What is Bitcoin and how it works

WHAT IS BITCOIN

 

From the perspective of a layman’s term: Bitcoin is a digital and global money system currency. This method allows people to send and receive money through the internet. The transaction can be between people who do not know each other, trust or even come across each other. The transaction can be done without a real identity. for instance, in Bitcoin core, a new address is assigned anytime one click on a new address.

Bitcoin is a cryptocurrency, Its one of the major cryptocurrencies transacted inform of electronic cash. They are coins stored in computers. The currencies are not physical and only exist in the digital world!. That’s the reason Bitcoin and other cryptocurrencies are often called digital currencies. It’s a digital currency that works like, peer to peer network. it’s decentralized, no middle person or any intermediary. Wikipedia.

PURPOSE OF BITCOIN

This process comes as a consensus network which enables a new payment system and completely digital money. Bitcoin is the first decentralized peer-to-peer or user to user payment system network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is very much like cash for the Internet. Bitcoin allows users total control of money transactions. it has no single authority. No intermediaries or middlemen such as government, banks, swift, Paypal who can interfere with your account. This type of new currency was created to offers client total authority since the government and banks etc had control over currencies. bitcoin was created to remove this type of middlemen.

HOW DOES BITCOIN WORK?

 

Three main concepts of bitcoin that are important in understanding how Bitcoin works:

Cryptography
Supply and Demand
Decentralized Networks

Cryptography

Bitcoin uses cryptography which has to do with conversion. it converts transaction data. Bitcoin uses cryptography to convert transaction data. It is just like when messages come to inform of codes which cannot be read and then a key is required to convert it to the original message for good understanding. These keys come in a mathematical formula which is applied to decode the message. That is why Bitcoin is called a cryptocurrency.
Bitcoin does this using the blockchain. Blockchain technology was invented by the creators of Bitcoin.

Supply and Demand

Once the demand for a particular product goes up. the price of that particular product increases. the more people need the product, the more it goes high. Bitcoin uses this same concept. The supply of bitcoin is limited. It is produced at a fixed rate, which will decrease over time. Bitcoin can only be produced within some limits after which it can not be created once it has reached 21 million. For now, Bitcoins are still being created.

These concepts are part of what we need to know on how Bitcoin works but not the answer on how the actual transactions happen.

Decentralized Network:

Decentralized means that something is not at a point. It’s shared. This is how bitcoin works. It’s not fixed at a point. The data is everywhere not just at a place. No one entity is controlling the data. It is not centralized.

 

 

How Does Bitcoin Work: How Do Transactions Happen?

Normally before one records transactions, it has to be put into a database which is stored in a centralized form in the network. Bitcoin does operate in a centralized network but uses decentralize network, its database is shared and accessed using the blockchain. This is called a distributed ledger. to get this perspective better, read my ” Blockchain and how effective”. Messages are digitally signed when u want to send bitcoin to someone, the message is then broadcast to all computer networks, then stored in the database.

 

Can Someone Fake My Identity?

Yes, it possible for your identity to be faked that is if you let someone see your private key, your name and address are not inclusive though they are not needed to transfer or receive money. your private key gives you access to your Bitcoin. On the Blockchain, your private key is your identity. Let no one tamper your Bitcoin because if you let loose your key, someone can send Bitcoin from your wallet to another wallet. Keep your private key safe.

Can Someone Spend Bitcoin Twice?

Bitcoin transactions are grouped together and stored in blocks. These blocks are linked back to one another in a series or chain. This is why it is called a blockchain.

Once Bitcoin Wallet is created, that is the wallet where you store your bitcoin. One receives a public key and a private key. the public key and the private keys set of long numbers and letters mixed up. the are like user names and password. The two keys are important in the transaction.

Your public key is needed when someone wants to send money to you, your names are not needed. This makes Bitcoin’s users anonymous!

Each transaction in the block has a public key written on it. If it is your Bitcoin, it will be your private key that is written on it. Because each block is connected to the block before it, Bitcoin is not spent twice.

What are the Advantages and Disadvantages of Bitcoin?

Having a good understanding of how bitcoin works, now let’s look at the advantages of Bitcoin.

The Advantages of Bitcoin

  1. International payments are a lot faster than banks
  2.  Fees are low- Considering no intermediaries
  3. .Blockchain — It’s almost impossible to hack.
  4. .Decentralized — N middleman, no intermediaries. you don’t need to be charged here and there before your transactions reach the final destination. No one can freeze your account like banks.
  5. 5Transparent — you don’t have to trust anyone. every transaction is open and shared.
  6. .Anonymous — you don’t need to use your name. your public and private key does the job
  7. .Powered by the community — the fees are shared instead of going to a single point (i.e. a bank or PayPal)
  8. No verification for new users — anyone can use it, ye,  no one will do any “know your customer”, ID cards, etc like banks.you can send and receive money anywhere in the world
  9. The Disadvantages of Bitcoin
  10. Mining uses lots of electricity
  11. Not as fast as other cryptocurrencies
  12. Fees change a lot
  13. Anonymous — used for crime
  14. Difficult to use — private keys, public keys, etc.
  15. Fees and Speed:-  Despite the fact that Bitcoin is older than other cryptocurrencies, like up to 10yers but the speed, is low and fees are high up to 28 dollars some time ago. The fees got high at a time because of its demand. the developers have done well in bringing it down.

Bitcoin Isn’t Very Easy to Use

The Private keys, public keys, opening and using a wallet, etc. It’s not very easy for people who aren’t confident about using computers. When you want to send a payment to someone, you must type a long set of numbers and letters (their public key) into your computer.

Electricity and the Environment

Bitcoin takes a lot of electricity to mine, unlike other cryptocurrencies. The person who verifies the block first gets paid with Bitcoin. As I said earlier, electricity costs for mining are high. The miners are rewarded with Bitcoin, so they are still making a profit. However, the electricity used by miners is very high.

All the miners work on the same block at the same time, trying to win the race. This means that all miners are using electricity on every block that is created.

Proof of Stake

In the PoS method, only one miner can mine the block. When the next block is created, another miner is chosen to mine it. By this, it is only one miner using electricity on each block. That’s much cheaper and better for the environment!

 

READ MORE:

Company Debuts Land Management Blockchain Masterclass In Ghana

Mining and how it works

Standard bank to speed up forex payments

Blockchain ( cryptocurrency) in Nigeria

Blockchain use – case: Energy

Blockchain Revolution in Banking

 

 

 

 

 

CREDITS: BITCOINAFRICA, WIKIPEDIA, BLOCKGEEKS.

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