First, what is Bitcoin? Wikipedia defines it as a public electronic currency issued and controlled via the Internet. It is “virtual currency” that can be exchanged between users through the Internet. In simple terms, it’s “online currency”. The best way to describe it is that instead of dealing with a government 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 the way a typical “real world” wallet functions. You transfer funds from your “real life” account to your bitcoin wallet. This is essentially transferring money from your wallet to the wallet of the recipient. There is no need to deal with any intermediaries, making the transaction more convenient and faster. A typical transaction would look like that I provide you with my email address, you give me your telephone number and you give me your email address. All that is actually happening is that we exchange a thing (your email adress) in exchange for something (your phone number).
Let’s look at how something like an actual currency functions. Let’s say that I’d like to purchase a cup of coffee because I am in town for a business event. To purchase the coffee I’d need to first open an account at the local coffee shop. At that point, I could hold my coffee until I get to my meeting, at which time I’d pay for my coffee with my real-world bank account.
Let’s say I’m traveling to a country that doesn’t have access to a traditional banking system, such as London. What do I do? Simple, because the bitcoin network acts as digital currency, I can buy my fuel using any digital currency I choose. For example, if I want to travel to London using the pound, I could do so using the Euro or the USD. The great thing about this is that while it might have a high exchange rate, because there is no central government that governs these currencies, it acts like a very strong currency as there are no known threats to its value.
What happens between all these transactions? The transaction actually takes place between all the entities involved with the transaction, also known as “miners”. These entities are the ones that ensure that everything is running smoothly. The “mining” process is what makes transactions happen and keeps the entire network secure. In the case of the bitcoin network, this is accomplished by having users join the bitcoin mining pool, where they pool their resources, and together they increase the speed at which new blocks are mining.
Now that we understand the workings behind the scenes, how can we determine if transactions are being monitored or if they are being “minted?” Blockchain technology, a revolutionary technology that is designed to make all mining activity transparent, is actually in use. It works as follows once a person creates a block, they add it into the existing ledger, referred to as the “blockchain” together with all other transactions that took place during that period of time. Each transaction is recorded and uploaded to the computer system of the particular ledger. This allows you to know in a glance how many people have been making and the amount they’ve spent.
Although it sounds fantastic in theory, there’s one issue that everyone must be aware of. Since there’s no physical product, there is no way for anyone to examine the transaction history of a person. If they find something suspicious, they can simply report it, but since the transaction is stored on the Blockchain it is not verified whether or not it’s valid. Only way to protect transactions is to use a computer that is offline like an offline paper wallet. There are online sites that will take care of this for you if you don’t want to perform your transaction from the internet.
The bitcoin transaction system is basically an application that allows users to ensure that they can be traced via their transactions. This makes it nearly impossible for someone to duplicate spend or alter the amount of money spent by someone else’s transactions without being noticed. Unfortunately, not every computer is able to support this technology, which means that some of the most famous names in the field right now are missing out on making the leap into the new technological age of computing power. However, there are a lot of developers trying to create software that will allow even the most basic computers to make transactions on the internet. Once the protocols are available to the general public it will be easier for people to transfer money from one wallet to the next and to make use of their computing power to drive around the world using their bitcoins instead of traditional currencies.
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