First, what exactly is Bitcoin? Wikipedia describes it as a public electronic money that is created and managed through the Internet. In simple terms, it’s “virtual money” that is transferred 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 engage with a government agency or financial institution when you make an internet transaction. Instead of dealing directly with them, you trade money online and there’s no third party.
To begin , let us take a look at the way 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. You do not have to pass through any intermediaries, which makes the transfer quicker and more convenient. A typical transaction would look like that I provide you with my email address, then you give me your telephone number and you send me your email address. Therefore, all that is happening is that we exchange something (your email address) for a thing (your phone number).
Now let’s take a look at how something like an actual currency functions. Let’s say I’d like to purchase a cup of coffee because I am visiting the city for a meeting. What I would do is to create an account at the local coffee shop and then use their prepaid card to make the purchase. I could then keep my coffee until I arrive and then pay using my actual bank account.
Let’s say I’m traveling to someplace where I don’t have access to an established banking system, for instance, London. What do I do? Simply put the bitcoin network functions as a digital currency. I can buy fuel using any digital currency I choose. If I wish to travel to London using the pound I can use the Euro or the USD. The best part about this is that, although it might have a high exchange rate, because there is no central government that regulates these currencies, they function as a strong currency as there are no known threats to the value.
As for what happens in between all of these transactions? The transaction is actually conducted between all of the entities involved in the transaction, called “miners”. These entities are what keep the entire system functioning. The “mining process” is what makes transactions go through and ensures that the network is secure. This is accomplished by inviting individuals to join the bitcoin mining pool. They pool their resources and improve the speed at the that new blocks are mined.
So now we know what goes on behind the scenes, how does one know if they’re being “minted” or if their transactions are being tracked? There’s a brand new technology being developed known as “blockchain technology” which aims at making the entire mining process transparent. It works in this way: Once someone creates a block, they add it to the ledger, which is known as the “blockchain” along with all other transactions that were performed during the time. Every transaction is then monitored and recorded to the computer system of the specific ledger. This allows you to view precisely how many transactions an individual has completed and how they’re spending them.
While this may sound great in principle, there’s one problem with the system that everyone should be aware of. There is no physical product which makes it impossible for anyone to look at a person’s transaction history. They could report suspicious transactions however, it’s impossible to prove whether the transaction is legitimate or not. The only way to ensure that transactions are secure is to use an offline computer such as an offline paper wallet. There are even some online websites that will do this for you, in case you don’t wish to perform your transaction from the internet.
The new bitcoin transaction system enables people to track their transactions through a protocol. This makes it virtually impossible for someone to double spend or alter someone else’s transactions without being noticed. This new technology isn’t compatible with all computers, which means that some of the most prominent names in the field have missed the opportunity to make the leap into the next generation of computing power. However, there are many developers developing software that will allow even the most basic computers access to the network. When the protocols are accessible to the general public, it will be much easier for users to transfer their cash from one wallet to the next, as well as to use their computing power to travel across the globe using bitcoins instead of traditional currencies.
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