First, what is Bitcoin? Wikipedia describes it as a public electronic money that is managed and issued through the Internet. In layman’s terms, it is “virtual money” that is transferred over the Internet between users. It is also known as “online currency”. It is best to explain it by explaining that you don’t have to deal with a government entity or financial institution when you make an internet transaction. Instead of dealing directly with them, you can exchange money online, and there’s no third party.
Let’s first look at the way that a typical “real-world” wallet functions. You transfer funds from your “real life” account to your bitcoin wallet. This basically means that you transfer money from your wallet to the wallet of your recipient. There is no need to pass through any intermediaries, which makes the process more convenient and faster. A typical transaction would look like this: I give you my email address, you send me your telephone number and you give me your email address. What is happening is that we exchange a thing (your email adress) for something (your phone number).
Now let’s take a look at how something like a real world currency works. Let’s say I want to buy a cup coffee because I am visiting the city for a business meeting. To purchase the coffee I’d need to first sign up for an account at the local coffee shop. I could then hold my coffee until I get there and pay with my actual bank account.
But let’s say that I’m travelling to a location where I don’t have access to an established banking system, like London. What should I do? Simply put, the bitcoin network acts as a digital currency. I can purchase my fuel with any digital currency I want to use. For instance, if I want to travel to London using the pound, I could do so with the Euro or the USD. This is the great thing about it. Although it may have a higher rate of exchange but there isn’t a central government to regulate these currencies. It acts as an extremely secure currency since there aren’t any known threats.
What happens in between these transactions? The transaction is actually conducted by all the entities involved in the transaction, referred to as “miners”. These entities are what ensure that everything is running smoothly. The “mining” process is what makes the transactions go through and also what keeps the entire network secure. In the case of the bitcoin network, this is accomplished by allowing people to join the bitcoin mining pool, where they pool their resources and together, they boost the speed at which new blocks are mining.
Now that we have the specifics behind the scenes, how do we find out if transactions are being tracked or whether they are “minted?” Blockchain technology, a new technology that seeks to make all mining activity transparent, is actually in place. The process is this way: when someone mines a new block, they add it to the existing ledger which is known as the “blockchain” together with all other transactions that took place during that period of time. Every transaction is recorded and recorded to the computer system for the particular ledger. This lets you see exactly how many transactions someone has made and how they’re spending their money.
While this may sound great in theory, there is one issue that everyone should be aware of. Since there is no physical product, there’s no way for people to examine the history of transactions made by a person. If they find something suspicious, they can declare it, but because the transaction is recorded on the Blockchain the Blockchain, it can’t be proved whether or not it is legitimate. The only way users can protect their transactions is by performing their transactions on a separate computer, such as an offline paper wallet. There are even some online sites that will take care of this for you in case you don’t wish to conduct your transaction on the internet.
This bitcoin transaction system is basically a protocol that people use to allow themselves to be traced via their transactions. This makes it almost impossible for anyone to duplicate spend or alter the amount of money spent by someone else’s transactions without being noticed. However, not all computers can support this new technology, and some of the most famous names in the field today aren’t making the leap into the next technological age of computing power. However, there are many developers developing software that can let even the simplest computers to connect to the internet. When the protocols are made accessible to the public it will be simpler for users to transfer money from one wallet into another and to utilize their computing power in order to drive around the globe using bitcoins instead traditional currencies.
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