What is BitCoin and How it works

 

Bitcoin

 

What is BitCoin ?

The money we use is entirely controlled by the central bank of the country. It decides the value and the interest rate of particular currency and when to print and produce more money. Sometimes you may hear of a word “Inflation”, which occurred when the total number of currency increases and then the value of a single unit of currency reduces itself. And the exchanging money between countries is a complex process too. So, what is BitCoin?

To overcome this mess, someone came up with a solution in a research paper published in 2008. It was an Independent Electronic Currency System which we can use anywhere anytime without national boundaries. That’s was the inspiration for BitCoin.

This cash system is based on electronic records created on the computer. That can be done using a BitCoing exchange. This system is entirely controlled by an algorithm that can do all the validations and keep all the records. So, no organization is responsible to run this system.

Security ?

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A BitCoin unit is just an electronic record stored on the computer. As a result, can somebody copy and pasted it and make it double ?

This is called Double Spending Problem in Digital Currency.

So, the solution BitCoin came up with is a Decentralized Ledger. In that ledger, all the transactions happens in the entire world is recorded in this ledger. So, just because these are electronic records, nobody can duplicate or copy and paste and increase the total amount of BitCoin.

What if someone hacked this ledger ?

This ledger is fully encrypted using cryptography. Hence, no one can read the records without decrypting.  That’s why these are also called Crypto Currency.

What if someone able to Decrypt the encrypted records ?

Well, technically this is not possible since it’s a Decentralized Ledger. Therefore if someone wants to hack into this ledger, he has to hack millions of computers since this ledger does not exists in a single computer. And this system is made of blocks which can renew itself in certain period of time. They are interconnected and they contains the information about previous blocks using hashed codes. So, if someone changes or manipulate one of these blocks, the hash codes won’t be matched and the system will easily detect that. This is called a Block Chain technology. Now you might understand how secure is this system.

Maintaining a blockchain is a complex process that need high processing power. So how to achieve that ?

BitCoin Miners

Any computer connected to internet can contribute the processing power to maintain the block chain of BitCoin System by installing few Software. But why someone would do that ?

Well, BitCoin offers free BitCoins for those who contribute for the processing power of BitCoin system. This became so much popular and now people are using even GPU power to provide the processing power. And even BitCoin mining specific computers are available today.

Asic bitcoin miner
ASIC bitcoin miner

These small computers are called ASIC (Application Specific Integrated Circuit). They can provide high end processing power with minimal electricity.  Therefore, you should understand why people are this much enthusiastic about BitCoin.

And nobody has been able to hack into this is system yet and most probably nobody will be able to either.

There are other Cryptocurrencies as well. 

The following are some of the Cryptocurrencies other than BitCoin.

  • Litecoin (LTC)

  • Litecoin (LTC)

  • Zcash (ZEC)

  • Dash (DASH)

  • Ripple (XRP)

  • Monero (XMR)

  • NEO (NEO)

  • Cardano (ADA)

  • EOS (EOS)

Finally it is clear that BitCoin provides a clean and important aspect of currency in contrast to ordinary local currencies in the world.

 

Food for thought:

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