First, what exactly is Bitcoin? Wikipedia defines it as a public electronic currency that is issued and controlled via the Internet. In the simplest terms, it is “virtual money” that is transferred via the Internet between users. In layman’s terms, it is “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 conduct an internet transaction. Instead of dealing directly with them, you trade money online and there is no third party.
To begin with, let us look at the way a typical “real world” wallet works. You transfer funds 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. You don’t have to deal with any intermediaries, making the transaction quicker and more convenient. A typical transaction would be I give you my email address, I give you your phone number, and you give your email address. So, what’s happening is that we exchange something (your email address) in exchange for something (your phone number).
Let’s take a look at the way something similar to an actual currency functions. Let’s suppose I want to purchase a cup of coffee since I am in the city for a business meeting. To purchase the coffee I’d first need to open an account at the local coffee shop. I could then keep my coffee until I arrive and pay with my real bank account.
Let’s say I’m going to a place where I don’t have access to an established banking system, like London. What do I have to do? Simply put, the bitcoin network acts as a digital currency, so I can buy my fuel using any digital currency I like. For instance, if would like to travel to London using the pound, I can do so using the Euro or the USD. This is the best thing about it. While it might have a high currency rate, there is no central government to regulate these currencies. It is a solid currency since there aren’t any known threats.
What happens between all these transactions? The transaction is actually conducted between all of the entities involved with the transaction, referred to as “miners”. These entities are the ones that keep the system functioning. The “mining process” is what makes transactions happen and keeps the network secure. This is accomplished by inviting individuals to join the bitcoin mining pool. They pool their resources and increase the speed at the which new blocks are mined.
So now that we know what’s happening behind the scenes, how can one determine if one is being “minted” or if their transactions are being monitored? There is actually a new technology that is in use called “blockchain technology” which aims to make the entire mining process transparent. It works as follows: Once someone mines a block, they add it into the existing ledger called the “blockchain” along with all other transactions that were performed during the period of time. Each transaction is tracked and logged on to the computer system that is for the specific ledger. This lets you see at a glance exactly how many coins someone has been minted and how much they’ve spent.
Although it sounds good in theory, there’s one issue that everyone must be aware of. Since there isn’t a physical product, there’s no way to examine the history of transactions made by a person. They could report suspicious transactions however, it’s impossible to determine 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. If you do not want to do your transactions online, there are a variety of websites that can help.
This bitcoin transaction system is essentially a protocol that people use to ensure that they can be tracked through their transactions. This makes it almost impossible for someone to duplicate spend or alter someone else’s transactions without being able to see. However, not all computers can support this new technology, and some of the most prominent names in the field right now aren’t taking the leap into the next technological age of computing power. However, there are numerous developers who are trying to create software that can make it possible for even the most basic computers to use the internet to conduct transactions. When the protocols are made available to the general public it will be simpler for people to transfer money from one wallet into another and use their computing power in order to travel around the world using bitcoins as opposed to traditional currencies.
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