Bitcoin evolution is one of the fastest growing industry today but, what it is really and how does it work? Do you know that bitcoin has been existing since 2009? It is defined as the virtual banking currency used on the internet. It is also the world’s first digital currency. Today, everyone gets curious and wants to be involved in this digital currency. Furthermore, miners play a great role in Bitcoin. The miners are the backbone of the bitcoin and without the miners, Bitcoin would collapse and lose all its value. In this article, you will learn the basics of bitcoin and how bitcoin works. You will get the exact process of how secondly currency flows.
Bitcoin was launched in 2009 is the world’s first decentralized digital currency. But, the definition is not enough and still leaving a huge question mark in everyone on how bitcoin works though there are lots of explanations provided. A mysterious person by the pseudonym Satoshi Nakamoto launched the bitcoin industry. The goal of Nakamoto is to provide a way to exchange tokens of value using the Internet without relying on second intermediaries like banks. Bitcoin was not yet established by that time and worst until late 2013 where it falls to less than half of its high round. Fortunately, bitcoin was able to do a rebound after three years since it fell. Now, people are able to see the good points behind how bitcoin works without having a central monetary authority which bitcoin pursued several years ago.
What it is and how bitcoin works?
Bitcoin means electronic currency or otherwise called as cryptocurrency. In layman’s term, bitcoin is the digital public money. It is electricity converted using long strings of code with monetary value and produced by millions of computers known as “miners.” How bitcoin works through the use of miners follow a consistent process and unlike traditional currencies, it has no central banks. With BTC there is no need to give your real name and no need to pay transaction fees. If you’re eager to learn everything about BTC and how bitcoin works, you can get started even without understanding the technical details.
Why Use Bitcoin Instead?
Bitcoin takes the power of how central federal banks make money and send it to people making it highly controversial. Despite controversies, why you should still use BTC? The process on how bitcoin works in buying merchandise is very impressive. Plus, BTC can make easy and cheap international payments for it is not associated with any country or subject to any regulations. Other means on how bitcoin works are its function known as satoshis. At this point, BTC can be used to buy and sold in return for traditional currency. Bitcoin’s versatility is so enormous that it can either be transferred across the internet using appropriate software and vice versa. This makes bitcoin as a potentially attractive currency but does not messes out with exchange rates and bank charges from all parts of the world.
How To Acquire Bitcoins
There are three ways you can try to acquire Bitcoin that completely help you understand how bitcoin works. First, you can buy BTC on an exchange, second is through transfer and third is through mining. Bitcoin exchanges like Mt. Gox has widespread marketplaces on the Internet allowing people to buy or sell BTC in different currencies. Another way to acquire Bit coin is through mobile apps transfers. People can send bitcoins to each other using computers or mobile apps. The process is somehow similar to sending digital cash. The last method that completes how bitcoin works are through mining. Mining bitcoins is the most popular way to acquire BTC using computers that solve complex math puzzles. BTC mining is the process how bitcoins are created where the winner gets 25 BTC rewards in every 10 minutes.
The Mining Process
When BTCs are mined, it is stored in what is called, “digital wallet.” This digital wallet which is stored in the user’s computer or in the cloud storage continues the ways on how bitcoin works. The wallet serves as a virtual bank account which allows the users to send and receive BTCs for buying, saving or paying. However, BTC wallets are not secured by FDIC compared to traditional bank accounts. There are lots of people who want to get into bitcoin industry, but, don’t know how bitcoin works. Because of this, BTC has to make sure that the coins cannot be easily acquired so they make block creation rate to increase and lessen the average mining time.
To further understand how bitcoin works through the mining process, it is first necessary to understand what is bit coin blockchain. The blockchain records all bitcoin transactions in blocks or linear and time-stamped series of bundled transactions. The blockchain is a public ledger which is then freely shared, under no central control and is continually updated. Authors of “Blockchain Revolution” (2016) Don & Alex Tapscott said that the “Blockchain is an incorruptible digital ledger of economic transactions programmed to record almost everything of virtual value.” BTC was also called “digital gold” for good reason where blockchains make other types of digital value.
To elaborate further how bitcoin works through the BTC mining process, take for instance two situations. For instance, John and Scott are two BTC users, and John wants to buy some goods from Scott. Then¸ John would have to send 1 BTC to Scott for him to avail the goods he wants to purchase. The transactions between John and Scott would have to be verified first before getting into the next process. How bitcoin works in the decentralized computational process serves two purposes. First, it is used to confirm transactions in a trustful manner when there is enough computational power or effort devoted to blocking. Second is it creates new bitcoins in each block.
Going back to the situation of John and Scott, the second mining process which follows the procedure on how bitcoin works will now proceed on an announcement. When the process secondly, John will now announce the 1 BTC payment to Scott. This is the transaction or sometimes called as the “tx”. The transaction is now broadcast to as many full nodes as possible for John to connect with Scott’s wallet. Full node is a special, transaction-relaying wallet. It maintains the current copy of the entire blockchain. At this point, the transactions will be bundled in a block before moving on to the next step.
When the transaction had been broadcasted on Scott’s end, Full Nodes will then check John’s spend against other pending transactions he has. This mining process is called Propagation. How bitcoin works in this process needs an evaluation that there are no conflicts or John didn’t cheat. Full Nodes is responsible for broadcasting the transaction across the entire BTC network, but the transaction has not reached the gate of the blockchain. The transaction should be confirmed first by miners before Scott send any goods to John. Miners play a great role in the process of how bitcoin works through confirming the transaction.
4. Processing by Miners
The process on how bitcoin works involve the miners to confirm the transactions. Miners are responsible for completing the copy of the blockchain as well as monitor the network for new transactions. Miners would then race each other to complete the transaction of John and Scott, making a “package” of the current block. How bitcoin works in this process should be carefully taken through solving the proof of work problem. There should a solution to a Proof of Work known as a hash. If a miner has more computing power, the greater the odds and the higher the hash rate.
5. Blockchain Confirmation
The last part of how bitcoin works through the mining process rewards the toughest and the first miner to solve the block which has the payment of John to Scott. Once the Full Nodes agreed that the block is valid and the solution is found, the new block is added to the block chain and refreshes the entire process. This is also the time when the pending payment gets of John to Scott is confirmed. Upon confirmation, Scott’s goods can now be sent to John.