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2019-01-11 17:52:26

What is Bitcoin?

bitcoin logo

Most people identify Bitcoin as a symbol or a ponzi.

In reality Bitcoin is a cryptocurrency. As it is a cryptocurrency it does not exist in a physical form instead it exists as a piece of code. Some people refer it it as a form of electronic cash.Indeed it has value.

As Bitcoin represents value it can be traded in specially designed exchanges known as cryptocurrency exchanges.

History of Bitcoin

Bitcoin dates back to 2009 the year of its birth. The creator of Bitcoin is believed to be Satoshi Nakamoto a software developer. The true identify of Satoshi Nakamoto is not known.

Some believe it to be the pseudo name of an individual cryptocurrency developer or that of a team working collectively to develop Bitcoin.

Bitcoin Explained

Bitcoin is decentralised: This means there is no central authority overlooking the operations of Bitcoin.

As per Bitcoins white paper Bitcoin is a A Peer-to-Peer Electronic Cash System.

What this means is that it is a method by which value or Bitcoins can be transferred from one person to another without the intervention of any central controlling agency.

These transactions are tracked or logged on an online ledger known as a Blockchain.

This blockchain logs each and every Bitcoin transaction that happens.

In the Blockchain each Block is based on a data structure that is in turn based on encrypted Merkle Tree.

This implementation helps to prevent any data corruption and prevents any fraudulent transactions from entering into the blockchain.

The difference between Bitcoin and Money

In the case of Money that is printed by the government however when it comes to Bitcoin the Blockchain programming uses its underlying algorithm to decide  when and how many Bitcoins are needed to be produced.

The Blockchain also ensures the accuracy of the Bitcoin transactions.

Unlike fiat money which can be produced endlessly by the government, Bitcoins supply is capped to 21 million.

Bitcoin can be sub divided into sub parts as small as 0.00000001 Bitcoins. This smallest unit is called a Satoshi. This ability to subdivide the Bitcoin helps its users transfer small parts of the Bitcoin.

How Bitcoin transactions are verified

The verification of Bitcoin transaction is a rigorous process that involves individual volunteers also referred to as miners.

The miners running their high computing devices verify the transactions and keep updating the Blockchain. Once a sufficient number of transactions get completed the transaction gets authenticated.

This constant verification system gives the Bitcoin Blockchain its authenticity and robustness making it work effectively even in the absence of a central authority controlling the Blockchain.

Bitcoin Mining Explained

One method of transaction verification is to assign the task of transaction verification to a entral processing server however in the case of Bitcoin the responsibility is distributed and assigned to each person who is the part of the network.

Bitcoin works on POW or proof of Work or the proof that a minimum amount of energy  spent in finding the solution.

In order to support the Blockchain and earn Bitcoin rewards the miners assign their mining rigs to solve complex mathematical problems.

These mining rigs are high tech computing devices specially designed for this purpose.

Whichever miner solves the complex mathematical problem  submits the verified block to the blockchain.

As a reward for this work the successful miner is rewarded with Bitcoins in accordance to a pre-built reward system built into the Blockchain algorithm.

This reward changes over time. This is in accordance to the Bitcoin's programming that causes the Bitcoin mining rewards to be halved after every few years.

The current reward for mining a Bitcoin block is 12.5 Bitcoins.

The next Bitcoin mining reward would be halved around 25th May 2020.

Where to store your Bitcoins

Exchange Wallet: Most people who trade Bitcoins on Cryptocurrency exchanges need to hold their Bitcoins in Exchange provided Bitcoin addresses.

This is convenient from the trading point of view however since most of these exchanges control the private keys of the user wallet hence it is not advisable to use these wallets in the long run.

Popular Bitcoin Wallets

The safest wallets to store the Bitcoins are the cold wallets that are not connected to the nternet.

Examples of Cold wallet are

- Hardware wallets: These are physical devices that store the private keys safely. they are not connected to the internet and so cannot be hacked.

Ledger Nano S, Trezor, Keepkey etc are popular hardware wallets.

- Paper wallet: Here the private key or seed is written or printed on to a paper which is kept securely.

- Brain wallet : Here a user memories the seed phrase and in this keeps the Bitcoin keys safely in the mind.

-Hot wallets: These are the most commonly used wallets. These are the wallets connected to the internet.Wallets on the desktop, tablet or the mobile phone are all examples of hot wallets.

Mobile wallets

These wallets are present on the mobile phone. They store the private keys on the mobile phone itself. Since the mobile devices are at the risk of been stolen, broken or lost hence these wallets are not very safe.

However due to the ease of use they still remain to be very popular.

The advantages of using Bitcoin

Decentralized Money: Bitcoin as good as real money which people can use to buy, sell and trade.Bitcoin takes the control of money away from central banks and governments and gives the control to the people.

Freedom to carry and use Money: Anyone can carry unlimited amounts of monetary value in the form of Bitcoins in their Bitcoin wallet and carry to any part of the world without any restriction.

Security and Anonymity

Sine no real information is associated with a Bitcoin address the Bitcoin transactions are partially anonymous.

Low Transaction fee as compared to Bank cards.

The fee to send Bitcoin is relatively low as compared to the fee a bank card charges. Bank cards charge typically 2.5% or higher fee. The fee amount goes up in the proportion to the amount being transacted.

Blockchain ledger is immutable: Every Bitcoin transaction is logged on to the Blockchain ledger and canned be hidden or erased.

Disadvantages of Bitcoin

Depending upon the location of a user some Governments and law authorities are against the use of Bitcoins.

Lack of acceptance by businesses:

Bitcoins are gaining popularity however not all businesses accept them. Once Bitcoin gets acceptance and gets to be used as real money everywhere around the world that would be the real victory for cryptocurrency

Risk of Exchange hacks

Popular cryptoexchanges are at the risk of getting hacked and this puts a users funds getting lost if the exchange holding the funds were to be hacked.

Bitcoin transactions are irreversible

Once you send out money from your wallet there is no way to get it back. So one needs to be careful and validate the details before sending out the Bitcoins.

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