If you have heard about it, then you know that you are talking about bitcoins, also known as bitcoins, virtual currencies or digital currencies. But what is this thing? Is it different from the traditional coins that we all know about? How does it work? In this article, we will try to answer these questions.
Let us start by clarifying what exactly is meant by “bitcoins”. Before the release of bitcoin, there existed a currency with the same characteristics as conventional currencies, the unit of account is the bit, the same with gold and silver, but with better properties: no central bank, no reserves, high fees for loans. bitcoins are a digital currency, which is not controlled by any government or central authority. The concept behind the transfer of bitcoins is the user can make secure transactions without having to go through any legal process like paper money or bank transfers because all actions are executed via the internet under the rules of the decentralized network of computers.
So we already have the technical description of how it works, but let’s get down to the real-life facts. As the network of computers starts to function, each computer starts to add its weight in terms of the balance of the blockchain. There is a hardcoded algorithm that guarantees that once a certain number of signatures has been added, then the transaction was successfully made. It is considered to be very safe since the protocol is programmed to ensure that the transactions go through a strict and complicated process only when most of the computers participating in the network have added their weight into the blockchain. This makes it impossible for someone to modify the transaction before it goes through.
However, there are some flaws in the system. Since the bitcoin protocol is programmed in a way that it cannot be manipulated, the use of the currency in question is limited to being able to purchase products online. It can however be used for normal monetary transactions. It is not, however, legal tender. If you wish to pay someone in exchange for some bitcoins, then you will need to use cash.
The next big issue on the horizon is the possibility of mining. Although it is called a mine, it does not involve mining anything. You can’t get bitcoins by “mine” your own. Rather, you have to join a pool that works together to mine the transactions. Since there is an inherent disadvantage to pools, and that is they are not operated by individuals but by large groups of people, the operation of this method could be subject to manipulation as well.
To answer the above-mentioned problem, there is an innovative solution called “pooling”. It is where you join up with other people who are looking for ways to get bitcoins without having to mine them yourselves. As we said, the concept behind this method is to prevent individuals from influencing the mining process and artificially raising the price of the coin. This way, the network as a whole would determine how much the price should be and nobody will be able to manipulate it. But this also means that if a large group mined the transaction, the price of the bitcoin would skyrocket, defeating the whole purpose of the system.