what is a bitcoin and how does it work

 

•  what is a bitcoin and how does it work?

•  How do you buy  or sell Bitcoins ?

•  what Are Its Characteristics ?

Digital Money  (Bitcoins)

What Is Bitcoin ?

When you type a website address into a browser you might have noticed that the letters  'http' appear at the front. 'HTTP' stands for Hypertext Transfer Protocol.  In transmit that website to you. Hypertext an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is shared across the web.

Similarly, when setting up an email account,  you might have noticed the letters 'smtp' for example- 'smpt.gmail.com'. SMTP stands for Simple Mail Transfer Protocol.  SMTP is the Protocol by which we send emails to each other. What actually happens when you send an email through Gmail to say, someone with a Yahoo address is that a Google server reaches out to a Yahoo server and transmits a text file ; then the Yahoo server says to its user, 'you've got mail'.

So, a Protocol is an agreed system by which information is shared across a network. 

Bitcoin  - with a capital 'B' - is another Protocol. The function of the Protocol is to send and receive payment information. 

With Bitcoin  your computer reaches out to another user's computer gives it some binary gibberish proving you control X number of coins at this address and what them to increase the balance at that address. The unit of money on the Bitcoin Protocol is the 'Bitcoin ' (with a small 'b'). As the Rupee is the unit of money on the Indian banking network so Bitcoin is the unit of money on the Bitcoin system. 

So Bitcoin is two things - a Protocol and a unit of money ( an internet version of money).

Bitcoin is one of the first attempts to create a real world currency no Government no central bank and no rules.

Bitcoin is at its core a cryptographic protocol, which is why it is also referred to as a "crypto-currency." The protocol creates unique pieces of Digital property that can be transferred from one person to another. The Protocol also makes it impossible to dubble spend a Bitcoin, meaning you can't spend the same Bitcoin twice. 

How Bitcoins Work ?

Bitcoins are generated by using an open source computer program to solve complex math problems in a process known as mining (more on that shortly). Each bitcoin is defined by a public address and private key, which are long strings of numbers and letters that give each a specific identity . This means that Bitcoin is not only a token of value but also a method for transferring that value.

In addition to having a unique digital fingerprint, Bitcoins are also characterized by their position in a public ledger of all Bitcoin transactions known as the blockchain. Buying a Bitcoin can be throught of as Buying a spot in the blockchain which then records your purchase publicly and permanently. 

The blockchain is maintained by a distributed network of computers around the world. This decentralization means no one entity, such as a government controls it. Transactions happen digitally from person to person, without middlemen such as banks or clearinghouse. The public Bitcoin network is the official record for all of these transactions. You can aslo transfer Bitcoin in person. 

The direct approach significantly reduces the fees involved with transferring traditional money and makes is much easier and faster to send and receive money across the globe. Bitcoin gives an efficiency increase relative to banking transactions comparable to the efficiency of email versus physical email.

People primarily buy and sell Bitcoins through online exchange. The public address and private keys, the identities of the buyers and sellers are veiled to each and to the public, even through the transaction is recorded publicly.

People often say Bitcoin is anonymous, but pseudonymous is more accurate. Transactions are currently quite difficult to trace,however, which is why Bitcoin has been associated with illicit activity, such as buying and selling drugs on the now-defunct silk Road market.

As with paper money you can save Bitcoins in a wallet, which stores the public and private keys needed to identify the Bitcoins and execute a transaction. These can be digital wallets that exist in secure cloud environments or on a computer,  or they can take physical from. If a wallet us hacked or you lose your private Bitcoin key, you no longer have access to that Bitcoin. Possession of the public address and private key amounts to possession of the Bitcoin. 

People commonly buy and sell Bitcoins through exchanges, through this isn't necessary. In order to Bitcoin can either be used to buy things online from merchants and organizations that accept Bitcoin, or it can be cashed out through an exchange, broker, or direct buyer.

With pepper money a government decided when and how much cash to print and distribute. Bitcoin by contrast doesn't depend on a central bank or government people create Bitcoins through mining.

Mining is the process of solving complex math problems using computer running Bitcoin software. This requires more computing power than regular PCs have do people buy specialized Bitcoin machines or groups that chain multiple computers together to mine.

When the program solves one of these problems,  it creates "blocks" or encrypted Bitcoin transactions. When you solve a block you are rewarded with Bitcoins.

These cryptographic puzzles get increasingly harder as more Bitcoin enter circulation. Also the rewards are cut in half at regular intervals. In other words there a gradual slow down in the rate at which new Bitcoins enter circulation. There is a built-in limit of 21 million Bitcoins.

A single Bitcoins can be divided down to 8 decimals, and people can transact wirh fractions known as satoshis so even if one Bitcoin is worth a lot the system is still useful for evry time transactions.

A new block is added to the blockchain an average of once every ten minutes. Ratherthan bing maintains by a centeral boday, it is distributed across all the mining computers.

How  do you buy or sell Bitcoins ? 

Now you have a general understanding of what a Bitcoin is How do you buy one ? Fortunately you don't need to comprehend the nuances of hashes nodes and the blockchain to get involved in the ecosystem. 

To make transactions on an exchange you must have a Bitcoin wallet to keep your currency in. 

What Are Its Characteristics?

Bitcoin has several important features that set it apart from government backed currencies. 

(1)  It's decentralization: 

The Bitcoin network isn't controlled by one central authority. Evry machine that maine Bitcoins and process transactions makes up a part of the network and the machines work together. That means that in theory one central authority can't tinker with monetary policy and cause a meltdown or simply decided to take peoples Bitcoin away from them. And if some part of the network goes offline for some reason the money keeps on flowing. 

(2)  It's easy to set up : 

Conventional banks make you jump through hoops simply to open a bank account.  Setting up merchant accounts for payment is another task, beset by bureaucracy. However you can set up a Bitcoin address in second no questions asked and with no fees payable.

(3)  It's anonymous: 

well kind of users can hold multiple Bitcoin addresses and they aren't linked to names addresses or other persnolly identifying information. 

(4)  It's completely transparent : 

Bitcoin stores details of every single transaction rhat every happened in the network in a huge version of a general ledger called the blockchain. The blockchain tells all.

If you have a publicly used Bitcoin address  anyone can tell how many Bitcoin are stored at that address they just don't know that it's yours.

There are measures that people can take fo make their activities more opaque on the Bitcoin newtork through such as not using the same Bitcoin address consistently and not transferring lots of Bitcoins to a single address. 

(5)  Transaction fees are miniscule: 

Your bank may charge you a fee for international transfers. Bitcoin doesn't. 

(6)  It's Fast : 

You can send money anywhere and it will arrive minutes later, as soon as the Bitcoin network processes the payment. 

(7)  It's non-repudiable :

 when your Bitcoins are sent there no getting them back unless the recipient returnes them to you they're gone forever.