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What is BITCOIN It is a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. or in other words, Bit coin is a form of digital currency, created and held electronically. No one controls it. Bit coins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software. Difference between normal currency and bitcoin Bit coin’s most important characteristic that makes it different from conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money. A software developer called Satoshi Nakamoto proposed bit coin. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees. Minting of Bitcoins This currency isn’t physically printed by a central bank. Instead, bit coin is created digitally, by a community of people that anyone can join. Bit coins are mined using computing power in a distributed network(every machine that mines bit coin and processes transactions makes up a part of this network) which also processes transactions made in this virtual currency. Bit coin mining is regulated by bit coin protocol which says that only 21 million bit coins can ever be created by miners. People worldwide can participate to mine bitcoins,and are called miners These coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bit coin and is called a ‘Satoshi’, after the founder of bit coin). Conventional currency has been based on gold or silver. But bit coin isn’t based on gold; it’s based on mathematics.Software program which follow certain mathematical program is used to produce bit coins, the software is also open source, meaning that anyone can look at it. In traditional money systems, governments simply print more money when they need to. But in bit coin, money isn’t printed at all – it is discovered. Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions called blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.
What is Block chain A blockchain is just a record, a ledger of all bitcoin transactions that has ever taken place worldwide. It is similar to a ledger that a bank would maintain to record all transactions of their customers. However, that’s where the similarity ends. In a bank, the ledger is controlled by the bank itself. Only the bank can see the transactions. The bank has its own security and access system to secure the ledger and to enter transactions. In the blockchain, a copy of the ledger file is shared between thousands of participants globally, also called miners. Even you can become a miner by simply downloading the open source bitcoin software. New bitcoin transactions are added in the blockchain by a consensus of a majority of the miners, explained below. People do mining because they receive new created bitcoins in return for their efforts. Once a transaction is entered in the block chain, it can never be erased or modified. Why is it called block chain?Imagine a physical ledger we used to maintain accounting records before computers. At the end of a fixed period, for example, a day, an accountant would typically check all the records, note the balances and then sign at the end of the page. This would mean that transactions till this page are now fixed and no new entries can be made in the past. Similarly, in the block chain, this period is fixed at around 10 minutes. Miners collect all the bit coin transactions globally executed in the last 10 minutes. They then record it together and this is called a block. In our physical ledger example above, each page is linked with the previous page with running totals. Similarly in the block chain, each block is also linked with the previous block creating a chain of blocks and hence the name. How does the block chain work? It would feel common sense that the only way to secure a ledger would be to trust a central authority like a bank or a credit card company. However the block chain is an invention to securely maintain such a ledger without any such central authority but with a democracy in which miners win to do the right thing. So miners collect all the transactions in the bit coin network over the last 10 minutes. The miners then enter into a competition and a winning miner is declared. The miner who wins, creates the new block with all the new transactions. All the other miners then update their block chain file to this new version and the competition starts all over again. Features Of Bitcoins Bitcoin has several important features that set it apart from government-backed currencies. 1. Decentralized The bit coin network isn’t controlled by one central authority. Every machine that mines bit coin and processes transactions makes up a part of the network, and the machines work together. 2. Easy to set up Conventional banks make you jump through hoops simply to open a bank account. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable. 3.Anonymous Users can hold multiple bit coin addresses, and they aren’t linked to names, addresses, or other personally identifying information. 4. Completely transparent Bit coin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the block chain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours. 5. Transaction fees are miniscule Bank may charge a fee for international transfers. Bitcoin doesn’t. 6. Fast You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment. 7. Non-repudiable When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever. Risks
1.However, any transactions issued with bitcoin cannot be reversed, they can only be refunded by the recipient. That means you should take care to do business with people and organizations you know and trust, or who have an established reputation. 2. As with all online financial transactions there is always the small risk of an unauthorized attack by a 3rd party in bitcoins too. 3. Lack of Awareness & Understanding People need to be educated about Bitcoin to be able to apply it to their lives. Networking is a must to spread the word on Bitcoin.Though businesses are accepting bitcoins because of the advantages, but the list is relatively small compared to physical currencies.
4. Risk and Volatility Bitcoin has volatility mainly due to the fact that there is a limited amount of coins and the demand for them increases by each passing day. However, it is expected that the volatility will decrease as more time goes on. 5.Still Developing Bitcoin is still at its infancy stage with incomplete features .To make the digital currency more secure and accessible, new features, tools, and services are currently being developed. It needs to work out its problems just like any currency in its beginning stage would need to.
Conclusion Bitcoin is not perfect. It has a lot of problems that it is going to have to overcome. But to label it dead or to call for it to be replaced by something new is naive and shortsighted.It is only seven years old. It will take many years for the infrastructure to be laid and for these applications to reach critical mass. Facebook had take nearly 20 years after the browser was released to reach a billion users. To imagine bitcoin’s true potential, we need to think in decades, not in months or years.
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