Can the Bitcoin Be the Next Big Thing in Currency?
Today’s virtual world is becoming more and more advanced. Where once there was just the very large mainframe computer, there are now small computers literally being carried around in the pocket of one’s pants. These are better known as smart phones.
The digital world has infiltrated nearly all areas of our lives – including the very currency that can be used via the world wide web. Bitcoins, defined as a type of decentralized currency, allows those who use it to easily and seamlessly make purchases virtually or pursue other types of financial transactions.
What Exactly is a Bitcoin?
In its most basic sense, a bitcoin is a type of virtual currency that allows low-cost payments to be made without the need to obtain central issuers or authorities. Transactions using this “peer-to-peer” currency can be conducted quickly online.
The value of bitcoins is determined as it fluctuates against other types of tangible “real world” currency. In addition, just like with other forms of currency, bitcoins can be converted to and from other currencies. This conversion also takes place online. The value of bitcoin currency is increasing rapidly. Back in January of 2013 it was just $12 and now in December, it has crossed $1000.
Originally created in 2008, bitcoin is often referred to as being cryptocurrency. This electronic cash system can be transferred via computer or even through a smart phone without any type of intermediate financial institution.
Bitcoin is being more widely accepted by both individuals and merchants in many areas of the world. However, due to its ease of use and virtual concept, bitcoin is also thought to be used in gambling transactions, as well as with illicit drug purchases and sales.
Unlike traditional government issued currencies, bitcoin actually has no central issuing authority. Rather, it is through nodes on the bitcoin network where the bitcoin money supply is increased or reduced. This is oftentimes done on a particular schedule. Users of bitcoins can opt to hold on to their bitcoins, or they may also trade them for goods and services or sell them on certain exchanges.
How Bitcoin Transactions Work?
When using bitcoin to make purchases or enable payment, you are actually transferring value between bitcoin addresses. This transfer involves what is referred to as a “block chain,” through a process called mining.
While using bitcoin may offer convenience and speed of transactions, there are actually several steps that are involved in conducting a bitcoin transaction. First, using this type of currency entails the use of virtual wallets, along with requirements of user verification. In addition, in order to move the transaction through, cryptography is also required.
Essentially, the virtual wallets that are used in bitcoin transactions keep a secret piece of data that is referred to as a “private key.” Each bitcoin address will possess its own private key that is used in the transactions.
A private key is utilized for signing transactions – and these keys technically provide mathematical proof that funds have actually come from the true owner of the particular bitcoin address.
By using the rightful signature, the bitcoin transaction will be prevented from any alterations once the signature has been issued. Further, all bitcoin transactions are broadcast between the users in a particular transaction and are subsequently confirmed by the network. This confirmation typically takes place within just a few minutes.
What is Bitcoin Mining?
The actual process of a bitcoin transaction is called mining. Here, a distributed consensus system is used to confirm transactions that are waiting to be pushed through. The process of mining works to keep transactions in a chronological order within the block chain. It will also protect the neutrality of the network, allowing the various computers in use to “agree” on the state of the system.
In order for the transactions to receive approval confirmation, they are required to be placed in a block. This is a strict cryptographic rule that must be further verified by the network. Such rules are put in place for the purpose of preventing previous blocks from being modified. Minus this procedure, blocks would likely be invalidated, thus rendering the transaction as invalid.
The bitcoin mining process also creates the equivalent of a competitive lottery of sorts. This lottery will prevent anybody from adding new blocks into the already established consecutive block chain. In this regard, there is no way for an individual to control what will be included into the block chain.
It is also not possible for someone to either control what is included in the block chain, or to replace certain portions of the block chain for the purpose of deleting what they have already consented to spend. This can essentially make these types of transactions quite secure for their users.