with the transaction, also known as “miners”. These entities keeps everything running smoothly. The “mining process” is the process that makes transactions flow through and keeps the network secure. This is accomplished by inviting users to join the bitcoin mining pool. They pool their resources and improve 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 tracked? There’s a brand new technology that is in use called “blockchain technology” that aims to make the whole mining activity transparent. It works as follows once a person is mining blocks, they then add it to the existing ledger, referred to as the “blockchain” along with any other transactions that took place during that period of time. Every transaction is then tracked and logged on to the computer system that is associated with the particular ledger. This allows you to view exactly how many transactions someone has completed and the way they’re spending them.
It’s a good idea in theory however there’s a big issue with this system that everyone needs to be aware of. Since there’s no physical product, there’s no way for anyone to actually look into a person’s transaction history. They may report suspicious transactions, but it’s not possible to verify whether the transaction is legitimate or not. The only way users can ensure their transactions are by performing their transactions on an offline computer, such as an offline paper wallet. If you don’t wish to conduct your transactions online, there are plenty of websites that can help.
The new bitcoin transaction system allows users to track their transactions through an encryption protocol. This makes it nearly impossible for anyone to alter or double spend on other people’s transactions. Unfortunately, not every computer is able to support this technology, so some of the biggest names in the field today are missing out on making the leap to the new era of computing power. There are a lot of developers trying to create software that will enable even the most basic of computers to make transactions on the internet. When the protocols are made accessible to the public it will be much easier for users to transfer money from one wallet into another and to use their computing power in order to travel around the globe using bitcoins instead of traditional currencies.
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