First, what exactly is Bitcoin? Wikipedia defines it as a electronic currency that is issued and managed over the Internet. In simple terms, it’s “virtual money” that is transferred over the Internet between users. It is also referred to as “online currency”. It is best to explain it by explaining that you don’t have to deal with a government or financial institution when you complete an online transaction. Instead of dealing directly with them, you trade money online, and there’s no third party.
To begin , let us look at the way 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 your recipient. The transfer is quicker and easier because you don’t have to use intermediaries. A typical transaction would look like that I provide you with my email address, you give me your phone number and you provide me with your email address. What is happening is that we exchange something (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 suppose that I’d like to purchase coffee since I am in town for a business event. To purchase the coffee I’d first need to sign up for an account at the local coffee shop. I could then keep my coffee until I get there and then pay using my actual bank account.
Let’s say I’m traveling to a place without access to a traditional bank system like London. What do I do? Simply put the bitcoin network works as a digital currency, so I can buy my fuel using any digital currency I choose. For instance, if I want to travel to London using the pound, I can make the trip with the Euro or the USD. This is one of the advantages about it. Although it may have a higher rate of exchange, there is no central government that can regulate these currencies. It functions as a solid currency since there are no known threats.
What happens to all these transactions? The transaction is actually conducted by all the entities involved with the transaction, also known as “miners”. These entities are what keep the system working. The “mining” process is what allows transactions to happen and keeps the entire 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 that we know the specifics behind the scenes, how can we find out if transactions are being monitored or whether they are being “minted?” Blockchain technology, a revolutionary technology that seeks to make mining activities transparent, is actually in use. It works in this way once a person mines blocks, they deposit it into the existing ledger, referred to as the “blockchain” along with all other transactions that took place during that period of time. Each transaction is monitored and recorded to the computer system that is associated with the particular ledger. This lets you know in a glance the amount of money that people have been making and how much they’ve spent.
Although it sounds good in principle, there’s one problem with the system that everyone should be aware of. There isn’t a physical product therefore it is not possible for anyone to scrutinize the history of transactions made by a person. They may report suspicious transactions, but it’s not possible to prove whether the transaction is legitimate or not. The only way to ensure that transactions are secure is to use a computer that is offline like an offline paper wallet. There are online sites that can perform this for you, should you not want to make your transaction via the internet.
The new bitcoin transaction system allows users to track their transactions via a protocol. This makes it nearly impossible for anyone to double spend or alter the amount of money spent by someone else’s transactions without being noticed. This new technology isn’t compatible with all computers, which means that some of the biggest names in the field are missing the opportunity to make the leap into the next era of computing power. There are a lot of developers working to create software that can allow even the most basic of computers to make transactions on the internet. Once the protocols are available to the general public it will be simpler for people to transfer their cash from one wallet to the next, as well as to make use of their computing power to drive across the globe using bitcoins instead of traditional currencies.
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