Cryptocurrency has gotten a significant amount of attention during the past few years. The staple cryptocurrency is bitcoin. A lot of people are wondering, what is bitcoin?
Bitcoin is a digital currency that is designed to be decentralized. What this means is that there is no central power, such as a government or a bank, responsible for overseeing it. Instead, Bitcoin uses peer-to-peer software to create a transparent ledger of all bitcoin transactions. Why has bitcoin become so popular, and how exactly does it work?
An Overview of How Bitcoin Works
So, what is bitcoin and how does it work? There is a public ledger of every bitcoin transaction that has ever taken place. This ledger is stored on computer servers distributed across the globe. Every server on this network is called a node. Before a new transaction can be added to the ledger, the nodes have to agree on what has happened.
The goal is to promote trust in cryptocurrency by creating a transparent ledger that everyone can see. Transactions are added to the ledger through blocks that are accepted by the individual node. Bitcoin miners are responsible for solving equations that complete blocks and add them to the ledger. All of these blocks are strong together, which is why they are called a blockchain. That is where the term blockchain technology comes from.
As people send and receive various forms of digital currency, including bitcoin, their digital coins are stored in a digital wallet. Similar to physical wallets, these digital wallets have security measures, called keys, that prevent people from accessing them without appropriate authorization. Digital wallets can be accessed using a variety of software tools.
There are no physical assets. It is impossible for someone to hold a physical bitcoin or bitcoin wallet in their hands. Instead, there is agreement about how the network works and how people can send and receive various forms of digital currency.
Converting Bitcoin To Cash
It is possible for someone to convert cash to bitcoin and vice versa. Just as someone holds shares of a company on the stock market, it is possible for someone to use cash to purchase more shares before selling those shares and converting them back into physical cash. The same is true with bitcoin.
As people buy and sell bitcoin, the price will rise and fall. Therefore, someone can use cash to purchase bitcoin before selling bitcoin a bit later to convert it back into cash. There are lots of cryptocurrency exchanges online that provide this service, and lots of people take advantage of this service every day. It is even possible for small businesses to purchase cryptocurrency on their own. Some people have even been paid in bitcoin instead of traditional US dollars. There is nothing of physical value that backs bitcoin, but the demand for cryptocurrency is what causes the value of bitcoin to go up and down.
The Safety of Bitcoin
Some people are concerned about the safety of digital currency, as there have been a few high-profile cases of cryptocurrency exchanges being attacked by cybercriminals. Then, people are concerned that their funds might be stolen. There are also cases where cybercriminals might ask to be paid in bitcoin because they believe it is not traceable.
It is important for people to understand that when these attacks take place, they are targeting a network, not the physical bitcoin blockchain technology. In order for a successful attack to be executed on the bitcoin network as a whole, someone would have to control more than half of all bitcoin nodes in existence, which is extremely impractical. As a result, bitcoin is considered to be very safe.
An Overview of Bitcoin Mining
What is bitcoin mining? Bitcoin mining is very important because this is the process that maintains the entire bitcoin network itself. It is also how new coins are created and how new blocks are added to the blockchain.
Essentially, miners are responsible for solving a wide variety of transactions that put blocks together before they are added to the blockchain itself. Miners use powerful computers to solve these equations quickly. Then, they are paid in bitcoin for their work. The first miner to solve the block adds that block the network and is paid for his or her work.
As more coins are released, future equations are harder to solve. That is why miners rely on computers to solve these equations instead of trying to solve them by hand.
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