Everything You Need to Know About Bitcoin
- by Vandan-Khambhata
- Jan 07, 2021 15:05
Bitcoin is a cryptocurrency; it is a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than to rely on a central authority. The transfer of this currency is like sending an e-mail or text message to a person. To send a bitcoin, a wallet app is used (app: 'Bitcoin Wallet'), the amount to be sent is typed in the wallet app and type the details for the recipient( account number in this case), and you have sent the bitcoin which can later be converted to fiat currency.
Let's take the hypothetical case of Mr. X and Mr. Y. X pays 5 bitcoins to Y, X's balance is reduced by 5 bitcoins, and Y's increases by 5. This transaction, when completed will be shown in a public ledger. This ledger is maintained by Bitcoin’s public network. When X filled in the relevant details and pressed send, the bitcoin network receives a message from X and the message says that Y is being sent so and so a number of bitcoins by me. If some thief can replicate that message and send it to the bitcoin network, then he might be able to steal X's money i.e., bitcoins. But this message cannot be replicated because each message comprises a unique signature, after encrypting this unique signature, the message is sent to the Bitcoin network so that it is impossible to replicate.
Cryptocurrency uses a system of cryptography (AKA encryption) to control the creation of coins and to verify transactions. Cryptography, in layman's language, means the art of writing and solving codes. So, each letter/ word/ any component of the language can be mapped to arbitrary characters, letters, pixels, and numbers so that it is not readable without the proper key. When X sent the message to the bitcoin network, the bitcoin account has two keys, i.e. private key and public key. So, the message sent uses both private and the public key. The ledger comprises both the public key and the encrypted information from the X's side. Every transaction uses a different encrypted code. Therefore, it is called a cryptocurrency.
Features of bitcoin:
- Bitcoin is a currency that is not tied to a bank or government and allows the users to spend the money anonymously.
- No single institution controls the bitcoin network. It is analogous to an online version of cash. Many products and services can be bought by it.
- Bitcoin network controls the bitcoin. Bitcoin network comprises the common man who uses bitcoin, and anybody can become a part of it. To understand this network, we must understand the Bitcoin Public Ledger.
- All confirmed transactions from the start of Bitcoin's creation are stored in the public ledger. This complete record of the transaction is a sequence of records called blocks.
The maintenance of the ledger takes up a lot of resources. It solves many vital issues. The incentive to maintain this ledger and to perform such an important task would pay you in the form of bitcoins. They will have the privilege to mine the bitcoins.
Miners install software for bitcoin, this software, by utilizing the power and resources, computes numerous mathematical algorithms. After computing these algorithms, the software provides a reliable algorithm to the ledger. The ledger will use these algorithms to solve the complexity of maintaining it.
Why are bitcoins valuable?
There are a lot of things other than money which we consider valuable like diamonds and gold. The Aztecs used cocoa for money!
Bitcoins are valuable because people are willing to exchange them for real goods and services and even cash. Countries such as Russia and Japan moved to legitimize cryptocurrency. But they can do so because most of their economy has 'white' money and ours (Indian) run on a considerable amount of 'not so white' money, so it would not be suitable for our economy as people would use them to convert them from 'not so white' to white. Japan has passed the law on bitcoin as a legal payment method. Russia is reportedly looking into ways to regulate bitcoin.
Is it anonymous?
Yes, to a point. Transactions and accounts can be traced, but the account owners are not necessarily known. However, investigators might be able to track down the owners when bitcoins are converted to regular currency. But the people might be able to spend that money online and might be impossible to trace.
- With bitcoin, it is possible to be able to send and get money anywhere in the world at any given time.
- You are in control of your own bitcoin.
- There is no central authority figure in the bitcoin network.
- With the blockchain, all finalized transactions are for anyone to see.
- The fact is many people are still unaware of digital currencies and Bitcoin.
- Bitcoin has volatility because there is a limited amount of coins (21 million bitcoins), and demand for them increases with each passing day.
- Bitcoin is still at its infancy stage, with incomplete features that are in development.
- A key is a unique alphanumeric password necessary to access a bitcoin wallet. Losing that key essentially means losing your wallet. However, most current wallets have restore and backup mechanisms, but obviously, the user needs to set them up before being able to use them.
Currently, at the moment, The Reserve Bank of India had imposed a ban on cryptocurrency trading in April 2018 that barred banks and other financial institutions from facilitating “any service in relation to virtual currencies”, though the future of cryptocurrencies still seems to be shrouded in the mist because of legislative uncertainty.
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