|
So what is Bitcoin? Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence. Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus. |
||
|
How does Bitcoin work? From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users. Behind the scenes, the Bitcoin network is sharing a public ledger called the "block chain". This ledger contains every transaction ever processed, allowing a user's computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. In addition, anyone can process transactions using the computing power of specialized hardware and earn a reward in bitcoins for this service. This is often called "mining". To learn more about Bitcoin, you can consult the dedicated page and the original paper. Potential dangers and pitfalls The first thing you need to understand is that the BitCoin is not backed by any government, treasury, or central clearing house. Its value does not derive from gold or any other precious metal, but rather from the users themselves. This is in reality not much different than many national currencies, plus the users have their own investments to protect helping keep the market alive. Secondly, Bitcoin transactions are irreversible and for practical purposes untracable. Trust is important in the bitcon network because once the coins are sent... well there's no getting them back. Thirdly, its secure. While security is great for keeping theives away, it also means if you have a downloaded wallet and your computer dies your bitcoins are gone. The solution: Use an online wallet service with 2 factor authentication through a security app or google. I personally use Coinbase for my day to day transactions. Unless someone were to steal my phone, my laptop AND somehow know my pin # my coins are safe. |
|
|
