First, what exactly is Bitcoin? Wikipedia describes it as digital currency that is managed and issued over the Internet. It is “virtual currency” that can be transferred between users via the Internet. It is also referred to as “online currency”. The best way to describe it is that instead of dealing with a government agency or an institution that deals with money when you conduct an online transaction, you exchange money directly through the Internet and there is no third person involved.
To begin , let us take a look at how a typical “real world” wallet works. When you transfer money from your “real world” account to your” bitcoin wallet” it is basically transferring money from your wallet to the recipient’s wallet. The transfer is quicker and easier because you don’t have to deal with intermediaries. An example of a transaction is I give you my email address, I give you your phone number, and you give your email address. So, what’s happening is that we exchange one thing (your email address) for a thing (your phone number).
Let’s look at how something like the real world currency functions. Let’s suppose that I’d like to purchase coffee since I am in town for a business meeting. The first thing I’d do is open an account at the local coffee shop and then use their card that is prepaid to make the purchase. From there I could put off my coffee until I get to my appointment at which point I’d pay for my coffee using my real world banking account.
Let’s say that I’m travelling to a location that is not connected to a traditional banking system, such as London. What do I have to do? Simple, as the bitcoin network acts as a digital currency, I can buy my fuel with any digital currency I choose. If I want to travel to London using the pound, I can do so using the Euro or the USD. The best part about this is that although it might have a high exchange rate, as there is no central government that oversees these currencies, it behaves as a highly secure currency because there aren’t any known threats to the value.
As for what happens in between all of these transactions? The transaction actually takes place between all the entities involved in the transaction, also known as “miners”. These entities are what keep the entire system running. The “mining” process is what makes the transactions occur and keeps the entire network secure. In the case of the bitcoin network, this is accomplished by having people join the bitcoin mining pool, where they pool their resources and together they increase the speed of new blocks being mined.
So now we know what goes on behind the scenes, how can one tell if they’re “minted” or whether their transactions are monitored? There’s a new technology being developed known as “blockchain technology” which aims to make the whole mining activity transparent. It works this way when someone creates blocks, they deposit it to the existing ledger, which is known as the “blockchain” together with all other transactions that were performed during that time. Every transaction is tracked and logged on to the computer system that is associated with the particular ledger. This allows you to see exactly how many transactions someone has made and how they are spending them.
Although this sounds great in theory, there’s one issue that everyone should be aware of. There is no physical item which makes it impossible for anyone to look at the transaction history of a person. If they find something suspicious, they can report it, but since the transaction is recorded on the Blockchain, it cannot be proved whether or not it’s legitimate. The only way users can protect their transactions is by performing their transactions on an offline computer, like an offline paper wallet. There are online sites that can perform this for you, if you don’t want to perform your transaction from the internet.
This new bitcoin transaction system is essentially an application that allows users to ensure that they can be traced via their transactions. This makes it virtually impossible for anyone to double spend or alter another’s transactions without being able to see. Unfortunately, not every computer can support this new technology, and some of the biggest names in the field today aren’t making the leap into the new technology of computing power. There are, however, a lot of developers working to create software that will allow even the most basic of computers to transact in the network. When the protocols are made available to the public it will be much easier for users to transfer money from one wallet into another and use their computing power in order to travel around the globe using bitcoins instead of traditional currencies.
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