Bitcoin has gained significance in the recent past with the number of daily transactions reaching 300,000 in 2017. This points to the importance of having at least a basic understanding of what bitcoin is and how it works. The word “Bitcoin” has been used to refer to the technology and network as well as the electronic asset itself. While some people use “Bitcoin” with upper case “B” to refer to the technology/network and “bitcoin” lowercase “b” to refer to the electronic asset, the Oxford English Dictionary uses lowercase for both. This article will provide an introduction to bitcoin aimed at helping you understand some basics.
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Bitcoin as an electronic asset is a cryptocurrency that can be bought and transferred. As a peer to peer electronic currency, bitcoin can be transferred from one person to another without an intermediary such as a financial institution and without regard to the geographical location of the parties.
Units of Bitcoin
The standard unit of Bitcoin is bitcoin (BTC). There are smaller units including millibitcoin and microbitcoin. According to BLOCKCHAIN, a website that displays a chart of bitcoin to US dollar market price, one BTC is worth US$ 1,087.
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Bitcoin operation is made possible by blockchain technology. The blockchain is basically a list, a database or public ledger that keeps a record of all bitcoin transactions. There is a network of nodes with the ability to communicate with each other that run the bitcoin software. Any transfer of bitcoin from one person to another is broadcast to the network and each node keeps its own record of the transaction. Each transaction must carry the digital signature of the transfer and once a transaction has been cleared, it cannot be reversed.
In order to use bitcoin, you must have a wallet. The idea of a wallet does not exactly mean that bitcoins can be stored in a certain place since it is impossible to separate them with the blockchain transaction ledger. The best way of understanding the concept of a wallet is to think of it as a store of your credentials relating to your bitcoin holding that allows you to access and spend them when you wish to do so. Bitcoin relies on public key cryptography involving the generation of two keys: a public key and private key. A wallet is thus a collection of these keys.
Ownership of Bitcoins
Ownership of bitcoins means that you can spend the bitcoins associated with a particular address. To spend the bitcoin, you are required to sign in using a private key that is then verified by the network by use of a corresponding public key. Ownership of bitcoins is assured by the private key which if lost, you cannot use your bitcoins as the system accepts no other evidence of ownership.
Bitcoin mining refers to the service of keeping record of bitcoin transactions. Miners collect newly broadcast transactions and group them into a block. Each new block has a cryptographic hash of the previous one. The blocks are linked into a blockchain by a SHA-256 hashing algorithm. Miners are awarded new bitcoins for their services.
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