First, what exactly is Bitcoin? Wikipedia defines it as a public electronic currency that is issued and controlled via the Internet. It is “virtual currency” that can be transferred between users over the Internet. It is also referred to as “online currency”. It is best to explain it by saying that you don’t need to deal with a government entity or financial institution when you conduct an online transaction. Instead of dealing directly with them, you can exchange money online, and there’s no third party.
Let’s first look at how a typical “real-world” wallet functions. When you transfer funds from your “real world” account to your” bitcoin wallet”, you are basically transferring money from your wallet to the recipient’s wallet. There is no need to pass through any intermediaries, which makes the process easier and quicker. A typical transaction would be I give you my email address, I send you your phone number, and you provide me with your email address. What actually happens is that we exchange something (your email address) in exchange for something (your phone number).
Let’s look at how something like a real world currency works. Let’s suppose 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. From there I could put off my coffee until I reach my appointment at which point I would pay for my coffee with my real world banking account.
Let’s say I’m traveling to a country that doesn’t have access to a bank system like London. What should I do? Simply put the bitcoin network works like a digital currency so I can purchase my fuel with any digital currency I like. If I wish to travel to London with the pound, I can do so using the Euro or the USD. This is the best thing about it. While it could have a high currency rate but there isn’t a central government that can regulate these currencies. It functions as an extremely secure currency since there aren’t any known threats.
What happens between all these transactions? The transaction actually takes place between all the entities involved in the transaction, known as “miners”. These entities are the ones that keep the system working. The “mining process” is what makes transactions go through and secures the network. This is done by inviting people to join the bitcoin mining pool. They pool their resources and increase the speed at the that new blocks are mined.
Now that we understand the details behind the scenes, how do we know if the transactions are being monitored or if they are being “minted?” There is actually a new technology being developed known as “blockchain technology” which aims at making the entire mining process transparent. It works as follows when someone mines blocks, they deposit it into the existing ledger, which is known as the “blockchain” along with any other transactions that were performed during the time. Every transaction is then recorded and uploaded to the computer system of the specific ledger. This makes it possible to see at a glance exactly the amount of money that people have been making and how much they’ve spent.
This sounds good in theory, but there is one major problem with this system that everyone needs to be aware of. There is no physical product therefore it is not possible for anyone to look at a person’s transaction history. They could report suspicious transactions however, it’s impossible to determine whether the transaction is legitimate or not. The only way people can protect their transactions is by executing their transactions using an offline computer, like an offline paper wallet. If you don’t wish to do your transactions online, there are a variety of websites that can help.
The new bitcoin transaction system enables people to track their transactions via a protocol. This makes it virtually impossible for someone to double spend or alter the amount of money spent by someone else’s transactions without being noticed. This new technology isn’t compatible with all computers, and so some of the biggest names in the field have missed the opportunity to make the leap into the next phase of computing power. However, there are a lot of developers developing software that can let even the simplest computers to access to the network. Once the protocols are made accessible to the public it will be much easier for people to transfer money from one wallet into another and use their computing power in order to travel around the globe using bitcoins as opposed to traditional currencies.
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