What Is Bitcoin? How does Bitcoin work?

What Is Bitcoin?

Bitcoin is a decentralized digital currency launched in 2009 by a mysterious person or group named Satoshi Nakamoto. It is one kind cryptocurrency. It has no physical shape. Its presence is limited on computer and Smartphone screen.

It is an innovative payment network that uses peer-to-peer technology.  There is no central authority or banks to manage transactions and the issuing of Bitcoins. It is an open-source system where everyone can take part.

Bitcoin is stored in a ‘digital wallet’ app on a Smartphone or computer. Using this digital wallet people can send and receive Bitcoin from each other. Bitcoin offers lower transaction fees than traditional online payment methods.

Shopping can be done through Bitcoin. However, many stores and service providers do not accept Bitcoin. Bitcoin has even been banned in many countries.

But as the influence of Bitcoin continued to grow, various companies began to support transactions in Bitcoin. In October last year, for example, PayPal announced that it would allow its customers to buy and sell Bitcoin.

How does Bitcoin work?

You know what Bitcoin is. Now I will discuss about how Bitcoin works. As I said before, Bitcoin has no physical form. Its presence only exists on the screens of smartphones and computers.

To transact in Bitcoin you need to install Bitcoin Wallet on mobile or computer. After installing it will create a Bitcoin address for you. You need to remember that an address can only be used once. Transactions have to be done through this address. A new address has to be created for each transaction.

Bitcoin network is operated centering a blockchain. Here all the transaction information is recorded. So how much each Bitcoin wallet has spent and its spending limit is known through this block chain. A complex mathematical algorithm called cryptography is used to maintain the chronological order of the block chain.

To ensure the security of the transaction in Bitcoin and the transparency of the owner, the Bitcoin wallet contains confidential a piece of data called private key or seed which is used to sign the transaction. This sign identifies the real owner.

Mining is a distributed consensus system through which every transaction is included in the block chain. It takes 10-20 minutes to complete each transaction through mining.

What is the purpose of Bitcoin?

Bitcoin

The process of currency transacting in the conventional way is much more complicated, time consuming and expensive. Because of this complex and expensive process, many people are annoyed with the conventional payment system.

The purpose of creating Bitcoin was to avoid the traditional sophisticated system of currency transactions so that people could easily transact over the internet.

It is being used as an alternative to the conventional payment process.

How do I get Bitcoin?

There are several ways to get Bitcoin. Three of these methods are commonly used:

  1. Making Bitcoin through computer.
  2. Purchasing Bitcoin with Real Money from a seller.
  3. Receiving payment in Bitcoin after selling something.

Is a bitcoin a real coin?

No, bitcoin is a cryptocurrency that can only be used digitally. It has no physical form. Bitcoin is stored in a ‘digital wallet’ app on a Smartphone or computer. Using this digital wallet people can send and receive Bitcoin from each other.

How is Bitcoin created?

Just as paper is the only way to make conventional currency, ‘Bitcoin’ is created virtually only through ‘mining’. However, a Bitcoin user can earn this cryptocurrency in different ways. But mining is the only way to create a Bitcoin.

Making Bitcoin through mining is a very time consuming and complex task. Mining is done using computer programs running on specialized hardware. Bitcoin is created by solving difficult mathematical problems through computer programming.

Why are Bitcoins valuable?

There is no intrinsic value of Bitcoin. It is like a speculative asset. Markets determine its value.

When the market demand for Bitcoin is very high, its price also goes up a lot. As the process of making Bitcoin is much more time consuming and complicated so its demand in the market is always much higher.

We know that 6.25 Bitcoin is created every 10 minutes. So far 18.6 million Bitcoins have been created and the last limit of Bitcoin is 21 million. After that Bitcoin will not be mined. For these reasons, customers are willing to pay much more in exchange for Bitcoin. So Bitcoin is more valuable in the market.

Why do people want to trade with Bitcoin?

Bitcoin is a digital currency system where there is no central regulator. They follow peer-to-peer technology. A separate address is used for each transaction.

Every machine that works for bitcoin mining and keeps the transaction process running is considered to be a part of the network and all the mining machines work together. So theoretically, no central authority can interfere in this monetary policy and it is less likely to cause any mishap. People like bitcoin because of this security system.

Bitcoin can be traded anonymously. This is one of the major reasons for trading in Bitcoin. When investor transact through Bitcoin, each transaction will be recorded in their blockchain. But no one can understand the owner of the transaction until he discloses it to others.

Setting up a Bitcoin account is relatively easy compared to a traditional bank account. Anyone with minimal computer literacy can easily open a Bitcoin account. It requires no fee. In most cases international currency exchange requires a hefty fee. But in the case of Bitcoin, transactions can be done at a much lower cost. This is another reason of its popularity.

The Bitcoin system works much faster. You can transfer your money to another server within minutes. They complete the payment process very quickly. This is why traders are more interested in using Bitcoin

Is Bitcoin safe and legal?

Bitcoin uses very complex algorithms. Bitcoin transactions are recorded publicly. Due to which no one else can copy Bitcoin and no one else can use Bitcoin illegally.

The main problem with Bitcoin is that it has no physical location. It has no central controller. So if your digital wallet is deleted for any reason, it is very unlikely to be returned. You can also be harmed by hackers. Hackers steal Bitcoin by hacking computer systems.

Bitcoin price is extremely volatile. So any time the market price goes down that cause you huge loss.

Andrew Bailey, the head of the Bank of England, described Bitcoin trading as “dangerous” in an interview.

Business giant Bill Gates says it’s best not to trade in Bitcoin unless your financial helth is very strong.

Bitcoin transactions are banned in many countries. Authorities in various countries consider Bitcoin to be illegal.

Can I invest $100 in Bitcoin?

Yes, you can invest $100 in Bitcoin. With $100, You can buy a fraction of Bitcoin. This is an advantage of investing in Bitcoin. Since the value of Bitcoin is much higher, many people buy fractions.

Why did Elon Musk invest $1.5 billion in Bitcoin?

Elon Musk’s company Tesla bought 1.5 billion Bitcoin in February this year. Tesla announced they would accept their payments in Bitcoin.

This was actually a risky investment of Elon Musk. But we have always seen that Elon Musk a brave and visionary investor. He never hesitates to invest in profitable assets. Earlier we saw him take on the challenge of investing in Tesla and SpaceX companies.

By investing in Bitcoin, Elon Musk has sought to exploit the current popularity of Bitcoin. That’s why he used Twitter. On Twitter, he sent positive messages to his 51 million followers about Bitcoin. As a result, the value of Bitcoin increased by 20%. In addition, Tesla’s share price rose more than 2%.

what is Bitcoin? How does it work?

Tesla said in a statement after investing in Bitcoin that they have changed their investment policy. Investing in Bitcoin Tesla has maximized their returns as well as diversifying their investments.

Undoubtedly, cryptocurrency will play a huge role in future payment systems. Elon Musk already understood that. That is why he is taking such steps.