Even as the Bitcoin fork is making news, and there is “Bitcoin” and “Bitcoin cash” now, we will deal with the elementary aspects of “Bitcoin” and “Blockchain” in this post.
“Bitcoin” first appeared in 2009, but they are much more prominent now, thanks be to better adoption by individuals and professionals. In this post, we will understand the meaning of the “Bitcoin” cryptocurrency, some basic terms related to it and the way it works.
What is “Bitcoin” and what are its chief features?
‘Bitcoin’ is one type of crypto currency(yes, there are others too) The primary reason behind creating the cryptocurrency is to enhance trade but in a totally novel way. Even as our life has become more digital, and every aspect has become electronic, why not digital currency? It gives anonymity and transparency to its users.
It was created in 2009, by a person or a group of persons under the name of ‘Satoshi Nakamoto’. Some of its features are described below:
a. It is a completely de-centralized currency – which means that there is no bank or central authority to regulate it.(life without banks is hard to imagine, isn’t it?)
b. In light of the above fact, the ‘Bitcoin’ currency value is completely volatile.
c. ‘Bitcoin’ money moves by means of peer-to-peer(meaning “Alice” gives “Harry” 10 bitcoins or “Bob” gives “Alice” 2 bitcoins – but there is no “bank” here to monitor it)transactions across different nodes across the network.
d. The totally novel of dealing with transactions is to record all of them in a ledger which is totally visible to everybody(like seeing everybody’s account balance all the time!)
Some key terms of Bitcoin:
Private keys and public keys: Public keys and private keys are used to encrypt and decrypt messages. If the ‘private key’ is used to encrypt, the ‘public key’ is used to decrypt the message. This forms the basis of ‘Digital signatures’ which is used to sign and send the BTC money.
Digital signatures: Digital signatures are similar to the normal signatures, but it is done digitally using private and public keys. It is primarily done to establish the identity of the person.
‘Bitcoin’ wallet: The ‘Bitcoin’ wallet is comparable to our physical wallet but is used to store the ‘private keys’.
There are different types of bitcoin wallets – they are the hardware wallet, software wallet, online wallets and paper wallets. Bitcoin wallets can be downloaded for mobiles, desktops or laptops. Mobile bitcoin wallets are available for iOS and Android OS. Some examples of bitcoin wallets are Electrum, Blockchain bitcoin wallet or Mycelium Bitcoin wallet.
Ledger: This is the common account book of the bitcoin network. All transactions are recorded here and it is stored by every ‘miner’. This in simple terms is the ‘blockchain‘.
Working of Bitcoin:
The following sequence of steps explains the way to send bitcoins.
If ‘A’ would like to send bitcoins to ‘B’:
- ‘A’ just types the recipient’s address
- the total number of bitcoins to be sent
- ‘A’ also affixes a ‘digital signature'(to establish his identity)
- And hits the ‘Send’ button
- The account balance on ‘A’ is decreased and it is increased in ‘B’.
- The crucial difference between bitcoin transactions and normal transactions occurs when the ledger balances all across the world are updated to reflect the change in ‘A’ and ‘B’s balances.
Now that we have seen the way bitcoins can be sent and received(high level view) they can be used to buy things one needs(wherever businesses support them) The video below illustrates this further…
Advantages of ‘Bitcoin’:
- It is much more transparent
- Counterfeiting bitcoin is much more harder since everything is recorded
- It is faster
- It is completely anonymous(unless you want to broadcast your address) and private
- Very low transaction fees
- It doesn’t suffer from the fatigue of the normal currency which is ‘inflation’. (Bitcoins can be mined but they cannot be created indefinitely, in fact they can be mined only till 2041)
Having seen the introduction to bitcoins, it must be stated that cryptocurrencies all over the world are still evolving and undergoing major upheaval. Only time will tell if they will grow into stable and viable currency.
Jayanthi Manikandan has an undergraduate degree in Computer Science from India and a Master’s degree in Information systems with a specialization in Information security from Detroit, MI, USA.
She has been passionate about Information security and has several years of experience writing on various technical topics. Additionally, she loves to pen a few personal thoughts here as well! 🙂