What is Bitcoin and How Does its Blockchain Work

The popularity of digital payment and money transfer has become very popular for individuals and the corporate world. Whether you are doing business with your neighbor or across the border, cryptocurrency offers you the right solution.

With the much hype surrounding the cryptocurrency market, you need to understand how the currencies work and how to tap into their benefits. Bitcoin has been in the market for some time now and seems to have overshadowed other upcoming digital currencies.

Simply put, Bitcoin is a decentralized peer-to-peer digital payment method with anonymous spenders.

To join, you do not have to disclose your identity; you are identified by data that you use to perform transactions. You become an active member by your mining activity.

Creation of coins is done through mining; as a miner, you help the network computers verify other user transactions. When miners are used to create blocks and verify transactions, malicious transactions cannot happen. This way, hacking becomes difficult since all miners cannot agree to manipulate the system at the same time.

Bitcoin is a currency that allows you to buy products without involving the traditional bank. There are no credit cards and the only third party in the system is your wallet host.

Your Wallet is Your Bank!

To receive and send coins, you need to have an account. Your wallet is a digital store where your data is stored.

Creating your wallet is free for a standard one; however, some wallet hosts may charge you a small fee for additional features like enhanced security. Since Bitcoins are digital, they only exist in the network of computers as data. You only make transactions based on your records.

Securing your Bitcoin should be first priority. The network, however ensure safe custody of the coins for all users. The system taps into the collective greed of the user to prevent acts of manipulation. The system miners are individuals who are tech savvy and these maintain the networks honesty using their computing knowledge to create blocks that tallies the global BTC transactions.

Blockchain is a security feature that prevents manipulation of the network; there is no way you can spend a coin twice. Unlike other digital products that you can sell thousands of copies, using blockchain technology prevents Bitcoin double spending.

Should you decide to become a miner, there are rewards for your effort. If you are good at solving cryptic math, you can try mining and get rewarded with additional Bitcoins in your account. This way, you will help in authenticating network transactions to avoid counterfeit coins in the network.

Lastly, the platform securely lets you exchange digital information for goods and services. The systems more or less works like Skype and the data exchanged is in code form and can only be encoded by the intended recipient identified by a unique wallet address.

Where to Spend your Bitcoins

Knowing where to spend your Bitcoin helps you reap maximum benefits of the cryptocurrency. Not everyone on your neighborhood is using the coin; you need to join other global Bitcoin spenders to buy goods and services.

Since the network allows you to remain anonymous, you need a way to find other users and be found in the system as well. The Bitcoin wallet is your location; it generates an address where you can receive and send funds. However, this is not a permanent address; you can only use the address once for every transaction you make.

Businesses that sell gift cards and shopping vouchers are the best places to use your coins. You buy their gift cards or vouchers and use these to purchase products of your choice from merchants accepting the cards and vouchers as form of payment.

You can use Bitcoin in online platforms that accept Bitcoins as form of payment for services rendered. Fiverr.com for example pays freelancers in their platform to get paid using Bitcoins. Steemit, a social network portal pays bloggers and moderators in “steem” that you can exchange for Bitcoins.

To own your first Bitcoin has become very easy, you do not have to buy it; instead, you can earn it online. There are several freelance sites that you can enroll and earn in Bitcoins. Once you receive the funds in your Bitcoin account, you can use other currency processors like PayPal or an exchange like CoinBase to convert your funds to dollars.

EBay, through their market place, connects you with merchants that accept Bitcoins as a form of payment. You can conveniently buy and sell at eBay using Bitcoin. You do not require the services of an exchange service provider for eBay once you have your Bitcoin and their process is seamless.

There are merchants that allow you to use their platform to convert BTC/USD pair or USD/BTC pair. These will help you access your funds in another currency that you are comfortable using. CoinBase is one of my favorites and you need to create a wallet with them for fast services.

Expedia, Dell, Microsoft and PayPal are some of the global multi-million companies that accept Bitcoins as a form of payment. These companies are a good proof that investors can trust this type of payment. However, online reviews are a good source to get what other users are saying before you shop.

What makes Bitcoins the currency of Choice?

What makes Bitcoin popular is the technology the currency rides on. This is a simple network of digitally signed computer codes that can be transferred from one user to the other. It takes approximately 10 minutes to transfer funds from one user to the other; the distances notwithstanding.

Most investors look at the speed of transaction as a critical factor when signing up with digital currency platforms. This helps them close deals faster. Once a transaction is released, it is considered a done deal since the network does not allow reversals. Reversal result into those expensive charge backs and Bitcoin covers you from that headache.

Bitcoin is anonymous in nature; however your accounts and transactions are not, they can be traced. The only good thing is that your identity is hidden and cannot be tracked if you are not a regular currency converter. Investigators and hacker can only track your account and reveal your identity through your account activities. That is, if you use third parties to convert your coins to traditional currencies.

As a Bitcoin user, you are not taxed it is a decentralized currency that your local tax authority has no control over. It has however been associated with illegal trade and drug trafficking among other negative practices.

How does the Bitcoin Blockchain work?

If you are a new user, you are probably wondering how the Bitcoin Blockchain works. You first need to download and install the Bitcoin wallet in your smartphone or computer. This gives you access to a network of other thousands of computers connected globally. Using the wallet, you generate your first Bitcoins address, a gateway to receive and send funds.

You are not limited to the number of wallets you create. You can create as many as possible and fund them at your convenience. Your address works like your regular Yahoo or Gmail address and you can disclose this to friends and associates to use when sending you money. The only difference with normal emails address is that you use a different address for every transaction.

Blockchain Balances, How does it Work?

To access your balances and perform transactions, you need to use a blockchain. This is a shared public ledger that runs the entire Bitcoin global computer network. Once your transaction is confirmed, it is automatically included in the Blockchain.

The shift in your account balance is calculated by your Bitcoin wallet and classified as spendable balance. Any new transaction is verified and once confirmed as spendable, it is termed as owned by the spender. Through cryptographic technology, the authenticity, chronological order and integrity are enforced by the Blockchain.

Private Keys, What they are?

Having Bitcoins lying in your wallet without shifting them may not make sense to other network users. You need to shift them and allow the miner get rewarded for verifying and approving your transactions. A Bitcoin transaction is the transfer of coin value from your wallet to that of another user in the same network. This shift gets included in the Blockchain.

Bitcoin wallets keep your important data; your private key or seed. This is the information you use as a password for signing off transactions, it provides a math proof that you have authorized the value shift from your wallet to that of another user.

The private key code is your authorizing digital signature. It prevents your transaction from being altered by others once you initiate a transaction. Once you authorize a transaction, it is automatically broadcast to all users and the network confirms it. Confirmation is also known as mining and it takes 10 minutes to complete.
To sum it up, you need a complex private key to secure your assets. Hacking poses a grave danger to your investment whether online or off-shore. Bitcoin employs cryptography technology to ensure your funds are secure. It is safe to download and use applications that are trusted and offer the best protection.

What is Bitcoin Mining?

Bitcoin mining is simply processing transactions that are generated and released to the network. It is the processing of initiated transactions at any given time. The mining process works on a consensus that includes all waiting transactions in a Block and works on first come first served policy. The chronological order of processing makes the network neutral and lets the thousands of computers on the network agree on the systems state.

In order to confirm your transaction, it is first cryptographically packed for the network verification. This way, you prevent older blocks from being modified since this way; you will not receive a new block. This process prevents miners from adding new blocks to the Blockchain. This is a system control mechanism so that no roll backs of what is spend to eradicate double spending.

The more miners solve the transaction math, the more it becomes difficult for miners to mine. This simply explains why the price of Bitcoins keeps appreciating. Take gold mining for example. The more you mine the precious stone, the more it becomes scarce since you sell what you have mined. With time, the gold becomes depleted and the value in the market increases. This is how Bitcoin mining makes the currency value togo up.