BITCOINS: ALL YOU NEED TO KNOW ABOUT THEM
Bitcoin is a cryptocurrency that works on peer to peer basis or better known as a peer to peer electronic cash system. The word ‘Cryptocurrency’ means that it is an electronic or digital currency that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Transactions are made without any middle men which means that no banks are involved and hence known as a decentralised system having no central authority over it. The Bitcoin network first came into light in 2009 created by an unknown person or a group of people using the alias Satoshi Nakamoto but the domain was registered early in August 2008 named as bitcoin.org. Next what is the most noteworthy is, how we can earn these bitcoins. We need to know what mining is, to clearly understand how we can earn bitcoins.
What is mining?
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain & protects the neutrality of the network. It also allows different computers to agree on the state of the system. Transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network to be confirmed. These rules prevent previous blocks from being modified because doing so invalidate all following blocks. Moreover, mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. No individuals can control what’s included in the block chain or replace parts of the block chain to roll back their own spends this way.
How can you earn bitcoins?
Bitcoins can be bought at bitcoin exchanges using different currencies. Coinbase is a leading exchange along with bitfinex and bitstamp. India too has its own bitcoin exchange centres located across the country. Bitcoin isn’t illegal in India but there hasn’t been any clear cut regulations regarding digital currency whether it is legal or not.
Bitcoins can be earned by mining using computer processing power. It involves solving complex puzzles and creating algorithms to secure the blockchain. Miners keep the blockchain consistent, complete and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block. Basically, a blockchain is a computer file that records bitcoin transactions. The difficulty level of solving the problem is very high and involves high computational mathematics and programming. One key note is that unlike paper currency here, there is a limit up to which the bitcoins can be mined. The blockchain is designed such that there can be a maximum of 21million bitcoins in production and circulated. Reports say that more than 75 percent of the total cap is already in circulation.
The Bitcoin transfer process:
Bitcoin transactions are sent from one electronic bitcoin wallet to another and are secured digitally. Bitcoins do not physically or digitally exist anywhere, not even on a hard drive. There are only records of transactions between different addresses with balances that increase or decrease. Every transaction is stored in a public ledger called as a blockchain. The bitcoin wallets have a security pin known as a private key to sign transactions, providing a proof that it has come from its owner. A bitcoin transaction will have three parts namely ,
1. An input: This is a record of which bitcoin address was used to send the bitcoins to another user.
2. An amount: This is the amount of bitcoins that one user sends to the other.
3.An output: This is the receiver’s bitcoin address.
Once the bitcoins are transacted from the senders address, it is then sent to the wider bitcoin network where the miners verify the transaction. Thereby putting it into a blockchain and eventually solving it. Bitcoin has its own advantages. Bitcoin transactions are divisible. A satoshi is one hundred millionth of a bitcoin. Moreover, It is possible to send a transaction as small as 5430 satoshis on the bitcoin network. Bitcoins can be used to buy merchandise anonymously. International payments are easier and not subjected to any regulations but above all, it is bought as an investment hoping that its value keeps on increasing. Since there exists a limit upto which the bitcoins can be mined its value keeps skyrocketing day by day.
This is a very brief and simple summary of the system. If you want to know much more in detail, refer: https://bitcoin.org/bitcoin.pdf which is the first paper published by the bitcoin network.
……………This article doesn’t encourage the use of bitcoins nor supports its agenda and is purely based on facts and information available on the internet……….