Credit card, net banking, cheques, and e-wallets or in kind, they are so many other ways to pay besides cash. And here comes a new technology- Bitcoin.
Haven’t heard of it? No worries I will explain it to you.
What is BITCOIN?
Bitcoin is a decentralized, digital payment system invented by Satoshi Nakamoto. No one knows who Satoshi Nakamoto is, it could be a person or a group. The identity is concealed. The invention was published in 2008 and an open-source software was relased in 2009.
The system doesn’t require any centralized entity like banks or agencies like Western Union to transfer the money, it can be directly done between the 2 parties involved and the processing fee is 2.5 cents compared to the 2-3% of the payment charged by these intermediaries or credit card processors. It can be used anywhere in the world without the need of using any special skills.
How does it work?
As a new user you first need to install Bitcoin wallet on your personal computer or phone which will create your first Bitcoin address and you can create more as per your requirements. Imagine these addresses as a one-time password. With the help of these addresses you can pay to anyone and get paid by anyone. You should use a Bitcoin address only once and create a new address for new payment.
Block Chain- The Ledger
Like any other system there has to be ledger to maintain the records. Bitcoin ledger is called a block chain. Given that it is a used by many the ledger is shared publicly. Block chain records all the completed transaction in a chronological format. This way a proper account is maintained and the balance left of the spender can be calculated.
For every transaction that takes place between Bitcoin wallets has a value. To maintain the proof that if the payment came from the paying owner’s wallet, Bitcoin wallets use private key or seed, a hidden data which is used to sign transactions, thus, preventing the alteration of the transaction.
Special computers make a secure network and supervise the transaction. This is called mining which maintains a chronological order of every transaction taking place and protects the network. Every 10 minutes, after the transaction is confirmed by the network a new bitcoin block is created which is packed with transactions and the network verifies it. No individual can add new blocks in the block chain and cannot control or replace the contents of the block.
There are chances of potential attacks by hackers, stealing your private keys. They can also attack the block chains creating their own block and forcing the other users to switch to their block, making the revenue of the attacker to grow significantly.
The process of creating bitcoins per block is done to create new Bitcoins. But the number of bitcoins created per block reduce by half after every four years and by 2140, 21 million Bitcoins will be created and no new Bitcoins will be made. Many people and companies are investing in Bitcoin- Goldman Sachs, Bill Gates, New York Stock Exchange, Paypal, Google, MIT University.
Well Bitcoin seems like a decent place to invest and also use it as a payment platform which will reduce all the paperwork.
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