Say there’s a coin that’s currently worth hundreds of U.S. dollars, but it’s not made of gold, or platinum, or any precious metal.In fact, it’s not the kind of coin you can hold in your hand or stick in a piggy bank.It’s a digital currency, which means it only exists electronically. "Bitcoin" - doesn’t work like most money.It isn’t attached to a state or government, so it doesn’t have a central issuing authority or regulatory body, meaning there’s no organization deciding when to make more bitcoins, figuring out how many to produce, keeping track of where they are, or investigating fraud.
How it does works
Well, bitcoin wouldn’t exist without a whole network of people and a little thing called cryptography.In fact, it’s sometimes described as the world’s first crypto-currency. And here’s how it works. Bitcoin is a fully digital currency, and you can exchange bitcoins between computers in a worldwide peer-to-peer network.The whole point of most peer-to-peer networks is sharing stuff, like letting people make copies of super legal music or movies to download.If bitcoin is a digital currency, what’s stopping you from making a bunch of counterfeit copies and becoming fabulously wealthy? Well, unlike a mp3 or a video file, a bitcoin isn’t a string of data that can be duplicated. A bitcoin is actually an entry on a huge, global ledger called the blockchain. The blockchain records every bitcoin transaction that has ever happened.
How is this sustainable?
You can think of each page as a “block of transactions.”Eventually, your notebook will have pages and pages of information – a chain of those blocks.Hence: blockchain. Now, if thousands of people are separately maintaining the bitcoin blockchain, how are all the ledgers kept in sync?To stick with our poker analogy: think of the entire bitcoin peer-to-peer network asa really huge poker table with millions of people.Some are just exchanging money, but lots of volunteers are keeping ledgers.So when you want to send or receive money, you have to announce it to everyone at thetable, so the people keeping track can update their ledgers.So for every transaction, you’re announcing a couple of things to the bitcoin network:your account number, the account number of the person you’re sending bitcoins to, andhow many bitcoins you want to send.
How safe are these transactions?
Specifically, bitcoin stays secure because of keys, which are basically chunks of information that can be used to make mathematical guarantees about messages, like “hey, this is really from me!”When you create an account on the bitcoin network, which you might have heard called a “wallet,” that account is linked to two unique keys: a private key, and a public key. In this case, the private key can take some data and basically mark it, also known assigning it, so that other people can verify those signatures later if they want.
Possibility of delays or failed deliveries?
Both the bitcoin network and your wallet automatically check your previous transactions to make sure you have enough bitcoins to send in the first place.But there’s another problem that might happen with timing: Because lots of people are keeping copies of the blockchain all over the world, network delays mean that you won’t always receive the transaction requests in the same order. So now you’ve got a bunch of people with a bunch of slightly different blocks to pick from, but none of them are necessarily wrong.
You should know these too!
The hash function that bitcoin uses is called SHA256, which stands for Secure Hash Algorithm 256-bit.And it was originally developed by the United States National Security Agency. Computers that were specifically designed to solve SHA256 hash problems take, on average,about ten minutes to guess the solution to each one. That means they’re churning through billions and billions of guesses before they get it right. Whoever solves the hash first gets to add the next block of transactions to the block chain, which then generates a new math problem that needs to be solved. If multiple people make blocks at roughly the same time, then the network picks one to keep building upon, which becomes the longest, and most trusted chain.And any transactions in those alternate branches of the chain get put back into a pool to build onto later blocks.
Why being part of this?
Today, every time you win the race to add a block to the blockchain, 12 and a half newbitcoins are created out of thin air, and awarded to your account.In fact, you might know the bitcoin ledger-keepers by another name: miners.That’s because keeping the blockchain updated is like swinging a proverbial pickaxe at those hash problems, hoping to strike it rich. When bitcoins were first created in 2009, they didn’t really have any perceived value.Tens of bitcoins would have been worth the same as a bunch of pennies.Besides the big payout when they add a new block of transactions, miners are also essentially tipped a very small amount for each transaction they add to the ledger.It’s also worth noting that every 210,000 blocks, the number of coins generated when a new block is added goes down by half.
So, is investing in bitcoin a good idea?Now that’s left to you to deicde.Bitcoin is still volatile, and experimental. A lot of people love it, and a lot of people think it’s doomed to fail.But we are part of the remaining majority that think it’s an interesting idea, and it makes us wonder what the future of cryptography looks like .
- Team Forumine