There is a lot of noise in the market place these days about the digital currency – Bitcoin. This is somewhat a new form of currency that can be thought as a code. It is mined on computers by users called bitcoin miners around the world. One of the most fascinating aspects about this currency is that it is not regulated by any government or central bank.
Bitcoin is the first digital cryptocurrency which is getting a lot of attention and acceptance from the public and major retailers. Just like any other currency, it can be used as a form of payment. While not all merchants currently accept it, yet the numbers are increasing:
- Namecheap Accepted Bitcoin Payment
- Fiverr Starts Accepting Bitcoins Option
- Overstock Accepted Bitcoins Payment
It is important for you to understand how the transaction actually works. Bitcoins are interchanged and conveyed digitally through a computer generated code. To make sure that these transactions are done safely and securely, users use the following KEYS:
- Public key, and
- Private key
The public key is the one that is used for actual transfer. Because this key is public, it allows anyone to verify the transaction. Before the transfer can take place, the senders account has to be verified, this ensures that they have enough bitcoins in their account to cover the transaction. Once this first verification is done, the transaction enters into the Block Chain. Think of this as a public ledger displayed in a transparent glass layer…
This first verification step prevents anyone from trying to send the same transaction to two different people at the same time. If anyone attempts this type of process, it will be referred to as double spending. Using the 2 different keys prevent this from happening.
The end user then uses their private key to unlock the transaction. Once it has been verified, the bitcoin will deposit into their wallet. A wallet is like an online bank account. Because the system uses two keys, all activities in the network can be easily traced. Every transaction ever made is accounted in the block chain. Anyone can look at it.
How the Bitcoin network (Block Chain) is created?
As mentioned above, it requires several verifications for each transaction to proceed. At this point in time, it requires at least 6 confirmations. Before a transaction enters into the block chain, a new block is formed first, this process is to verify that the person sending the bitcoin has the currency available in their wallet.
To create a block, a process known as hash creation – has to happen. Think of this as small nodes that are attached to a block each time it is confirmed. So what is going to happen is that it will take a little longer to complete.
The whole process is done via mathematical software program where zeros are added at the beginning of the block. When each block is being verified, MORE zeros will be added on. The largest block is always taken to be the authenticated block. Once this verification process has occurred 6 times (1 hour), this block enters into the block chain.
This is where you can easily monitor all the bitcoin transactions that have ever occurred. No records are ever removed from the block chain and this will continue to grow in size.