How works Bitcoin ? Full Guide

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease because it means that a large bank can’t control their money.

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.

Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. some people just buy bitcoins as an investment, hoping that they’ll go up in value

How works Bitcoin?
Since no bank is involved so when a person A transfers bitcoin to another person B, all the information is recorded in a public ledger(block), known as the Blockchain. The new block is added to a ledger at every 10 minutes. This ledger records all of the transactions that has taken place since the last ledger.

 For transferring bitcoin, person A have its own private key of his own wallet and gets the public key of person B wallet. Every bitcoin wallet can have one or many public keys that can be distributed to everyone but can have only one private key which only the owner of that wallet can know. Both the keys are very long(27-51 characters long) and it's impossible that two wallet have the same key combination.

What is the value of one bitcoin today?

One bitcoin is worth roughly about $1,200 now. An early investor in Snapchat has been quoted on the Web as saying that by 2030, the value could be as high as $500,000. One of the reasons that could prompt you to buy a bitcoin today is not so much to use it for payment online but as an investment.

Urban legend has it that someone who was doing a thesis on cryptocurrency bought 5,000 bitcoins for $27 in 2009.
Do the math for the value today!

And unlike traditional currency that is inflationary in nature, the bitcoin is a deflationary currency. In other words, if there are only so many bitcoins in use, and the demand for those rises, the value of a bitcoin would, logically, rise.

A bitcoin is generated when an entity, i.e. a person or a business, uses software power to solve a mathematical puzzle that makes the blockchain more secure. The difficulty level of solving the problem is high enough to ensure that it takes time to do it.

What are the advantages of Bitcoin?

Though bitcoin has not become that popular as a currency, it could be a foundation for future revolutions in the payment a system which is faster, cheaper, and secure.

  1. It could become easier to carry out international transactions.
  2. It can be used in emerging countries with a dysfunctional financial system. An organization called Stellar is already using
  3. This technology in countries like Nigeria and Africa to provide affordable financial services.
  4. The technology used in blockchain could be used in other areas like transferring ownership of a property, debt, shares etc.
  5.  It will eliminate all intermediaries involved in such transactions. The organizations who want to replicate the blockchain technology can choose to keep the identities of the parties public.

What are the disadvantages of Bitcoin?

As it is anonymous, it has become a medium of transaction in illegal trade and drugs dealing.

  1. It can be easily used in money laundering.
  2. It is difficult to store bitcoin safely as the wallet can be hacked
  3. The transaction once done and recorded on blockchain cannot be rolled back
  4. If you lose your private key, you lose all bitcoins. There is no way of getting the key and the coins back
  5. Bitcoin is a highly volatile currency.