A currency is a money which in any form can be used as a medium of exchange. Various countries make use of different currencies like the United States makes use of the US dollars, Nigeria makes use of Naira and so on. However, with the advent of computers and internet, a new currency has surfaced, and it is called the Digital currency.
Digital currency differs greatly from the physical currencies, as it is electronic money recorded on a stored-value-card or other device. One of the most used types of digital currency is the cryptocurrencies.
Cryptocurrencies, which make use of cryptography in securing its transaction, came into limelight with introducing Bitcoin in 2009.
What is Bitcoin
Bitcoin is a form of digital payment system and a digital currency that is unlike the traditional physical currency, as it is created and held electronically. It is not the kind of currency you can stick in your pockets.
Bitcoin, as a cryptocurrency, is said to be the first decentralized digital currency, as the system does not work with a single administrator. The monetary authorities do not control over the number bitcoins as they do over their various traditional currency.
Bitcoin is a peer-to-peer system which is said to be invented by an unknown person or group of persons, called Satoshi Nakamoto. The Bitcoin software, as an open source code, was released in January 2009, so that with your computer, you will be able to send and receive bitcoins through a setup Bitcoin address.
How does Bitcoin Work?
Bitcoin is a computer program or mobile app that provides a Bitcoin wallet, so you can send and receive bitcoins. Well, at least, that is what most users see Bitcoin as.
The Bitcoin is a lot more than that, as some pretty things happen behind the scenes. The Bitcoin is like a network which shares a public ledger called the blockchain. This blockchain contains all transaction that has ever been processed and it also keeps track of generated bitcoins. Every transaction started from a sending Bitcoin address must be authenticated by a digital signature to confirm ownership of Bitcoin.
You can earn a reward in bitcoins for processing transactions using a specialized software and the computing power of a specialized processor. This transaction processing is called mining.
What is Bitcoin Mining?
Mining is a way of using specialized software and the computing power of a processor to process transaction and generate bitcoins. Mining help synchronizes everyone in the Bitcoin system and secures the network.
Miners are individuals who perform the work of mining by making use of mining software that listens for new transactions in the Bitcoin network and then processes and confirm these transactions. Miners do this work to earn a percentage of bitcoins they generate.
The blockchain a said to be a shared public ledger where all confirmed transaction in the Bitcoin network is stored. It keeps the entire Bitcoin system in check by keeping track of every Bitcoin transaction made by any Bitcoin address. The Bitcoin transactions are stored in a linear and time stamped manner, called blocks.
A Bitcoin address is a combination of gibberish characters which serves to identify the potential destination, where Bitcoin payment will be made to.
With Bitcoin address, you can transfer and receive bitcoins, across the internet, to people you do not even know or trust. Unless a Bitcoin user decides to attach their name to a Bitcoin address, you would not be able to identify the person who owns the address.
The Bitcoin address has two cryptographic information: the private key and public keys. The public key is the generator of the Bitcoin address; which people can send bitcoins to. And the private key is what confirms that you are the owner of the bitcoins in a Bitcoin address. The private key is secretive key meant for only you, so it is advisable to always keep it safe, as it gives you control over your Bitcoin.
The Bitcoin wallet is where the information necessary to make Bitcoin transaction is stored. The private and public keys are stored in the Bitcoin wallet. With Bitcoin wallet, you can also receive and send bitcoins.
On opening a Bitcoin Wallet, a Bitcoin address is automatically generated for you, but you can generate as many addresses as you want.
There are different types of Bitcoin wallet: software wallet and the online wallet.
A software wallet is a software that you install on your device to have complete control over your
Bitcoin transaction credentials. The software wallet is available for both computers and mobile devices.
To download a software wallet, go to bitcoin.org/en/choose-your-wallet on your web browser. Then choose your preferred Bitcoin Wallet.
The online wallet is one that is hosted by a third party to help store and keep your Bitcoin transaction credentials safe. You can get a bitcoin wallet from blockchain.info, coinbase and so on.
How does one get Bitcoin?
You can acquire bitcoins through competitive mining, purchasing bitcoins at the Bitcoin exchange, getting paid for goods and services. And also by exchange of bitcoins with someone.
Transaction with Bitcoin
You can either send or receive bitcoins from Bitcoin addresses. And these Bitcoin addresses are generated by a Bitcoin wallet. So, in a sense, a transaction is the transfer of bitcoins between Bitcoin Wallets. Transactions are confirmed to have come from the owner of the wallet, by the use of a private key that is stored in the owner’s Bitcoin wallet. Transactions are announced to the network and then the process of confirming the transactions will begin.
To receive a bitcoin from someone, send your Bitcoin address to the bitcoin sender.