Bitcoin is a digital currency created and held by users electronically. Bitcoins are not printed like dollars and are not controlled by any one authority. While many cryptocurrencies such as Dash and Ether have emerged, they all trace their roots to Bitcoin. Let us look deeper into Bitcoin.
What exactly is Bitcoin?
Bitcoin is the pioneer in the Cryptocurrency world. It was founded in 2008 by a software developer called Satoshi Nakamoto who presented a white paper on an electronic payment engineered on mathematical proof.
In 2007, the economic recession that swept the globe proved that the centralized currencies are not immune to external influences. Investors with cash in their banks looked back and got convinced that their cash was no longer safe; it could devalue within a very short moment and cause huge losses. It is from these vulnerabilities that Satoshi build Bitcoin.
The core goal of designing Bitcoin was making a currency that is independent of central authorities, and that could be easily transferable electronically. Satoshi also envisaged for a digital currency that could be transferred instantly at lower charges.
Unlike the common/ fiat currencies that are controlled by central banks, no single authority controls Bitcoin. In fact, even Satoshi does not control Bitcoin. Rather, the Cryptocurrency is controlled by the entire network based on demand.
The standard currency is based on silver or gold. In theory, people know that if they hand a dollar to a bank, some gold can be handed in return (note that this does not work in reality). Now, Bitcoin (generated by software) is not based on Gold or silver, but mathematics (a well-known mathematical formula). To understand more about Bitcoin, here is a closer look at how it works.
How does Bitcoin work?
To use Bitcoin, you must download the Bitcoin wallet and install it on your computer. Bitcoin blockchain uses a ledger that maintains all records of transactions in the platform. Unlike the conventional banks that have administrators, blockchain organizes its operational data in blocks. It is this wallet that makes you part of the ledger system that allows you to trade. Note that you must first buy some coins to start trading.
The blocks use special cryptographic validation that helps them to link with other blocks using hash functionality. The blockchain solves 2 crucial things; controlling info and preventing duplication. Once a transaction is done, the ledger records it and sends out to the entire network. It is then confirmed by all the computers in the Bitcoin platform using complex algorithms. The first to get an answer and validate it is rewarded in Bitcoins (the process is referred to as mining).
After a block is validated, it is time-stamped and then added to the Bitcoin platform chain chronologically. This process of updating the network takes place continuously to maintain a clear representation of who owns what number of coins at any particular moment.
The main features of Bitcoin
While Bitcoin has been around more about 9 years, the technology is still considered young and, therefore, most of the features are considered infant. There was a lot of focus on the financial part in the first five years of Bitcoin. However, new features are still emerging. Here are some of the most significant.
These are perhaps the biggest points of focus for Bitcoin as well as other digital currencies in the world today. They are computer protocols that are targeted at facilitating, verifying, and enforcing performance of contracts between nodes. Ethereum first developed the Smart contracts. Now, Bitcoin is working on its own that is expected to dwarf most of the existing ones.
Other platforms like Coinprism allow their users to issue colored coins based on Bitcoin. Colored coins are used to provide a link between the real world and Cryptocurrency world that has remained unclear to most people. The colored coins can be lent to buy shares, real estates, and even pay dividends. The colored coins are considered one of the latest developments for linking the local markets to the ‘mysterious’ blockchain operations.
A transaction is the transfer of value between various Bitcoin wallets. Bitcoin wallets stores digital data called seed/private keys used for signing transactions. The seeds provide mathematical proof that the owner has opened the wallet. Besides, they also prevent alternation by other people once a confirmation has been issued.
This is a distributed system of consensus that helps to confirm wallet transactions by adding them in the Bitcoin blockchain. The mining is implemented in chronological order to protect the neutrality of the Bitcoin network while allowing different computers to agree. Mining is guided by special rules that prevent previous confirmations from getting modified.
The main pros of Bitcoin
- Fully Decentralized System: This means that the system is not controlled by any single entity. Therefore, it is free from the influence that is common in fiat currencies.
- Bitcoin is very easy to setup: Unlike the conventional banks that require people to make a lot of hoops before opening an account, a Bitcoin address can be setup in less than a minute. All you need is downloading the Bitcoin wallet and installing it in a computer to become part of the system.
- Completely anonymous: While your Bitcoins are carefully maintained as you continue trading and using it, an individual’s anonymity is strictly enforced. Your operations, payments, and transactions cannot be linked to a user’s name, address or any other identifiable thing.
- The system is completely transparent: When Satoshi envisaged the blockchain technology; he wanted a system where all users could know what is happening in a purely transparent mode. This means that all users can see the number of Bitcoins available though no one can tell who holds what quantity.
The main cons of Bitcoin
While Bitcoin took the globe to a whole new level of viewing currencies, the anonymity comes with a huge disadvantage. It is associated with cybercriminals. Fraudsters, drug dealers, and corn artists insist on getting paid in Bitcoin because transactions can neither be reversed nor users identified.
Where to Buy and Sell Bitcoin in Australia?
Crypto Currency for Fun recommends buying Bitcoin at CoinSpot. CoinSpot is a multi cryptocurrency wallet with built-in trading features. Users can store many coins, including Bitcoin and they offer Instant Delivery or your coins right into your account.
Since its establishment in 2008, Bitcoin has become the most applied cryptocurrency in the world. Its popularity is expected to continue growing because of the rapid learning process and updates done by the developers. However, the competition will continue being stiff as more competitors continue emerging.