Bitcoin is the most famous cryptocurrency today. However, many are wondering what exactly it is as well as what makes it specific so that it differs from other transactions such as purchases through Amazon where you pay by card, etc.
In the following text, we will further discuss this cryptocurrency or virtual money. As we have already said, this topic is very popular today, so the most common questions are: what is bitcoin, how does it work and many other issues that we will address.
What is bitcoin?
It is a currency just like any other. In addition to being distributed electronically, there is a significant difference, which means that it is decentralized. What it means? This means that all currencies, transactions are controlled and recorded in a central system on a server, but we will say more about decentralization in the following text.
Bitcoin data is publicly available on various sites. This means that every person in the world can have an insight into the contents of the complete blockchain at any time and look at all the transactions that have taken place. Of course, you don’t have to worry about potential scams because not everyone can see how much money you have and to whom you sent it.
User ID is represented by number. Also, each user has a private key after entering the system and only he knows it. When you want to make a transaction, the computer generates another number called a key-based address. Thus, the other user generates a different address, but based on its beak. These two addresses are then sent to the miners, and we will explain this process to you below. There are also online exchange offices, so this is increasingly taking on the characteristics of a real currency. Click here to see which currencies you can exchange into.
Once you understand what bitcoin means, we come to another term that needs to be defined, because they are interconnected. It is about blockchain, as a technology without which bitcoin, like all other cryptocurrencies, would not be able to function.
In order to bring you closer to the meaning of this term, we can compare it with a book in which financial records are kept. That book implies 100% accuracy when it comes to recording who currently has how much money and who has given whom how much money in the past. It also means that each transaction that occurred, and was recorded, is related to the previous one and thus a chain of all transactions is created.
Each of these transactions represents one block, and all of them together form a blockchain. Based on that, we come to the part where each cryptocurrency has its own blockchain, and now it is clear to you why. So bitcoin has its own, and it actually represents one larger file in which all this is written. For example, if you buy some bitcoins, that moment will forever be recorded in this file – blockchain.
This means that there is no central authority such as in everyday life, for example, a bank. We are used to the list of any transaction having its central place, and that is, say, the banking system. This means that literally every piece of information about our money is in that system.
However, the bockchain does not work that way. Certainly, people all over the planet have invested millions of dollars into it, which works exactly like that, because of all the benefits they get with this system. The point is that the entire blockchain file is stored on the computer, and each of these people has a copy of the file of this transaction register on its disk.
Then, each time a transaction occurs, it is automatically updated for each user or node. That is why we say that there is no central authority. However, the question arises as to the security of these copies of the registry and how to keep them identical at all times. We can also ask ourselves how they are even generated. The answer is in the next part of the text.
You’ve probably heard of at least one person who purposely bought a computer to mine bitcoins. It is about miners serving to validate transactions. That means each of us can be a miner.
How is the transaction made? Let’s say person A wants to send person B thousand dollars, and initiates the transaction. Person A’s computer sends a post to all miners online as a notification that he wants to transfer person B thousand dollars. However, at that time, it was still an invalid transaction, so it was not entered in the register.
The computers of miners received information about the request for new transaction. First, it is checked whether the person who sent the request has enough funds, and this happens by the computer going through the complete blockchain chain. It further looks at all the transactions that the initiator had and finds out if the person has enough money.
After the miners checked and it turned out that the person had enough money, the first step was taken. Then there is a competition between the miners, that is, they compete in who will be the first to do this blockchain transaction and to be added to the next blockchain. An ideal number is found that is ideal for the chain link. The miner who finds this number first and validates the transaction is rewarded in crypto money.
Where do miners get their money from?
He receives money from two sources. The first implies that the sender pays him by adding a dollar or two in bitcoins to the total transaction, and that goes to the miner. The second refers to receiving a certain amount of bitcoin that is automatically generated from nothing (the reward that the miner received for discovering the number, for helping in the transaction).
We hope you find out everything you need to know about this popular topic. It is also very complicated, but we tried to introduce you to the world of bitcoin and so you understand how this system actually works and everything else that interested you about it.