What Is Bitcoin and How Does It Work?

    0
    39

    Bitcoin relies on a peer-to-peer network, a collection of computers called nodes that are linked with each other and run Bitcoin blockchain. It’s called a blockchain because it contains blocks of codes that are chained together in chronological order, with each block having a record of transactions. Since the blockchain is present on every computer or node, nobody can make any changes on their own as other nodes won’t verify those changes.

    People who own these nodes and process and verify the transactions are called miners. For investing in the Bitcoin ecosystem and facilitating verification, they’re rewarded in BTC. These miners ensure that no unauthorised transaction occurs on the blockchain and ensure no single person has more control over the blockchain infrastructure to maintain decentralisation. New coins are being rewarded to miners at a rate that’s continuously been in decline since the total supply of BTC is limited – that is, 21 million coins.

    Unlike fiat currencies which are printed based on the number of goods and services created by a country to ensure price stability, BTC cryptocurrency is created through an algorithm that takes different factors into account. It works by having two types of keys – public and private. These keys are long strings of letters and digits created by the encryption algorithm of the blockchain. Public keys are visible to everyone for transparency and recordkeeping, while private keys enforce ownership and transferability.

    Is Bitcoin Real Money?

    Yes and no. Currently, Bitcoin is the most viable alternative to conventional currency. However, it is still so far away from acquiring the ubiquity, convenience, and speed of cash that is backed by traditional financial institutions. That being said, it has been reported by HSB that around 36% of small to medium-sized businesses in the US are accepting BTC as a valid currency. Some of the notable names include Expedia, Microsoft, AT&T, Overstock, Burger King, and Wikipedia.

    It’s important to note that as compared to altcoins, Bitcoin has been more popular with consumer-centric brands like KFC, Playboy, Twitch, CheapAir, and Subway. The majority of the other digital currencies are generally accepted by brands and companies that have built their businesses with a cryptocurrency-focused approach. Over the years, it has acquired more mindshare in the mainstream than any other virtual currency. However, it still has a long way to go to be considered as good as real money.

    Fees & Expenses 

    At the time of writing, the average transaction fee of Bitcoin is $3.074 per transaction, a 40% increase compared to the last year when the average transaction fee was around $2.196. The average fee of a BTC transaction is determined in USD when a miner processes and verifies a transaction on the blockchain. Keep in mind that the fees can fluctuate depending on Bitcoin network traffic or high demand for proof of work. In the last month of 2017, when BTC surged to its peak price, the average transaction rate reached its highest point, almost touching the $60.00 mark.

    Moreover, the commission and fees charged by a variety of cryptocurrency exchanges, including trading services, differ in terms of percentage and pricing structure. Generally, buying and selling through wire transfer will cost you anywhere between 0.5% and 3% while using debit cards can set you back up to 10%. On the same note, bank transfers may come with a fixed fee. The pricing around BTC transactions can be quite complex and differs considerably depending on factors, including payment mode, amount of BTC, and geographical presence.

    What Are the Benefits of Bitcoin?

    Designed to be a viable payment alternative, Bitcoin offers a wide variety of benefits, including the following:

    Fast Transactions – Using a peer-to-peer network that spans across all the populated continents, it can process and verify transactions in a matter of minutes, regardless of the amount.

    Global Payments – With conventional money, international payments are always a hassle. Bitcoin reduces the number of challenges associated with making international transactions and ensures swift and affordable transfers.

    Affordable – One of the significant draws of BTC transactions is their low processing fees, allowing consumers to send and receive any amount of money anywhere in the world without paying exorbitant charges or service fees.

    Extremely Secure – Blockchain is a system that’s designed to enforce security through unanimity. A single individual with malignant intentions can’t compromise the system, and the safety is also reinforced through cryptographical encryption.

    Widely Accepted – It is the only major cryptocurrency with a broad appeal with consumer brands that include Microsoft, Burger King, KFC, Wikipedia, and many more. Other altcoins have failed to gain similar traction.

    Constantly Improving – At any given moment, hundreds of developers are working on the Bitcoin Core project to improve further the payment system, including faster processing and verification and even lower transaction charges.

    Can It Be Used Anonymously?

    Anything you do on the internet can’t be anonymous in absolute terms. That being said, as compared to how conventional financial transactions work, Bitcoin can be considered as relatively anonymous. The issue is governments are trying to regulate cryptocurrency trading, which means they require exchanges and trading platforms to comply with KYC (Know Your Customer) and AML (Anti Money Laundering) regulations. When you buy or sell Bitcoin on any major trustworthy crypto exchange, you need to provide at least some personal information for verification.

    There is also a flip side to anonymity. The more anonymous you want your transactions to be, the more you get away from the cryptocurrency or Bitcoin exchanges. And even then, it’s highly likely that if a government agency or an expert hacker wants to find out about you, they will. 

    How Safe Is It?

    Bitcoin is an inherently secure system as blockchain mechanism is designed for immutability – which in simple language, it can’t be reversed once a transaction has occurred. Moreover, the transaction can’t happen unless all the nodes verify it and give their nod of approval. Furthermore, it is made secure with cryptographic encryption, making it impossibly difficult for a hacker or any other malicious cyber attacker to break into the blockchain.

    For safe and secure storage…

    Source