Have you heard of the so-called bitcoin? It is the latest hype among the investors, traders and consumers especially in the Internet marketing industry. But what is it? Read further to find out.
You may have heard of it and may even own a bit of it in your possession but do you really know what is the virtual currency or how does it work? Well, if you are still in doubt regarding this very intriguing topic, allow us to explain briefly what is the basic concept behind the use of bitcoins. The most significant thing to note about the bitcoins is that it is not a physical currency or item but rather is processed electronically through the Internet.
The very basic function of what is the bitcoin is to be a form of electronic money that is processed through the use of the Internet. In other words, transactions can be done securely, instantly and at a cheaper price by way of the bitcoins. The major characteristic that distinguishes the bitcoins from other forms of electronic money is that transactions made with it are recorded in a block chain. Block chain is a record of all transactions that are going on in the system.
This is considered as the backbone of the bitcoin. As you may have guessed already, what is bitcoins is also called the bitcoin protocol. The protocol of the bitcoins ensures that the transaction is valid and notarized. Transactions are secured through various methods depending on the method adopted. For instance, digital signatures are used to sign the transaction while proof-of-work (POW) is the primary method of securing the network.
On the other hand, proof-of-work (POW), which is a kind of security measure applied in the bitcoin network, is basically a virtual, physical piece of paper that is used as a guarantee for the security of a specific transaction. The proof-of-work is created using mathematics, specifically with the help of an algorithm. The bitcoin ledger is actually a public ledger that is accessible for everyone to see. However, this is just one among the many types of ledgers that are used in the bitcoin system.
The bitcoin and the distributed ledger came into partnership when it comes to recording every transaction that is conducted using the bitcoins. This makes the ledger a distributed ledger because it is updated regularly, making it possible to trace all previous transactions. The bitcoin is based on a peer-to-peer theory, which basically means that transactions are carried out solely by the users themselves without the need of any third party. All the transactions that are conducted on the bitcoin go through the miners who control the scarce supply of bitcoins. This is how the bitcoin works.
There is also another aspect that you should be aware of when talking about the mining of bitcoins. This is called centralization. It is important to understand that when a certain number of people start to control the distribution of bitcoins, the tendency of the system to get centralized will be threatened. The centralization of the bitcoin can be prevented through a complex process known as “proof of work.”
In this process, the miners are asked to prove that they have been mining for long enough to cover the costs of generating the bitcoins. In order for the miners to convince the government, they must be able to show that their main source of income is from actually earning profits from the selling and trading of the bitcoins rather than from the actual creation or invention of the bitcoins. In fact, anyone can claim to have mined the bitcoins. And if the bitcoins are then valued at a higher rate, they can actually withdraw from the exchange and get real cash. But remember, if there is no proof of work, the bitcoins will be worthless and therefore the value of the bitcoin will be reduced. This is why you should make sure that you will be properly earning the right amount of bitcoins to be able to keep your account balance right.
