Bitcoin is a decentralized digital currency that is exchanged between two parties without the involvement of intermediaries such as banks or other financial institutions.
As defined in a white paper published by Satoshi Nakamoto, the hidden inventor of Bitcoin, Bitcoin is “a peer-to-peer version of a fully electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution.”
To understand Bitcoin, one needs to understand the underlying structure, the management of the Bitcoin ecosystem, and the extent of its use in India.
How Does Bitcoin Work?
Bitcoin eliminates intermediaries with the help of its underlying technology, blockchain.
Currently, if you need to transfer funds to someone, one of the possible ways is to provide cash or alternatively use a trusted intermediary (for example, a bank).
Either the process involves cash (with the country’s central bank as guarantor) or electronic transfer, involving an intermediary (in the latter case, a bank or other financial institution). When intermediaries are involved, there is a transaction cost.
How blockchain technology helps eliminate intermediaries is the replacement of trust that intermediaries bring to the table with cryptographic evidence using CPU computing power.
This cryptographic belief is built on Bitcoin via a wallet, a public key, and a private key to the program.
Anyone can create a free Bitcoin wallet by downloading the Bitcoin program. Each wallet has a public key and a private key
Public key is like an address or an account number through which anyone can get bitcoin.
A personal key is like a digital signature through which a person can send bitcoin. The name suggests that private keys should be kept and known only to the owner and that public keys can be shared with anyone to obtain bitcoins.
There you may have heard of Bitcoin being lost either because the private key was inaccessible or because it was stolen by hackers.
The owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public.
Since the introduction of Bitcoin in 2009, every transaction that has taken place has been stored in a ledger, which is considered to be irrevocable, irrevocable and irrevocable.
Bitcoin transactions are verified by cryptography through telecommunication network nodes and then recorded in a decentralized distribution ledger called Blockchain.
This is a distinct aspect of Bitcoin from some other crypto resources, where there is a centralized exchange (like a stock exchange) through which all transactions need to be routed or verified.
How does bitcoin mining work?
In the Bitcoin ecosystem, there is a network of miners who use their CPU to process transactions.
When a user wishing to send Bitcoin enters a public address, the Bitcoin number and the private key attached to create the signature will be sent, then the encrypted information is sent to the miners’ network who are tasked to verify that there is sufficient amount. Balance for transaction transfer and authentication.
The faster the CPU of a miner, the more likely they are to be verified and rewarded in Bitcoins for facilitating the transfer of that mine.
The mining work here is to provide only CPU power, which runs the bitcoin program to automatically verify bitcoin transfers. There is no manual intervention by Bitcoin Miner.
Once the transaction is processed by Bitcoin Miner, the number of these transactions is transmitted to those mining networks who receive a copy or download of the same block.
These blocks are stored in a sequential or chronological order by forming a blockchain through a timestamp method.
Every miner on the network must have an updated and complete copy of the laser or blockchain if they want to facilitate the transfer and earn bitcoin. The program is designed so that the laser or blockchain is automatically updated.
According to the original Bitcoin white paper, the chances of hackers tampering with blockchain are close to zero due to the copying of updated lasers carrying each mine.
If anyone attempts to tamper or hack the account in any way for the benefit of the unjust, the mine is immediately deemed invalid and fails to process the transaction unless they have a copy of the irrevocable account.
Can Bitcoin be considered a real currency?
Whether Bitcoin is a currency at all and why any country would want to replace it with their existing currency is controversial because Bitcoin has no intrinsic value of its own.
By definition, a currency is “a system of money in common use in a particular country” or “a fact or quality generally accepted or in use.”
Currently, there is some traction in the number of companies that use Bitcoin as a mode of payment, however, no major country or economy has adopted it for general use. One exception is El Salvador, which adopted bitcoin as a legal tender in September 2021 and became the first country to do so.
An important reason for the significant evolution of Bitcoin is the tightening of the Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations by banks and financial institutions.
Now there is an inter-border exchange of information between countries about transactions through the banking system.
As a result, it is also claimed that Bitcoins are widely used as a parallel mechanism for transactions, which would otherwise be illegal in several countries.
Another important aspect is that the acceptability of Bitcoin is a global payment method that is not linked to the currency of any particular country and, therefore, is not directly affected by the development of a particular country.