Bitcoin is a global cryptocurrency and a digital payment system. All you need is a computer or a smartphone to carry out Bitcoin transactions because fundamentally it is a software. An open source software, visible to each one of us.
In late 2008, Satoshi Nakamoto, the unknown inventor of bitcoin, said he developed “A PEER-TO-PEER ELECTRONIC CASH SYSTEM”.
The unique feature of his invention was that he found a way to build a Decentralized Digital Cash System. Decentralized platform means no central or government authority controls such form of currency. Under this cryptocurrency, every peer or person carries the complete history of all transactions and thus of the balance of every account.
It allows you to transfer money from one person to the other without exercising the third party like banks.
It is the best kind of money better than any previous form of money. Here is the reason WHY?
Know more about Bitcoin
How does Bitcoin work?
By now, most of us know what is bitcoin but the major question arises is How does bitcoin work?
Let’s consider we are in a classroom and you require a coin. I have a coin with me and so I offered it to you. Being a physical coin you can touch it and the transaction is visible. The process was quite easy; we didn’t need a third party to help us carry out the transfer. Nor we needed a third party to confirm the transaction.
The coin is yours! And you can do anything you want to do with it. If you want to exchange it for goods or send it to your friend, it is completely your decision.
Let’s consider the same situation and instead of offering you a physical coin I offered you a digital coin. Now? It’s not visible to you and neither you have touched it, so how are you so sure that I offered you a coin. A digital coin is intangible they are just like computer files that can be duplicated. So how are you so sure that I offered that coin only to you and I didn’t send the same to any other friend as an e-mail attachment first?
Here comes the problem. As you could see sending a physical coin is just not like sending a digital coin. This issue is called double-spending. Double spending is an error under which the same single digital token or coin is spent twice or more.
Bitcoin solves this problem. Satoshi Nakamoto, the unknown inventor of bitcoin designed a cryptocurrency that could resolve such an issue.
The technique of recording all transactions in a book called ledger was exercised. In cryptocurrency world, we call such a ledger as Blockchain. Instead of keeping the ledger to a single authority, Blockchain was visible to everyone. All the transactions that ever happened will be recorded in it.
You can’ cheat it because when a purchase or exchange is carried out, the ledger records it and sends it out to the entire network.
Next, comes the step for confirmation. Instead of having a central administrator, blockchain organizes data in batches referred as Blocks. These blocks are like pages of the ledger. These data batches exercise cryptographic validation to link themselves. The moment purchase or exchange takes place, computers all over the world compete to confirm the operation by solving complex math equations. These people who confirm such transactions by solving complex math equations are called miners and in return are allotted Bitcoins as a reward.
The confirmed block is timestamped and added to a chain in chronological order. This process continues as and when any transaction takes place and Blockchain is continually updated.
Fast Peer-to-Peer Transactions
Low Processing Fees