First, what exactly is Bitcoin? Wikipedia describes it as a electronic currency that is created and managed over the Internet. It is “virtual currency” that can be exchanged between users through the Internet. In layman’s terms, it is “online currency”. The best way to describe it is that instead of dealing with a government agency or an institution that deals with money when you conduct an online transaction, you are exchanging money directly on the Internet and there is no third party involved.
Let’s begin by letting us take a look at how a typical “real world” wallet works. When you transfer funds from your “real world” account to your” bitcoin wallet” that is in essence transferring the money from your wallet to your recipient’s wallet. There is no need to go through any intermediaries, making the process easier and quicker. A typical transaction would be You provide me with your email address, I give you your phone number, and you give your email address. So, what’s happening is that we are exchanging a thing (your email address) for a thing (your phone number).
Now let’s take a look at how something like a real world currency works. Let’s say I’d like to buy a cup of coffee since I am in the city for a meeting. What I would do is to open up an account at the local coffee shop and use their card that is prepaid to purchase the coffee. From there, I could hold my coffee until I arrive at my appointment, at which time I’d pay for my coffee with my real world banking account.
But let’s say that I’m travelling to a location where I’m not connected to the 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 using any digital currency I want to use. For example, if I want to travel to London using the pound, I can do so by using the Euro or the USD. This is the best thing about it. Although it may have a high currency rate, there is no central government to regulate these currencies. It acts as a solid currency since there aren’t any threats to it.
What happens in between these transactions? The transaction actually takes place between all entities involved in the transaction, known as “miners”. These entities are what keep the entire system running. The “mining process” is what makes transactions happen and ensures that the network is secure. This is done by inviting users to join the bitcoin mining pool. They pool their resources and increase the speed at the which new blocks are mined.
Now that we know what’s happening behind the scenes, how can one tell if they’re “minted” or if their transactions are being tracked? There’s a new technology being developed called “blockchain technology” which aims to make the entire mining process transparent. The basic principle is this way: when someone creates a new block they add it to the existing ledger known as the “blockchain”, along with all of the other transactions that occurred during that time. Every transaction is recorded and uploaded to the computer system that is associated with the particular ledger. This allows you to see the exact amount of transactions a person has made and how they’re spending them.
Although this sounds good in theory, there’s one issue that everyone should be aware of. There is no physical item therefore it is not possible to examine the transaction history of a person. They can report suspicious transactions, but it is impossible to determine whether the transaction is valid or not. The only way to safeguard transactions is to use a computer that is offline like an offline paper wallet. If you do not want to conduct your transactions online, there are plenty of websites that can assist you.
The new bitcoin transaction system allows people to track their transactions via a protocol. This makes it almost impossible for someone to duplicate spend or alter the amount of money spent by someone else’s transactions without being seen. This new technology isn’t compatible with all computers, and so some of the biggest names in the field have missed the chance to take the leap to the next era of computing power. However, there are a lot of developers working on software that can let even the simplest of computers to access the network. When the protocols are made available to the public it will be simpler for users to transfer money from one wallet to another and to use their computing power in order to travel around the globe using bitcoins instead of traditional currencies.
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