In today’s article I will delve into a very hot topic – “How Bitcoin Cryptocurrency Works”. Moreover, I will also discuss whether 2024 is the right year to invest in the cryptocurrency market. And I will also cover different topics revolving around Bitcoin, such as Bitcoin mining, Bitcoin wallets and how to trade Bitcoin.
What is Bitcoin and how does it work?
Bitcoin is not like cash and it works like a digital currency on the internet and there is no role of any bank but instead computers, connected together are used for this purpose. When you want to buy or sell stuff using Bitcoin, you need these computers to complete your transactions. It is added here that you need to have a secret code, so only you can use your money.
It is pertinent to mention here that all transactions get written down in a big digital notebook called the blockchain making sure it is safe and secure. You just need to keep your Bitcoin in digital wallets, which is kind of like a pocket for your internet cash.
Why digital money is better than physical money?
According to digital currency experts, when vast majority of people especially in the U.S. are already using different forms of digital money, such as credit cards, wire transfers, PayPal, and others, its not a big deal if we fully transform into digital currency. The digital money offer convenience and increased security and accessibility as it can be managed remotely. Unlike physical cash, digital money reduces the risk of loss or theft, making it more secure than physical cash. However, it is important to note that digital systems can still be vulnerable to cyber threats, warrants increased cybersecurity measures.
It is pertinent to mention here that the amount of physical money, especially in developed countries is almost negligible and it is decreasing with each passing year. Therefore, there would be no issue with fully adopting digital currency.
Double-spend problem
In cryptocurrency the double-spending problem refers to the risk of spending the same digital currency unit more than once. It is important to note that in banking systems, banks ensure that each unit of currency is spent only once, however, this is not the case with cryptocurrencies, as there is no central authority, making it extremely difficult to prevent someone from using the same funds in multiple transactions.
To elaborate further, the solution that banks use nowadays is a centralized one. Banks keep a ledger on their computer which keeps track of who owns what currency. Banks have information of every account and there are no chances of any double-spending problem and the solution is centralized on this ledger in this computer.
It is pertinent to mention here that there have been many attempts to create alternative forms of digital currencies, however, none were successful in solving the double-spending problem.
Solving double-spend problem
Some digital currencies experts, in the recent past have suggested a way of creating a system for Bitcoin, claiming to create digital money that solves the double-spend problem without the need for a central authority. However, due to complexity surrounding cryptocurrencies, the suggestion could not be implemented.
Comparison between Bicton and a bank
Since most money today is already digital, the bank basically manages its own ledger of balances and transactions. However, the bank’s ledger is not transparent and it is stored on the bank’s main computer and only bank has complete control over it.
While on the other hand, Bitcoin is a transparent ledger and you can see all of the transactions and balances that are taking place. The only problem with this is that you cannot not figure out who owns these balances and who is behind each transaction. So, basically everything is open, transparent and trackable, but you cannot tell who is sending what to whom.
It is important to note that with Bitcoin, every computer that participates in the system is also keeping a copy of the ledger, also known as the blockchain. So, if you want to take down the system or hack the ledger, you will have to take down thousands of computers which are keeping a copy and constantly updating it. As I told above that bitcoin is digital, means there is nothing physical that you can touch.
But there are only rows of transactions and balances and when you own Bitcoin, it means that you own the right to access a specific Bitcoin address record in the ledger and send funds from it to a different address.
When was Bitcoin first used?
It was in May, 2010 when a person named Laszlo Hanyecz made the first recorded use of Bitcoin by paying 10,000 bitcoins to buy two pizzas. It is pertinent to mention that in 2010 the value of bitcoin was extremely low. However, today, the price of bitcoin is very high.
Why is Bitcoin so important?
Well, Bitcoin has the capability to replace physical money and you are the owner and handler of your money, unlike banks which control your all money. It is same like before the internet when system was centralized and if we wanted to get information, we could only get it from few sources like New York Time or the Washington Post and others. But thanks to internet, information is decentralized and we can get anything with just click of a button.
Bitcoin is same like the internet of money, which offers a decentralized solution to money. Moreover, Bitcoin has several advantages over the physical money. First, as I mentioned above, it gives you complete control over your money and you can easily access your funds. No bank can freeze your account or confiscate your holdings.
Bitcoin is also cheaper to use as it cuts a lot of the middlemen from the process of transferring money. Also, unlike fiat currencies, Bitcoin was designed to be digital by nature, this means you can add additional layers of programming on top of it and turn it into smart money.
Moreover, Bitcoin offers digital commerce to around two and a half billion people around the world who do not have access to the current banking system due to several reasons. Today, with a mobile phone and a click of a button, they can start trading using Bitcoin and no permission needed. There are several merchants online and offline that accept Bitcoin. Even you can buy an air ticket, book a hotel if anything else you want with Bitcoin. Today, there are even Bitcoin debit cards that allow you to pay at almost any store with your Bitcoin balance.
Bitcoin Mining
Bitcoin mining is the process through which new bitcoins are created and transactions are added to the blockchain. Powerful computers are used by miners to solve complex mathematical puzzles and when they successfully solve a puzzle, then they add a new block of transactions to the decentralized ledger and are rewarded with newly created bitcoins. It is important to note that this process ensures the security and integrity of the bitcoin network.
Bitcoin Wallet
A bitcoin wallet is a digital tool that allows users to store, receive and sent bitcoins and is consisted of two key components called a public address and a private key. A public address is same like a account number, where you can receive money from others while a private key is like a password that allows you to access and manage your bitcoins.
How to buy Bitcoin?
To buy bitcoin, you typically follow different steps including choosing a bitcoin wallet, a cryptocurrency exchange, verifying your identity, depositing funds, placing an order and securing your bitcoin.
It is important to note that there are many digital wallets including online, mobile, desktop and hardware, which are used to store bitcoin. You should always use a reputable cryptocurrency exchange like Coinbase, Binance, Kraken and Gemini by creating an account on any of these.
Conclusion
In today’s article, I have explained how Bitcoin works and tried to address other important issues related to the topic in a simple manner. I have made it easily understandable, even for those of you without a technical background or negligible knowledge to be able to grasp the content easily. I am very much certain that after closely reading this article, you will know more about Bitcoin and how it works than vast major of the people.
Thanks for reading my article and stay connected for more such valuable information in the future.