What are Bitcoins and How Does it Works?

Rate this post

Bitcoin the virtual banking currency of the internet has existed for several years now and many of us have questions about them. Where do they come from? Are they legal? Where can you get them? Here you will get all the Answers for your Questions.

What are Bitcoins?

Bitcoins are electronic currency, otherwise known as ‘cryptocurrency’. They are in a form of digital public money that is created by painstaking mathematical computations and policed by millions of computer users called ‘miners’.

They are, in essence, electricity converted into long strings of code that have monetary value.

Why Bitcoins are in Controversies?

Bitcoins are highly controversial because they take the power of making money away from central federal banks. Bitcoin accounts cannot be frozen or examined by tax men, and middleman banks are completely unnecessary for bitcoins to move. Law enforcement and bankers see bitcoins as ‘gold nuggets in the wild west’, beyond the control of traditional police and financial institutions.

How Bitcoins Are Made?

A bitcoin, at its core, is a very simple data ledger file called a ‘blockchain’. A blockchain’s file size is quite small, similar to the size of a long text message on your smartphone.

The complex part of the bitcoin is “The Private Key Header Log”. This header is where a sophisticated digital signature is captured to confirm each and every transaction for that particular bitcoin file.

Each digital signature is unique to each individual user and his/her personal bitcoin wallet.

These signature keys are the security system of bitcoins. Every single trade of bitcoin blockchains is tracked and tagged and publicly disclosed, with each participant’s digital signature attached to the Bitcoin blockchain as a ‘confirmation’. These digital signatures, when given several seconds to confirm their transactions across the network, prevent transactions from being duplicated and people from forging bitcoins.

How Bitcoins Work?

Bitcoins are completely virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money. Once you own bitcoins, they behave like physical gold coins: they possess value and trade just as if they were nuggets of gold in your pocket. You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.

Bitcoins are traded from one personal ‘wallet’ to another.

A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud. For all intents, bitcoins are forgery-resistant. It is so computationally-intensive to create a bitcoin; it isn’t financially worth it for counterfeiters to manipulate the system.

Why Bitcoins are such a Big Deal?

  1. Bitcoins are not created by any central bank, nor regulated by any government.
  2. It is completely bypass banks.
  3. Bitcoins are changing how we store and spend our personal wealth.
  4. The transactions of Bitcoins are irreversible.