How Bitcoin could change the future of payments?
by Ujwal Tamminedi / Guruprasad Navada
Bitcoin is a decentralized virtual currency that uses a peer-to-peer system to authorize and verify transactions. Bitcoin is the world’s leading digital currency used by people anywhere in the world. Bitcoin is an arrangement amongst a community of people to use 21 million secure mathematical tokens that is -”bitcoins” as currency. The Bitcoin network is made up of thousands of computers run by individuals all over the world.
To get started using bitcoin transactions one need to have a Bitcoin wallet. Like a real wallet it stores Bitcoins and is used to send and receive payments using unique addresses. People can send and receive bitcoins directly to anyone with a bitcoin wallet, anywhere in the world, almost instantly and at almost no cost.
Bitcoins are impossible to counterfeit, infinitely divisible, and there will never be more than 21 million of them (infinitely divisible means just that: the smallest unit of bitcoin is currently 0.000000001, but could easily be made smaller if needed).
Anytime a Bitcoin transaction is made between users, it’s recorded on a publicly shared log called the Block chain. These transactions are checked and confirmed by miners. Miners are essentially people with powerful computers who, in exchange for newly created Bitcoins, check/verify and hence do the broader validations of the transactions. With thousands of miners contributing, transactions run smoothly, and the network is constantly secure. Due to large base of Bitcoin network and users including miners, no coins can be reproduced or double spent. Cryptography secures the wallet from any unidentified attacks. This type of security is also used for credit card transactions and electronic bank transfers.
There is no central authority/bank controlling Bitcoin so it cannot be inflated like other state currencies. Meanwhile the pre-set embedded code limits the number of Bitcoins which can ever be in circulation. To ensure a stable rate of circulation, Bitcoin production has been modelled on gold mining. Just like mining for gold becomes increasingly difficult over time so does creating new Bitcoins. As the number of bitcoins in circulation is fixed, it can only lead to deflationary economy. It is estimated that the final Bitcoins will be produced in the year 2140.
The total balance of a bitcoin address is kept on a ledger called the BlockChain. The BlockChain records each and every bitcoin transaction. Bitcoin transactions are verified and recorded into the BlockChain by bitcoin miners. Bitcoin miners perform this service by solving complex puzzles that require computing power, processor cycles, which in turn requires electricity. As a reward for their work, bitcoin miners receive new bitcoins and small transaction fees paid by users sending bitcoin. As bitcoin mining becomes more competitive, the difficulty of the puzzles increases – ensuring that the supply of bitcoin is maintained at a steady and pre-defined rate.
Bitcoins can serve as mode of payment for products or services at a growing number of businesses. A transaction is made by “sending” bitcoins to the address (pseudonym of recipient) of the account to be credited. Once a transaction is made, it is broadcasted publicly among the network, which is composed of individuals, known as “miners,” who devote computing power to decode the transactions.
These transactions are not legally bind until the majority of the network verifies they are valid—just as a central authority would verify a banking transaction before it is confirmed. Then, the verified block is posted to the public block chain, and the network starts to decode the next transaction block.
To know more please download our free e- paper on Bitcoin from the Altimetrik website. To download please click the link here.