Bitcoin was an invention that came about because of a need for an online peer to peer payment system not requiring a central trusted authority. It was created in 2008, and since then, has grown into a currency, a vehicle for investment, a technology, and has a community of people who use it. It the next few paragraphs, we will take a closer look at what it is, how it works, and how you might be able to use it.
What It Is
According to Bitcoin.org, Bitcoin can be described as a network that uses a completely new form of money and a new system for payments. It is also the first peer to peer network for payments that is powered solely by users as opposed to having middlemen or a central authority. It is basically cash for the internet, but is also seen as the most frequently seen bookkeeping system that uses triple entries in existence today.
Bitcoin mining, such as that done with Genesis Mining, is a type of distributed consensus system that in utilized to confirm any waiting transactions due to introducing them in what is known as the block chain. It also protects the network’s neutrality and is used to allow a variety of computers to agree when it comes to the state of the system. In order to be confirmed, all transactions have to be packed into a block that will have to fit a very specific set of cryptographic rules that the network will use to verify. This set of rules prevent any previous blocks from getting modified because if this happens, it would actually make all subsequent blocks invalid. Mining Bitcoin also works to create a sort of competitive lottery that actually prevents individuals from simply adding new blocks to the block chain. This means that there isn’t a way for anyone to control what gets included on the block chain or to replace any part of the block chain in order to roll back what they spent.
While Bitcoin is both mined and traded online, and people are making money with it, it isn’t yet traded on the forex market.
A block chain can be described as a sort of public ledger. The entire network of Bitcoin relies on the block chain. All transactions that are confirmed are immediately included on the block chain. Because of this, Bitcoin wallets are able to calculate what they are able to spend and any new transactions are able to be verified as using bitcoins that were actually owned by the person spending them. The chronological order and integrity of this block chain are both enforced by using cryptography.
These are also known as transactions. A transaction can be described as the transfer of Bitcoins between the Bitcoin wallets. These are what gets included on the block chain. These Bitcoin wallets retain a secret bit of data, that is called a seed or private key, that is used to sign any transactions. This provides mathematical proof that the transactions actually originate from the person or entity who owns the wallet. This signature also works to prevent any of the transactions from becoming altered by anyone after it has been issued. Each transaction gets broadcast between the users and typically becomes confirmed by the actual network within 10 minutes. The process used to confirm them is the one mentioned in the mining section above.
Trusting the Safety of It
Bitcoin is not something that you can touch. It is a virtual or cryptocurrency. That said, how do you know that it is safe? The bitcoins are held in the online wallet. This type of account setup is done using a third party website. Unlike traditional banks, the wallet firms don’t invest your money. They also don’t have the same protections offered by banks and the FDIC. It isn’t very easy to hack a Bitcoin wallet at all, but it has been done. Still, you are safer with Bitcoin than you are with traditional money – simply because of the design and the fact that it is a virtual money. You will never get mugged and have your Bitcoin taken on the street like you can with cash.
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