what is bitcoin?

What is Bitcoin, Bitcoin Mining and How Bitcoin Works?

what is bitcoin?

Ever since human civilization started evolving the way we transact or trade has also evolved tremendously. Initially we used to trade goods or services to goods or services. Then goods or services to gold and then goods or services to coins or germs. Finally paper currency got introduced so we started trading goods or services to money. Money has different values in different countries and is regulated by governments and financial institutions like banks. Because money has different value across the globe there is a lot friction involved in international transactions. For example when we do an international purchase you have to bear currency conversion charges and transaction charges. You can’t use your debit cards across globe unless it’s an international debit card.

What is a Bitcoin?

Having all those frictions discussed above some developers thought of introducing a digital currency that can be used everywhere without any middle men or transaction fee. That’s how Satoshi Nakamoto created Bitcoin in the year 2009. A Bitcoin is a peer to peer to electronic cash system or digital wallet. Bitcoin is a open source project, anyone can maintain or contribute to Bitcoin system or project. It uses hash programming which maps keys with values with matching puzzles.

How Bitcoin Works?

Every Bitcoin account holder will have a unique account number with their digital signature. Whenever bitcoin owner initiates any transaction along with account number and signature transaction message gets added and creates a unique code for that transaction. This transaction message enters a pool of transactions called blockchain. Each of these transactions will have associated puzzle. In order to complete the transaction one has to solve the puzzle. These puzzles are tricky and normal humans can’t solve these puzzles at this point of time.

What is Bitcoin Mining?

Bitcoin miners are trained professionals who actually maintain bitcoin system and solve puzzles to complete transactions. Every time a miner solves puzzle a new bitcoin gets generated in the system and transferred to the bitcoin miner as a reward. This process of solving puzzles to mine new bitcoins is called Bitcoin Mining. Puzzles become more complex based on puzzle solving rate. So is there control over the number of bitcoins? Yes bitcoins are limited to 21 million and it is expected to reach this number by the year 2140.

Bitcoin Advantages

  • Bitcoins can’t be stolen because it’s a digital or virtual currency.
  • Bitcoin transactions are irreversible. Once bitcoins are transferred, recipient becomes the new owner.
  • Bitcoin accounts are anonymous. No one knows who is the actual account owner.
  • No regulatory bodies like government or banks.
  • No taxes are levied on bitcoin transactions and also there is no or less transaction fee.

Bitcoin Disadvantages

  • Very few websites or businesses are accepting bitcoins as a currency.
  • Bitcoins are highly inflationary in nature. Value of bitcoin fluctuates.
  • Lack of governing authorities involves high amount of risk.
  • Because it’s an open source project anyone can exploit the software.

Conclusion

Bitcoin currency is pretty new to us, not many of us aware of this digital currency. Anyone can open bitcoin account by using bitcoin mobile app or software and start transacting. Bitcoin is now in it’s early stage, more developers should support the system to make it robust and hack proof.  So what do you think about this bitcoin currency, let us know in the comments box below 🙂

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