First, what exactly is Bitcoin? Wikipedia defines it as a digital currency that is issued and managed over the Internet. It is “virtual currency” that can be transferred between users over the Internet. In simple terms, it’s “online currency”. The best way to explain it is that instead of dealing with a government or an institution that deals with money, when you make an online transaction, you are exchanging money directly over the Internet and there is no third person involved.
Let’s look at the way that a typical “real-world” wallet works. When you transfer money from your “real world” account to your” bitcoin wallet” that is in essence , transferring the money from your wallet to the recipient’s wallet. You don’t have to go through any intermediaries, making the transaction easier and quicker. A typical transaction would look like that I provide you with my email address, you send me your phone number and you send me your email address. Therefore, all that is happening is that we are exchanging something (your email address) in exchange for a thing (your phone number).
Let’s take a look at how something like a real world currency works. Let’s suppose I want to buy a cup coffee because I am visiting the city for a business meeting. What I would do is to open up an account at the local coffee shop and use their prepaid card to purchase the coffee. At that point, 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 country that doesn’t have access to a traditional banking system such as London. What should I do? Simply put the bitcoin network functions as a digital currency. I can buy fuel using any digital currency I like. For instance, if intend to travel to London using the pound, I could do it with the Euro or the USD. This is the great thing about it. While it might have a higher rate of exchange, there is no central government to regulate these currencies. It acts as a strong currency because there aren’t any known threats.
What happens between all these transactions? The transaction is actually between all entities involved in the transaction, known as “miners”. These entities are what keep the entire system working. The “mining” process is what makes the transactions happen and ensures the security of the entire network. 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 speed up the rate at which new blocks are mined.
Now that we know the specifics behind the scenes, how do we determine if transactions are being tracked , or if they are being “minted?” Blockchain technology, a revolutionary technology that is designed to make all mining activities transparent, is actually in use. The whole thing basically is this way: when someone mines a new block, they add it to the existing ledger which is known as the “blockchain”, along with all other transactions that were conducted during that time. Every transaction is recorded and recorded to the computer system that is for the particular ledger. This makes it possible to see at a glance exactly how much money someone has been minting and how they’re spending them.
Although it sounds fantastic in theory, there’s one flaw with the system that everyone should be aware of. There isn’t a physical product therefore it is not possible to examine the history of transactions made by a person. They can report suspicious transactions, however, it’s impossible to verify 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 online websites that will take care of this for you if you don’t want to perform your transaction from the internet.
The new bitcoin transaction system allows users to track their transactions through the protocol. This makes it almost impossible for anyone to change or double spend on another person’s transactions. This new technology isn’t compatible with all computers, so some of the biggest names in the field aren’t getting the chance to make the leap into the next era of computing power. There are, however, many developers trying to develop software that will make it possible for even the simplest computers to use the internet to conduct transactions. When the protocols are accessible to the general public it will be easier for people to transfer their cash from one wallet to another and to use their computing power to travel around the world using their bitcoins instead of traditional currency.
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