Bitcoin is a decentralized digital currency which can be sent from user to user over the Bitcoin network without involving any intermediaries such as a bank or a payment gateway, thereby making it different from almost any other currency, typically issued by a government or other centralized entity.
How does Bitcoin work?
On the Bitcoin network, balances are maintained using public and private keys. These keys are generated using an encrypted mathematical algorithm. The public key is similar to a bank account number. This key serves as an address which is published publicly and can be used by others to transact bitcoins.
What is Bitcoin mining?
Bitcoin mining is basically the process that verifies and validates transactions, while creating new bitcoins that enter circulation. Blocks (a group of bitcoin transactions) are secured by bitcoin miners and are built on top of each other to form a chain called blockchain which serves the purpose of confirming the transactions that have taken place to rest of the network. This allows dissemination of new coins and motivates people to provide security to the system through mining.
Features of Bitcoin
Bitcoin has thrived in the decade since its creation and remains the most-used cryptocurrency today. Many believe it has the potential to bring about a vast impact on the global economy. This is mainly because of numerous features it comes along with, such as:
- Decentralization – This is one of the most prominent features of Bitcoin. There is no single body controlling it. In fact, it is maintained by a group of coders, and run by an open network of computers across the world. The integrity of transactions is maintained by this distributed open network, owned by no-one, whereas this function is fulfilled by banks in electronic fiat currencies. Bitcoin solves the double spending problem (copying and re-usage of digital assets) through an ingenious combination of economic incentives and cryptography.
- Limited supply – Unlike fiat currencies, the supply of bitcoins is controlled by an underlying algorithm. The maximum number of bitcoins that can be mined is limited to 21 million which makes it an attractive asset as the demand and value keeps increasing, but the supply remains constant.
- Divisibility – Satoshi, which is the smallest unit of bitcoin is probably worth one-hundredth of a cent. Therefore there is no restriction on how small a transaction can be in Bitcoin, which is not the case in other traditional economic fiat currencies. Therefore, there is no pressure to buy a whole bitcoin.
- Immunity to fraud – The data entry by any member is visible to all stakeholders; however, the data once entered is immutable, thereby providing protection from frauds. This ensures that the bitcoin transactions are not tampered with.
- Speed – While normal bank transactions can take a few days, bitcoin transfers can take place in minutes (depending on how soon they are verified and confirmed via inclusion in blocks), regardless of where the transacting parties are. This is very advantageous and less tedious compared to its counterparts.
- Non-repudiation – Once one sends the bitcoins to somebody, it is not possible to get them back unless the beneficiary wants to send them back.
Scope for improvement
While Bitcoin has its set of challenges, it has grown into something much more than just a mere experiment. The possible ways to improve the platform and make more people aware of cryptocurrency are:
- Make each transaction take up less space in the blocks to tackle physical network limits
- Move smaller transactions off the main blockchain without compromising their security
- Support lightning speed transactions
- The growth of the main developer ecosystem of Bitcoin
- Make it easier for small miners to compete and increase decentralization
- Ensuring easier and safer ways to store bitcoins on any device
Thus, Bitcoin is an exceptional way to run the economy as it provides a new approach to currencies. Even though its value is fluctuating, the right innovation can bring about extraordinary prospects in what’s to come in the future.
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