Author: Shannon Hannes
Unlike financial organizations, which tend to change and act like the individuals who manage them, Bitcoin is unique. Rather than conforming to political fiats, cryptocurrency tends to follow physical laws.
Because every transaction requires consensus, Bitcoin transactions cannot be destabilized or modified at random. While giving widespread access to Bitcoin may be difficult, it may result in positive development. It can enable the development of a fairer and more egalitarian financial system capable of lifting people out of poverty.
This article will cover some Bitcoin basics before it becomes a part of your daily life.
What Is Bitcoin?
Bitcoin is a decentralized digital currency that functions unassisted by banking institutions or government authorities. It instead makes use of peer-to-peer software and cryptography. Bitcoin transactions are processed on a public register, with records of each transaction uploaded on servers worldwide. Anyone with a spare computer can set up a node, which acts as a server. Also, instead of depending on a centralized trust like a financial institution, agreement on who owns which coins are acquired cryptographically among these nodes.
Why Was Bitcoin Created?
Satoshi Nakamoto created Bitcoin in 2009 as a secure means for people to send money over the internet. The digital currency was designed to be a free-floating payment system that people could use to pay for goods and services, similar to traditional currencies.
Is Bitcoin Secure?
Bitcoin is far more secure than most people believe. Primarily because a Bitcoin key, or a private value connected with your Bitcoin supply, is only one of 2^256 potential numerical combinations. And that is quite a complex number for anyone guess.
This digital currency’s cryptography is based on the SHA-256 algorithm developed by the United States National Security Agency. And breaking this would be impossible because the number of keys required exceeds the number of atoms in the universe.
While there have been high-profile incidents where a Bitcoin exchange was attacked, these firms stored the digital currency on behalf of the users on their platform . And in these cases, the company’s website was compromised, not the Bitcoin network.
Cryptography (Bitcoin’s technology) is not new and has existed for many years. The coding mechanism underpins various secure networks, such as diplomatic cables supplied via intelligent service to remote personnel’ VPN addresses. Furthermore, the information you share is encrypted through cryptography when you transfer money between accounts using your online banking app.
What makes Bitcoin secure in general is:
- It is impossible to guess a Bitcoin key.
- The blockchain’s sophisticated cryptography
- The decentralized characteristics of validation
How Are Bitcoins Stored in the Physical World?
Even though Bitcoin’s features enable secure transactions, you may wonder what happens when you don’t store your private keys correctly?
In general, there are two methods for storing your Bitcoin keys:
- Hot wallet
- Cold storage
Hot wallets allow you to store your private keys online, but they are more vulnerable to hacks since they are less secure. However, there are some benefits to using hot wallets. For example, you can effortlessly interact with your key if you need to move funds fast.
On the other hand, cold storage might be a much better alternative because your key is stored in a physical vault. And that decreases the risks of getting hacked. Even though cold storage may appear to delay accessibility, it is much safer than the hot wallet.
What Is Bitcoin Mining?
Mining is the practice that keeps the Bitcoin network running. It is also the process via which new coins come into existence. All transactions are broadcast over the Bitcoin network, and miners create blocks by performing a cryptographic analysis that is incredibly difficult to formulate but simple to verify.
The first miner to solve the block broadcasts it to the network and the Bitcoin is added to the blockchain if it is correct. The miner is then paid with several newly produced Bitcoins. However, the Bitcoin program has a hard limit of 21 million coins. Which means that there will never be more than 21 million Bitcoins in existence, making it difficult for miners to mine this digital currency.
What Are the Problems With Bitcoin?
Several people have criticized Bitcoin, notably because the mining sector consumes a lot of energy. Another issue is that cryptocurrency has been tied to several illicit operations worldwide. Many critics argue that the digital currency is an ideal platform for black market transactions.
Bitcoin isn’t going away and might become a part of your credit cards and payment checks. This digital currency enables you to send money online without the involvement of a government or a banking institution. It is also quick. Bitcoin has numerous elements, but it stands out because it is a secure means to conduct transactions.