First, let’s clarify what Bitcoin is. Wikipedia defines it as a”public electronic currency issued and managed by the Internet. In simple terms, it’s “virtual money” that is transferred via the Internet between users. In the terms of a layman, it is “online currency”. The best way to describe it is that instead of dealing with a government agency or a financial institution, when you make an online transaction, you’re exchanging money directly over the Internet and there is no third party involved.
To begin with, let us take a look at how a typical “real world” wallet functions. When you transfer funds from your “real world” account to your” bitcoin wallet” it is basically transferring money from your wallet to the recipient’s wallet. There is no need to deal with any intermediaries, which makes the transaction easier and quicker. A typical transaction would look like the following: I send you my email address, then you give me your phone number and you provide me with your email address. All that is actually happening is that we exchange something (your email address) in exchange for something (your phone number).
Let’s look at the way something that resembles an actual currency functions. Let’s say I’d like to buy a cup of coffee as I’m in the city for a business meeting. To purchase the coffee, I would first open an account at the local coffee shop. I could then save my coffee until I arrive and pay with my real bank account.
Let’s say I’m traveling to someplace where I’m not connected to the traditional banking system, for instance, London. What do I have to do? Simple, since the bitcoin network functions as a digital currency, I can buy my fuel using any digital currency that I prefer. For instance, if I want to travel to London using the pound, I can do it using the Euro or the USD. The best part about this is that, although it may have a higher exchange rate, as there is no central government that regulates these currencies, they function like a very strong currency because there aren’t any known threats to its value.
As for what happens in between these transactions? The transaction is actually performed between all of the entities involved with the transaction, also known as “miners”. These entities are what keeps everything running smoothly. The “mining” process is what makes the transactions occur and ensures the security of the entire network. In the case of the bitcoin network, this is done by having people join the bitcoin mining pool, where they pool their resources and together they speed up the rate at which new blocks are mined.
Now that we have the specifics behind the scenes, how do we know if the transactions are being tracked or whether they are being “minted?” Blockchain technology, a new technology that is designed to make all mining activity transparent, is actually in place. The basic principle is as follows: when someone is mining a new block they add it to the ledger they already have, called the “blockchain” and all of the other transactions that took place during that period of time. Every transaction is then tracked and logged on to the computer system that is associated with the particular ledger. This allows you to view exactly how many transactions someone has completed and the way they are spending their money.
Although this sounds great in theory, there is one problem with the system that everyone must be aware of. Since there is no physical product, there’s no way for anyone to look into the history of transactions made by a person. If they find something suspicious, they can simply make a report, but as the transaction is recorded on the Blockchain, it cannot be verified whether or not it is valid. The only way to safeguard transactions is to use a computer that is offline like an offline paper wallet. If you don’t wish to make your transaction online, there are a variety of websites that can help.
The bitcoin transaction system is basically a protocol that people use to allow themselves to be tracked via their transactions. This makes it almost impossible for anyone to alter or double spend on another person’s transactions. This new technology isn’t compatible with all computers, so some of the most prominent names in the field aren’t getting the chance to take the leap into the next phase of computing power. However, there are many developers developing software that will let even the most basic computers connect to the internet. When the protocols are made available to the general public it will be much easier for people to transfer money from one wallet into another and to use their computing power in order to travel around the world using bitcoins instead of traditional currencies.
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