Bitcoin is a digital currency also known as cryptocurrency, though many people think of it as stock, Bitcoin is more like a currency that you can use to buy and sell something.
People buy Bitcoin as the value of a Bitcoin has increased a lot, and it is certainly expected that the value will increase even more in the coming year, so in the hope of getting more profit, people get themselves some Bitcoins in their wallets (digital wallet).
Let's know how this cryptocurrency work and a bit about the transaction process.
How Does Bitcoin Work?
Bitcoin work as a medium for the exchange of goods. It is similar to the physical currencies which we see across the world. The difference is that no government can rule or regulate Bitcoin.
All the information regarding transactions is public. To get your first Bitcoin, you need a Bitcoin wallet from which you will get an address that can only be used once.
The address is used for adding or removing of
Bitcoin from the wallet and gets deleted once it is used. For another transaction, the wallet provides a new address. There is a system that stores each transaction, called a blockchain.
What you can do with bitcoin?
- As a medium to buy or sell goods/services (Xbox games, car).
- Exchange bitcoins with someone.
- Earn more through mining.
About blockchain:
Blockchain is like a locker that consists of all the transactions made for or by Bitcoin and it plays a role in verification and authentication.
Each transaction is secured by a digital signature as well as the addresses which we talked about above.
Though you need to pay to get Bitcoin which makes it look like stock. But think in this way that you are going abroad and you have to convert your home country currency to that of the country you are going to visit.
You can view bitcoin as an international digital currency. The working of bitcoin is actually faster than debit and credit cards as there is no need for a merchant to have an account. It does not have a banking system, which makes it pretty faster.
Though bitcoin is quite volatile, its value keeps on fluctuating. But volatility makes it more profitable.
There must be someone who controls bitcoin, right?
It's a kind of democracy, Bitcoin users control the Bitcoin network, while the developers keep updating and bringing new features.
As it can be controlled by Bitcoin users, to keep it stable, all follow the same rules to protect the consensus. It is similar to a democratic country where citizens have the right to change the leader or keep it.
Bitcoin is secured as long as the honest network is larger than the attacker's network.
How do transactions in Bitcoin work?
We characterize an electronic coin as a chain of computerized marks.
Every proprietor moves the coin to the next by carefully marking a hash of the past exchange and the public key of the following proprietor furthermore, adding these to the furthest limit of the coin.
Hash: It transforms one value to another. Hash is a common function in computer science and it is used in cryptocurrency, data indexing, etc.
A payee can check the marks to confirm the chain of possession. The working of bitcoin transactions is not too complicated to understand.
About Bitcoin Transaction (process)
Transaction of bitcoin work in this way:
Input ~> Amount ~> Output
1. Input is a record of the address from which we can know how the person who is going to send bitcoins to another person received that before.
2. Amount is the quantity of bitcoin a person wanted to send to another person.
3. Output is a receiver's public address.
Anyone can view the public address, but only a person with a private key can get access to the funding. In other words, bitcoin is publicly secured.
Public address is also referred to as public key. It is made up of extremely long alphanumeric string.
The private key is not meant to be shared with those who cannot be trusted, be it your very close one. A private key should be physically present with you in case you lost the digital one.
The transaction is done systematically and is computerized, for instance, you can view this diagram about the working of bitcoin transactions.
