Let’s first define what Bitcoin is. Wikipedia defines it as a”public electronic currency that is managed via the Internet. In the simplest terms, it is “virtual money” that is exchanged over the Internet between users. In simple terms, it’s “online currency”. The best way to describe it is that instead of dealing with a government or an institution of finance when you conduct an online transaction, you exchange money directly through the Internet and there is no third person involved.
Let’s look at how a typical “real-world” wallet functions. You transfer money from your “real life” account to your bitcoin wallet. This basically means that you transfer money from your wallet to the wallet of your recipient. The process is quicker and simpler because you don’t have to go through intermediaries. A typical transaction would be this: I give you my email address, you give me your phone number and you provide me with your email address. Therefore, all that is happening is that we are trading a thing (your email address) in exchange for something (your phone number).
Let’s look at how something like a real world currency works. Let’s say I want to purchase a cup of coffee because I am visiting the city for a business meeting. What I would first do is open an account at the local coffee shop and then use their card that is prepaid to make the purchase. From there I could put off my coffee until I arrive at my appointment and then I’d pay for my coffee using my real world banking account.
But let’s say I’m going to a place where I’m not connected to an established banking system, like London. What do I have to do? Simply put the bitcoin network functions as a digital currency, so I can buy fuel with any digital currency I want to use. For instance, if intend to travel to London using the pound, I could do so by using the Euro or the USD. The best part about this is that, although it may have a higher exchange rate, because there is no central government that governs these currencies, it behaves as a strong currency because there aren’t any known threats to its value.
As for what happens in between all of these transactions? The transaction is actually between all entities involved in the transaction, known as “miners”. These entities are what keep the system functioning. The “mining” process is what makes transactions happen and keeps the whole network safe. This is accomplished by inviting people to join the bitcoin mining pool. They pool their resources and improve the speed at the that new blocks are mined.
So now that we know what’s happening behind the scenes, how can one determine if one is being “minted” or if their transactions are being tracked? There’s a new technology in place called “blockchain technology” that aims to make the whole mining activity transparent. It works in this way: Once someone creates blocks, they then add 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 tracked and logged on to the computer system that is associated with the particular ledger. This makes it possible to see at a glance exactly the amount of money that people have been making and how they’re spending them.
It’s a good idea in theory however there’s one big issue with this system that everyone needs to be aware of. Since there’s no physical product, there’s no way to look into the transaction history of a person. If they find something suspicious, they are able to declare it, but because the transaction is stored on the Blockchain it is not verified whether or not it is legitimate. The only way that people can protect their transactions is to conduct their transactions on an offline computer, like an offline paper wallet. There are even online sites that can take care of this for you in case you don’t wish to make your transaction via the internet.
The new bitcoin transaction system allows people to track their transactions via a protocol. This makes it nearly impossible for anyone to double spend or alter another’s transactions without being noticed. However, not all computers can support this new technology, which means that some of the most prominent names in the field today are missing out on making the leap into the next technology of computing power. However, there are a lot of developers working on software that will allow even the simplest computers to connect to the internet. When the protocols are made accessible to the general public it will be simpler for people to transfer money from one wallet into another and to utilize their computing power in order to travel around the world using bitcoins instead of traditional currencies.
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