First, what is Bitcoin? Wikipedia defines it as a”public electronic currency that is controlled via the Internet. In simple terms, it’s “virtual money” that is transferred over the Internet between users. It is also known as “online currency”. It is best to explain the concept by saying that you don’t need to engage with a government agency or financial institution when you make an internet transaction. Instead of dealing directly with them, you trade money online and there is no third party.
Let’s begin by letting us look at how a typical “real world” wallet functions. You transfer funds from your “real life” account to your bitcoin wallet. This is basically transferring money from your wallet to the wallet of the recipient. The process is quicker and easier because you don’t have to go through intermediaries. A typical transaction would be the following: I send you my email address, you give me your telephone number and you provide me with your email address. All that is actually happening is that we exchange a thing (your email address) in exchange for something (your phone number).
Let’s look at how something like an actual currency functions. Let’s say that I’m looking to purchase a cup of coffee because I am in town for a business event. What I would first do is open an account at the local coffee shop, and then use their prepaid card to purchase the coffee. I could then keep my coffee until I arrive and pay with my real bank account.
But let’s say I’m going to a place where I’m not connected to a traditional banking system, for instance, London. What do I do? Simply put the bitcoin network works as a digital currency, so I can buy fuel with any digital currency I want to use. If I wish to travel to London using the pound I can use the Euro or the USD. This is the great thing about it. Although it may have a high currency rate however, there is no central government that can regulate these currencies. It is an extremely secure currency since there aren’t any threats to it.
What happens between all these transactions? The transaction is actually conducted between all the entities involved with the transaction, referred to as “miners”. These entities are what keeps everything running smoothly. The “mining process” is what makes transactions go through and keeps the network secure. In the case of the bitcoin network, this is accomplished by having users join the bitcoin mining pool, where they pool their resources, and together they increase the speed at which new blocks are mining.
Now we know what goes on behind the scenes, how can one determine if one is being “minted” or if their transactions are being tracked? There’s a brand new technology being developed called “blockchain technology” which aims at making the entire mining process transparent. It works in this way: Once someone is mining blocks, they then add it to the existing ledger, which is known as the “blockchain” along with all other transactions that took place during the period of time. Every transaction is then recorded and uploaded to the computer system that is associated with the particular ledger. This lets you see at a glance exactly how much money people have been making and the amount they’ve spent.
While this may sound great in theory, there is one flaw with the system that everyone should be aware of. There isn’t a physical product which makes it impossible to examine a person’s transaction history. If they discover something that is suspicious, they can simply report it, but since the transaction is on the Blockchain it is not verified whether or not it is valid. The only way to ensure that transactions are secure is to use a computer that is offline such as an offline paper wallet. There are online sites that can take care of this for you in case you don’t wish to perform your transaction from the internet.
This new bitcoin transaction system is basically an application that allows users to let themselves be traced via their transactions. This makes it nearly impossible for anyone to alter or double spend on other people’s transactions. This new technology is not compatible with all computers, so some of the most prominent names in the field aren’t getting the chance to take the leap into the next generation of computing power. There are, however, numerous developers who are trying to create software that will enable even the most basic of computers to make transactions on the internet. When the protocols are made available to the general public, it will be much easier for people to transfer money from one wallet to the next, as well as to use their computing power to drive around the world using their bitcoins instead of traditional currency.
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