How does Bitcoin Work?
Understanding all about Bitcoin, History, characteristics, pros, and cons
Bitcoin is a cryptocurrency that is used and exchanged electronically. Cryptocurrency means digital currency and Bitcoin is the first ever successful cryptocurrency. These are neither printed currency nor will be available physically. Also, Bitcoin cannot be owned by anyone. And so it is a decentralized peer-to-peer electronic cash system. The amount of Bitcoin is limited too. As of now, 21 billion Bitcoin can be created and about 16.7 million are already in use.
The idea behind developing a successful cryptocurrency existed for a long time. Cryptographers tried to figure out a medium of exchange that is private and independent of banks. This is to safeguard people and the country during unexpected financial crashes. Now, discussing the history of Bitcoin, it was first released in the year 2009. Bitcoin came to the world in the form of open-source software by some anonymous programmer or a group of programmers. Yet they were called by the name Santoshi Nakamoto. The very first narrative value of Bitcoin was posted on a whitepaper on October 31, 2008. This listed the working of Bitcoin and later the Bitcoin.com domain was registered anonymously. This marked the advent of Bitcoin.
How Bitcoin controls?
It is believed that Santoshi Nakamoto moved on leaving Bitcoin work with the assistance of the other programmers. He also named a person named Gavin Anderson as the lead developer somewhere in 2010. So after that, Gavin had a clear focus for not letting the independence of Bitcoin system dilute. That actually is the sole purpose of using Bitcoin. People get full control over their money and transaction. Hence, there is no organization or person who controls Bitcoin usage. Yet the transactions done through this system stay transparent and safe because of the Bitcoin Blockchain. This Blockchain is a widespread public ledger that stores every single transaction made.
How does Bitcoin run?
To understand the functioning of Bitcoin, we must be more clear with the concept of Blockchain. The Bitcoin network uses a public ledger called Blockchain. This is a vast network that combines every transaction record into blocks. The ledger is extremely stable because even when someone tries to alter one letter or number it can be detected. Since it is open-source software that is public anybody can rectify such issues.
The process of combining transactions into blocks done through Bitcoin network is also termed as mining. Every mining takes about 10 minutes to finish. The network keeps a check if the transaction takes place with Bitcoin only. There is an exclusive wallet for Bitcoin users that verifies and validates every transaction taking place. The verification process is possible with the digital signatures of the user.
The main characteristics of Bitcoin are given here.
- Easy initiation: Bitcoin is very simple to set up. The opening of banks takes a long time with so many papers and identity proofs to submit. Also, people can start using their bank account much later from the date of opening. Credit cards, debit cards and understanding their working does take a while. A Bitcoin account can be started in no time. There are no tiring procedures or questions too.
- Decentralized: Bitcoin uses the process of mining. It is not owned either by the government or any private organization. By this process, every transaction is recorded in a Blockchain. All computers using Bitcoin mining work together 3under this Bitcoin Blockchain. This is also the network on which new Bitcoin can be released. So no authority can question how many Bitcoin a person has, it cannot be confiscated when a country goes bankrupt.
- Anonymous process: The transactions happening under the blockchain network is completely anonymous. The address in which an individual owns Bitcoin is saved in the blockchain and cannot be accessed by anyone. When the address is unknown, the identity of the beholder stays anonymous. Also, one person can create a different address that is not linked with his/her name. This is to avoid large transactions from one address alone. Tracking of one address in the big linkage is tedious and therefore transactions are secured.
- Quick transactions: Anybody having a Bitcoin address can make the transaction from anywhere. The process includes verification by the blockchain and there is no additional transaction fee too.
What can you purchase with Bitcoin?
Just like printed currencies has a value, Bitcoin has a specific value. A few companies have stepped forward to accept Bitcoin as a means of exchange. In the early days, Dell announced that it will accept payments through this method. Later, Microsoft also started accepting Bitcoin for its products. Airlines like AirBaltic and Air Lithuania, bottle beer company like Honest Brew and the UK Theatre Tickets Direct are some of the other organizations accepting Bitcoin.
Nowadays you can buy properties, play and bet online Casino, pay donations for a noble cause with Bitcoin. Hotels payments, restaurant or bar bills, coffee places, small businesses and dating site registrations use this mode too.
Bitcoin has become the latest trend for investing also. Investing in Bitcoin has become popular because of its increasing value. One Bitcoin holds the value of about 3,750 USD. This rate keeps increasing and is hence inviting more people to invest.
How can you get Bitcoin?
The quickest way of acquiring Bitcoin is through buying them. You can get them using cash, debit card or credit cards. Before that creating your Bitcoin wallet is important. The online wallet and software wallet based on hardware may lead to insecurity. Therefore the most efficient way is still Bitcoin mining. You can mine Bitcoin on computer or even use mining devices to get earn them.
Does Bitcoin recognize with pyramid scheme?
When you invest in Bitcoin, it is most likely recognized with the pyramid scheme. Also, many other digital currencies work based on this scheme only. The pyramid scheme is when an investor gets profit based on their own money or by the money invested by fellow investors.
For Bitcoin investments, the gaining of profit is a little different from other digital currencies. This is because of the limited number of Bitcoin available. When more investors for Bitcoin increase, the number decreases and therefore enhancing its value in the market. Thus it not entirely based on the standard pyramid schemes.
Advantages and Disadvantages of Bitcoin
Being the most successful cryptocurrency ever, Bitcoin has its own advantages and disadvantages. Here are some of the prominent pros and cons.
Major Pros of Bitcoin:
- Low transaction cost: When compared to any other digital currencies, Bitcoin has the least transactions cost.
- Greater liquidity: Bitcoin can be easily converted to USD or Euro. Thus you can get increased value for your investment.
- Acceptance: Bitcoin is widely used by various business firms and accepted for buying different commodities.
- Privacy: The Bitcoin wallet stays private to the user and tracking them from the entire Blockchain network is not possible.
- Non-organizational: It is not dependent even on the developers or programmers of Bitcoin. There is complete security of it as there is no political or government intervention.
- Increased demand: The availability of Bitcoin is limited which expands the demand and value.
Some Cons of Bitcoin:
- Non-refundable: Once you transact Bitcoin, it cannot be got back unless the person wants to send it back.
- Extensive price swings: This is due to the increasing scam cases in the Bitcoin network. Fluctuations in prices have multiplied for Bitcoin.
- Delayed transactions: The transactions happen all over the world, so sometimes the transaction may get delayed.
Bitcoin is being used extensively by many people around the world. Millions of people are earning huge amounts of money through Bitcoin. Although it has some disadvantages or risks, Bitcoin is the safest form of cryptocurrency. Certain risks are unavoidable, yet Bitcoin still is the greatest form of digital currency.