Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.
It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. Bitcoin was the first practical implementation and is currently the most prominent triple entry bookkeeping system in existence
Bitcoin is a digital currency that is distributed/decentralized, trust-free, secure, and deflationary. It’s a currency that may one day replace money as we know it.
A Digital Currency:
Bitcoin and most other alt coins (alternative to Bitcoin), are whats called cryptocurrencies. These are online currencies that unlike the dollar or gold have no physical counterpart. They are made up of bits and bytes, hence the name. As everything in our lives moves online physical cash becomes obsolete. Due to its digital nature bitcoin needs no banks and transacts fast and low cost even between individuals on opposite ends of the globe.
DISTRIBUTED AND DECENTRALIZED:
Information is power. In our current centralized system, banks, insurance agencies, the government etc. hold masses of information about us. This gives these middle men more power than we want. If our records were to be changed at the source (think bank account or identity) we’d be in big trouble. Cryptocurrencies store all information on whats called a ‘distributed ledger’, a sort of record book that millions of computers have copies of. This means if someone tried to temper with the record book, there’s a million computers that will spot the inconsistency, and prevent the change.
How it works :
All Bitcoin transactions, from the beginning of time, are written down in an enourmous, public ledger. When you transfer money from your Bitcoin wallet to another person, you do that by writing this transaction down in the public ledger. Everyone is watching this ledger and has their own copies of it, and so they now know that there is less money in your wallet, and more money in a friend’s wallet. So everyone knows how much money each wallet contains. This is where your money is stored, in this public ledger with millions of copies that everyone maintains together. They do, however, not know who owns that wallet – Bitcoin has no notion of identity.
So what’s preventing another person from transferring money from my wallet to their own?
This is where cryptography comes in. When your Bitcoin wallet is generated, it’s given to you in two parts. One public part, an address, that you give to other people so that they know where to send you money, and a secret part, a key.
The key is used to “sign” transactions. It takes the amount, the sender address, receiver address, and the key, jumbles it together with math, and out comes a signature, that you put in the ledger along with the transactions. Due to how cryptography works, other people can mathematically verify that the person that generated this signature for this transaction must indeed have the key for this wallet. They can, however, not work backwards to what the key actually is – that would take a supercomputer thousands of years to do.
Transaction process in Bitcoin Network:
Best of Bitcoin
SECURE & TRUST FREE:
Due to its distributed nature, it’s very hard and nearly impossible to hack cryptocurrencies. This is because you would not just have to hack your banks server, but at least more than half the computers in the entire system, and then do it really fast. To make it even better, every transaction is heavily encrypted (that’s where the ‘crypto’ in crypto-currency comes from.)
Because no one can temper with the system, you dont need to trust anyone, but the system, since the system is incorruptible.
Advantages of Bitcoin:
Disadvantages of Bitcoin: