First, let’s define what Bitcoin is. Wikipedia describes it as a electronic currency that is created and managed over the Internet. It is “virtual currency” that can be exchanged between users over the Internet. It is also referred to as “online currency”. It is best to explain it by saying that you don’t need to engage with a government agency or financial institution when you complete an online transaction. Instead of dealing directly with them, you exchange money online and there’s no third party.
To begin , let us take a look at how 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 the recipient. The transfer is quicker and easier because you don’t need to go through intermediaries. A typical transaction would be this: I give you my email address, then you give me your phone number and you send me your email address. All that is actually happening is that we exchange a thing (your email adress) for something (your phone number).
Let’s now take a look at the way something that resembles an actual currency functions. Let’s say I want to buy a cup coffee since I am in the city for a meeting. What I would first do is to create an account at the local coffee shop and use their credit card to purchase the coffee. From there I could keep my coffee until I get to my meeting and then I would pay for my coffee with my bank account in the real world.
Let’s say that I’m travelling to a location that is not connected to a 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 like. If I wish to travel to London using the pound, I can do so using the Euro or the USD. The best part about this is that although it may have a higher exchange rate, as there is no central government that regulates these currencies, it behaves as a strong currency as there are no known threats to the value.
What happens in between these transactions? The transaction actually takes place between all the entities involved in the transaction, called “miners”. These entities are the ones that keep the system working. The “mining” process is what makes the transactions happen and keeps the whole network safe. This is achieved by inviting people to join the bitcoin mining pool. They pool their resources and boost the speed at the which new blocks are mined.
Now that we know what happens behind the scenes, how can one tell if they’re “minted” or if their transactions are being tracked? Blockchain technology, a revolutionary technology that seeks to make mining activities transparent, is actually in use. The basic principle is this way: when someone is mining a new block they add it to the existing ledger which is known as the “blockchain” together with all of the other transactions that were conducted during that period of time. Every transaction is then recorded and uploaded to the computer system of the particular ledger. This allows you to view exactly how many transactions someone has completed and the way they’re spending them.
Although this sounds fantastic in theory, there is one issue that everyone must be aware of. There is no physical product therefore it is not possible to examine a person’s transaction history. They may report suspicious transactions, but it is impossible to verify whether the transaction is legitimate or not. Only way to protect transactions is to use an offline computer such as an offline paper wallet. There are even some online sites that can perform this for you, if you don’t want to make your transaction via the internet.
This new bitcoin transaction system is essentially a protocol that people use to let themselves be traced via their transactions. This makes it virtually impossible for anyone to alter or double spend on someone else’s transactions. This new technology isn’t compatible with all computers, so some of today’s most prominent names in the field are missing the opportunity to make the leap into the next generation of computing power. However, there are many developers developing software that can let even the simplest computers to access the network. When the protocols are accessible to the general public it will be easier for users to transfer money from one wallet to another and to utilize their computing power to travel around the globe using bitcoins instead of traditional currency.
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