Bitcoin does not require any trusted central authority for online payments because this technology is invented as a peer-to-peer system. And Bitcoin is one of the most advanced technology which is used to make online transactions. Bitcoin has various faces like it is known as the most advanced technolgy. The best way to build a community of users, a unique type of currency and an investment vehicle for the whole world. Basically, first-time people heard about bitcoin in 2008 and it is was the starting of bitcoin. Today, we will do a complete study about bitcoin like what is bitcoin, how it works like technology and how it is useful for us.
There are various ways to make an online transaction in today’s digital world. One thing which we should make sure that nobody should make the same payment by mistake. Currently, a trusted central authority like PayPal is one of the best options to make a successful transaction and verify it. But now bitcoin has solved all our problems and it is one of the best innovation in terms of online payments. Bitcoin uses peer-to-peer technology to ensure and verify successful transactions. Once payment is made through bitcoin, it can not reverse into sender account, accounts cannot be frozen and most important point is the lowest transaction fee.
Quick Bitcoin HIstory
Person Behind invention of most advanced technology i.e. Bitcoin is Satoshi Nakamoto in the year 2009. Thought behind this invention is to create a new system for electronic cash transactions which is totally decentralized and has no central authority over it. After 2011, Bitcoin comes to market and it is well known to the bitcoin community. It is a complete depth study about bitcoin.
Bitcoin Transaction Properties:
- Irreversible- Once a transaction is done, it can not be reversed in any condition. Even the sender can not reverse the payment, not your bank and even father of bitcoin can not reverse the payments. If you have send payment by mistake or send to a scammer then you have lost your money because it is irreversible. Even if someone hacked your computer and your bitcoin wallet then also there is not safe for it.
- Pseudonymous- Rather than bank account bitcoin is received at addresses which is very complicated to remember and made up to randomly arranged characters. There is no link between real-world identity and bitcoin transactions or its accounts. We can only able to analyze the flow of our transaction and other than it we will not get anything.
- Fast and globe- Once a transaction is made in bitcoin then it will be propagated instantly and will confirm within a few minutes. Bitcoin transactions take place in the global network of computers and it has no relation to our physical relationship. The distance between sender and receiver does not matter in bitcoin transactions.
- Secure- Cryptography system with the public key is used to lock bitcoin funds. If you are having a private key then only you can send cryptocurrency. Due to complicate big numbers and strong cryptography, it is impossible to break the bitcoin transactions. One thing you should remember that bitcoin address is much more secure and safe as compared to our bank account transactions.
- Permissionless- Those people who want to make a transaction in bitcoin, they do not need to take permission from anyone. Just download and install the bitcoin wallet. Now you are eligible to send or receive the bitcoins or other cryptocurrencies. There is no boundation to use Bitcoin wallet.
Transactions- Private Keys
In simple words, we can understand that transaction is the process of transferring some values in between bitcoin wallets with the help of blockchain technology. In every bitcoin wallet, we will get a private key and without it, we cannot perform transactions. It is also used to prevent our transaction from being altered by the third party in between. All the bitcoin transaction begins to conform within 10-20 minutes through a process which is known as mining.
How does one ‘mine’ bitcoin?
Mining of bitcoin is simple and it can be done by a person or group just by doing some advanced maths and keeping their records. But the question arises that how it works. Whenever someone sends bitcoin from one wallet to another wallet then at that time network records that transaction in a block, all the other transactions perform during that period of time. Some computer which is running special software i.e. miners write down all these transactions in a gigantic digital ledger. And we all know that collection of these block is known as blockchain. It is a record of all the transactions that have made and these records are openly accessible for everyone.
After that we can convert these block into a sequence of code which is known as “hash” and this can be only possible through specialized software and increasingly powerful hardware. Now the main game starts, we need serious computational power and thousands of miners to produce a hash. More the hash we have, more bitcoin we will mine. A new hash is placed at the end of blockchain and after that, it is available to publicly after some updating and propagation. As time passes, miners are increasing day by day and due to this, we people are getting the lesser price of one bitcoin which we mines.
Who controls Bitcoin?
Earlier we have already discussed that there is no person or central authority who controls the bitcoin. There were various programmers who give their valuable time to develop open source Bitcoin software and if there is any scope of some changes then it is possible only by the permission of lead developer Gavin Andresen. After that, it totally depends on individual miners to choose whether he/she wants to install the new version of the software or he/she will still stick to the old version, it is essentially “voting” with their processing power. The changes in the bitcoin software totally depend on miners by keeping in mind the good things for bitcoin currency in the future. Because of all these things, it is almost impossible to manipulate bitcoin.
There are three different application that we could use.
- Full client- This application is not for beginners and we can easily control the complete transaction from beginning to end by herself. Without relying on third-party servers, it is one of the best email servers that can easily handle all aspects of the process.
- Lightweight client- It is also a standalone email client which access to a mailbox for connecting a mail server. It can easily store our bitcoin, but to make the transaction and to access the network, it requires a third-party- owned server.
- Web client- It is another important application and it is totally opposite of “Full client” and resembles webmail in that it totally relies on a third-party server. Finally, our whole transaction is to be controlled by the third party.
Currently, there are 5 types of bitcoin wallets are available in markets like desktop, mobile, web, paper, and hardware. Each type of bitcoin wallet is available with its own advantage and disadvantages.
What determines the value of a bitcoin?
Value of bitcoin work like stocks and its value totally depends on at what rate people pay for it.
A limit has been established that only 21 million of bitcoins can be mined only and this is done by Satoshi Nakamoto. Currently, around 12-13 million of bitcoins has been already mined. Now A question is definitely arises in your mind that why we can not mine bitcoins more than 21 million. There are thousands of numerous mathematical and economic theories are given to explain its limit(21 million bitcoin only). This is the only one important point which makes bitcoin totally different from stocks.
Satoshi Nakamoto was just a business plan at an early age, Bitcoin turned it into a business that worth’s billions. Apart from this, Dozens of more technology pioneers and investor who just invested a small amount in bitcoin and tried bitcoin mining and now they are millionaires. Taking facts, The Winklevoss twins who invest their 65$ million payouts from Facebook into a venture that made some investments in the early age of bitcoin, are now counted under billionaires.
How do I buy and sell stuff with bitcoins?
One of the funniest thing with bitcoin is that we can not trace our transaction physically like dollar transaction. In terms of bitcoin transactions, we can only see the records of the transaction between different addresses, or increase and decrease of our Bitcoin wallet balance which is stored on the blockchain. So in the case of bitcoin, we have to be more serious.
Let us understand how the process works with the help of an example:-
Let us assume that we want to use our bitcoin to buy some product from the shop. Then we have to send them our private “key”, which is a private sequence of letters and numbers and it also contains source transaction of the coins, amount and shop’s digital wallet address. Every time the address is different. Now, the shop will scan the private key with the help of their smartphone and will decode it. Simultaneously, our wallet’s transaction will connect with all the network participants and within few minutes transaction will be conformed after passing through some technical and business rules like mining. The mining process gives the shop’s owner a message of whether he/she has to process with our wallet’s transaction.
What do We need to know to protect our bitcoins?
There is much advice which we should follow to keep our bitcoins safe and secure. All these things will help us to move our bitcoins further.
First things which you should remember that always keep only a small amount of bitcoins in your computer, mobile and remaining funds in a more secure place.
- Always keep your smartphone with a much more stronger password so that you can protect it from thieves. And try to backup your wallet on a regular basis for safety.
- Always keep your software up to date and use bitcoin’s multi-signature features which will allow a transaction to be verified at various places.
- If possible then store your bitcoin into an offline wallet and keep disconnected from the network with proper security. Put your bitcoin in wallet whenever you require.
Where can we find Bitcoins?
If you are planning to buy bitcoin then, first of all, you should read all these things. We can get our bitcoin from any of the given bellow places. So have a look at it.
- The most basic place from where we can buy bitcoin and other cryptocurrencies i.e cryptocurrency exchanges. Few of the popular exchanges are coinbase, Binance.
- Another important source is Bitcoin ATM where we can easily convert our bitcoin into cash and vice versa.
- Even we can also sell a product or service and can take bitcoin in place of it.
- Even there is a lot of classified services where we can easily find the best seller who can help us to buy or sell bitcoin for cash.
How does blockchain work in the case of Bitcoin?
You should be aware that bitcoin is the first cryptocurrency which is base on blockchain technology. Basically, it was invented by a person or group of a person which is known as Satoshi Nakamoto. The main purpose of bitcoin is to store the value in it. It allows us to perform transactions which are based on the peer-to-peer method and in this we need not take help of the third party.
So let us understand how blockchain works with the help of bitcoin blockchain. As we have already discussed that bitcoin blockchain is nothing other than a database which only consists a record of all the bitcoin transactions. As we also know that there is no central location available which hold the database and it is only shared across the huge networks of computers. If a new node is going to add into the database then, first of all, it must be agree that the transaction is real and valid. All these things occur during the process of mining. Once it is confirmed that transaction is real then that new block is added to the previous block of the transaction in the ledger. But we have to know that for a transaction to be valid, the computers on the network must be confirmed the following things:-
- The first thing which is very important that the sender’s account should have the amount of bitcoin which the user wants to send.
- That particular amount should not be already sent to someone else and it found then the transaction will be failed.
Let us understand this thing with the help of an example. Imagine Pitter tries to send $ 10 of bitcoin to Smith. But the problem is that Pitter has only $5 worth of bitcoin in his wallet and he does not have funds to transfer to send total $10 to Smith. So this transaction will not be a valid transaction and it will not be added to the ledger.
So with this example, we can understand that nobody can send money twice of the same amount. It is a big problem for most of the standard banks and payments systems.
What else do we need to know?
There are a few things we should know before processing any bitcoin transaction which is given below.
- Protect your address- Although it correct that our identity behind any bitcoin address is totally safe and secure. We all know that bitcoin is one of the safest public forms of the transaction with anyone on all network. So we should try to change our bitcoin addresses with each transaction which we have recently performed. We can one thing that we can use multiple wallets and can divide our funds into them according to our requirements. This will keep our transaction history safe from all the senders.
- Your confirmation score- After making a transaction of bitcoin, we will get complete confirmation after minutes and this confirmation timing also depends on wallets which we are using.
- Government taxes and regulations- First of all note one thing that the legal status of bitcoin varies from country to country. Some of the countries are still banning bitcoin and other cryptocurrencies. Few of the country has given some rules and regulation of its use and transaction. But every country takes the tax on your income which is generated from bitcoin or something else.
What is the disadvantage of Bitcoin?
Given below are the most common disadvantages of bitcoin which we have seen till now.
- A most important disadvantage is that it has gone into wrong hand who are claiming an apocryphal person i.e. Satoshi Nakamoto as its founder. Nobody has seen him.
- Currently hacking and scams are normal in the world of internet. On an average at least once a week such hacking and scams activities happen, due to which people are frustrating.
- Another big problem is that bitcoin’s software complexity and volatility of its currency.
- Bitcoin transactions are also very slow and we have to wait for at least 10 minutes for a transaction which is also frustrating people.
There are many types of scams which occurs in Bitcoin are given below:-
today, we will only discuss the top most famous scams in bitcoin like Ponzi schemes, mining scams, scam wallets, and fraudulent exchanges. So let us understand one by one.
- Ponzi scams- In such type of scam, scammers offer high-yield investment programs like they give a high rate of interest as compared to other resources like 1-2% interest per day. All these things are nothing but just a way to take our money into scammers account. Always keep away from such companies and keep your funds into a safer place.
- Bitcoin mining scams- In such scams, some fake companies offer you the high speed of mining which will help you to get a high amount of bitcoin in very less time. But for that, you have to pay the amount in bitcoin and it is nothing other than a scam.
- Bitcoin Exchange scams- There are fake exchanges which attract people by providing advanced features as compared to other existing exchanges like we can buy bitcoin with PayPal which not possible. Those people who are not aware of all these things get to hang in these scams.
- Bitcoin wallet scams- Another most important scam which is getting popular now a day. Some hackers create a copy of wallets and make it similar to other wallets and as soon as you make any transaction into these wallets will leads to lost your funds.
What are the advantages of Bitcoin?
Now at the end of complete study about bitcoin, let us discuss the advantages of bitcoin.
- The most important feature of bitcoin is that it is decentralized which means that we can easily make the transaction at an international level at lesser charges.
- It is also free from government interfaces and manipulations. So there are zero changes in the increasing interest rate on it.
- And we know that it is totally a transparent technology in which you will be aware of what is happening with your money.
- It is also an advanced technology which will get huge popularity in the future.
- We can receive money as soon as we step up our bitcoin wallet. And it does not require any money or energy.