You might have heard of a new form of currency emerging on the internet called the Bitcoin. But what exactly is a Bitcoin and why should you care? Worth only a few pennies when it started off in 2009, a single Bitcoin is worth about $7224 today. The first of its type, Bitcoin is a cryptocurrency or digital money that provides a certain level of security and anonymity that regular money lacks. This means that you can make transactions that are nearly untraceable and thus secure.
How Cryptocurrency Works – Important Things You Need to know
Cryptography saw widespread use during the second world war when messages were encoded using it. The most popular instance of its use was the German Enigma machine which was touted to be unbreakable but was cracked by Alan Turing and greatly contributed to the allied victory.
How does it work?
We are all aware of the centralized banking system that allows us to make transactions, deposit and withdraw money. Cryptocurrency follows a decentralized model and allows for transactions to be made without having to go through an institution. These transactions do not require a name to be associated with them and hence offer anonymity and security.
Right about now, you might start to wonder how transactions occur without the use of a centralized authority. Well, the answer to that is a little complicated but bear with me as I break it down. Cryptocurrencies make use of ledgers called blockchains that contain information in encrypted form, about the amount transacted, sender and the receiver.
Cryptocurrency was created by an anonymous individual who went by the name Satoshi Nakamoto. It was introduced as a peer to peer electronic cash system that required no central system to keep account of transactions. The concept behind cryptocurrency is one that took many failed attempts to achieve and was at one point seemed to be impossible by many.
The most basic problem faced by any cash related system is double spending. This can be understood with an example; say a person having 10 coins spends the entire amount for a transaction and then attempts to spend more than whats left in the account on another purchase. Typically a centralized bank having all records would decline the second request but what about a decentralized system? This problem was solved by making use of the concept of confirmation. Whenever a transaction occurs online, all miners are sent the details and their ledgers are updated. Once this is confirmed the transaction is permanently added to the blockchain that is maintained by miners across the globe.
Who Are Miners?
Blockchains are stored by people called miners who use high-performance computing machines to break encoded transaction data. Miners are volunteers who are paid a certain number of bitcoins for completing a block of transactions. Once a block of transactions have been completed by a miner, the block is added to the blockchain and the miner is paid a sum of money. Only the first one to decrypt a particular block gets paid, all others start work on the next block as soon as the current block gets added.
As of today the blockchain size has reached about 107 GB and is set to grow as the convenience offered by cryptocurrency becomes known throughout the world.
Important Things You Need to Know About Cryptocurrency
By now, you might have guessed the reason for cryptocurrency becoming a popular choice across the globe. The secure nature of transactions with no need for authorizations and the low costs incurred upon using this service, all add up to it becoming chosen over other conventional methods. The huge boost in value since its Introduction in 2009, has also opened up a tremendous opportunity for investors who can earn a good return in a short term by investing in bitcoin.
If you are planning to get into the world of cryptocurrency, buy from a reliable source and remember that these are the early days for this type of currency and the market can be quite volatile. Like any other investment, cryptocurrencies do carry a similar amount of risk and you should take caution even though it has turned many of its users into millionaires.
Digital money is rapidly emerging as the next big thing when it comes to transacting online. The convenience of online transactions made busing wallets combined with the added security and untraceabiliy has seen to its rise in recent years. Cryptocurrency did gain notoriety when illegal activities were conducted by websites like the Silk Road that used it as an umbrella to throw off authorities.
Today, the benefits of its use are being reaped by many which has driven up its value and led to cryptocurrencies such as bitcoin being used for investment, to make short-term gains.
Overall if you want to keep your next transaction away from prying eyes or are looking to make some quick money fast, cryptocurrencies are your best bet.