First, what is Bitcoin? Wikipedia defines it as a”public electronic currency that is managed via the Internet. In simple terms, it’s “virtual money” that is exchanged over the Internet between users. In simple terms, it’s “online currency”. It is best to explain it by saying that you don’t need to deal with a government entity or financial institution when you conduct an internet transaction. Instead of dealing directly with them, you can exchange money online and there’s no third party.
Let’s begin by looking at the way that a typical “real-world” wallet works. You transfer funds from your “real life” account to your bitcoin wallet. This is basically transferring money from your wallet to the wallet of your recipient. You don’t have to deal with any intermediaries, which makes the transfer easier and quicker. An example transaction would be: You give me my email address, I send you your number, and you give your email address. All that is actually happening is that we exchange a thing (your email adress) for something (your phone number).
Let’s look at how something like a real world currency works. Let’s say that I want to buy a cup of coffee because I’m in town for a meeting. The first thing I’d do is to create an account at the local coffee shop and then use their card that is prepaid to purchase the coffee. From there, I could hold my coffee until I arrive at my meeting, at which time I would pay for my coffee with my bank account in the real world.
Let’s say that I’m travelling to a location that is not connected to a traditional bank system like London. What should I do? Simply put, the bitcoin network acts like a digital currency so I can buy fuel using any digital currency I choose. For example, if I intend to travel to London using the pound, I can do it by using the Euro or the USD. The best part about this is that, although it may have a higher exchange rate, since there is no central government that governs these currencies, it acts as a highly secure currency as there are no known threats to the value.
What happens between these transactions? The transaction is actually between all the entities involved in the transaction, known as “miners”. These entities are what keep the system working. The “mining” process is what makes transactions happen and keeps the entire network secure. In the case of the bitcoin network, this is done by allowing people to join the bitcoin mining pool, where they pool their resources and together they increase the speed at which new blocks are mined.
Now that we know what happens behind the scenes, how can one tell if they’re “minted” or if their transactions are being monitored? Blockchain technology, a brand new technology that is designed to make all mining activities transparent, is actually in use. It works this way: Once someone mines a block, they add it into the existing ledger, referred to as the “blockchain” together with all other transactions that took place during that time. Every transaction is recorded and logged on to the computer system that is for the specific ledger. This lets you see the exact amount of transactions a person has made and how they’re spending them.
This sounds good in principle however there’s a major problem with this system that everyone has to be aware of. Since there is no physical product, there is no way to actually look into the transaction history of a person. They can report suspicious transactions, but it is impossible to prove whether the transaction is legitimate or not. The only way to ensure that transactions are secure is to use a computer that is offline like an offline paper wallet. There are even some online sites that will perform this for you, if you don’t want to perform your transaction from the internet.
The bitcoin transaction system is basically a protocol that people use to let themselves be tracked via their transactions. This makes it nearly impossible for anyone to double spend or alter someone else’s transactions without being noticed. This new technology isn’t compatible with all computers, so some of the most prominent names in the field are missing the chance to take the leap to the next phase of computing power. There are many developers working to create software that can allow even the most basic computers to use the internet to conduct transactions. When the protocols are made available to the general public, it will be easier for people to transfer cash from one wallet into another and use their computing power in order to travel around the world using bitcoins instead traditional currencies.
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