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Bitcoin: what it is and how it works

Created in January 2009.bitcoin is a digital currency that is created and held in an electronic form. It is not paper currency which we usually associate currency with, but are cryptocurrencies that are used and produced by people across with the use of advanced computer software which solves complex mathematical problems. Bitcoin is known to offer a low transaction fees compared to other online payment platforms. It is functioned by a decentralized authority much different compared to a government issued and approved currency. 

Essentially speaking there are no physical bitcoins but rather a record of balances which are maintained in the cloud in the form of a ledger accessible to the public. Bitcoins are not backed by any banks or central authorities and they are also not available in the form of commodities. Currently Bitcoins are riding high on popularity which has also led to the formation and rise of several other virtual currencies called as Altcoins

The balances of the digital currency are stored using public and private keys. These keys are lines of numbers with alphabets which are interconnected with the mathematical encryption algorithm which was used when it got created. The private key is like an ATM pin which is used for authorization of bitcoin transmissions. The public key on the other hand is like an address which is public information. 


How do Bitcoins work?

The enterprises and individuals who own the and are a part of the bitcoin framework are known as miners. The miners are the ones who are a part of the decentralized network and work towards establishing the credibility of the network in the truest form. Bitcoin mining is a process by which these currencies are released for circulation. Usually mining is all about resolving difficult puzzles hard to compute. These computations are affected as it discovers a new block later added to the blockchain. Fresh bitcoins are released to the miners but at a declining and a fixed rate. At present there are more than 3 million bitcoins that have to be mined. So, bitcoin and for that matter several other currencies operable in the same mode operate diametrically different from fiat currencies. 

The process of mining adds to the blockchain by verifying the transaction records in the entire network. In order to  add blocks to the chain technology, miners get rewards in the manner of bitcoins wherein the reward is halved every 210,000 blocks. With increasing bitcoins mining process becomes difficult with the increase in computing power. 

Back in 2009 when bitcoin marked its debit the mining difficulty started at 1.0 which was only 1.8 by the end of the same year. In October 2019 the mining difficulty has crossed 12 trillion. Initially a regular PC was enough to cater the difficulty level but now miners have to utilize expensive and intricate hardwares like ASIC and GPU also known as mining rigs.

Currently Bitcoin has many supporters believing that it is the future and that it facilitates a faster and cheaper system of transaction. It is not backed by any administration but it can be exchanged for traditional currencies. 

Image Source – Pixabay

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