How Does Bitcoin Works? A Beginner’s Guide

How Does Bitcoin Works? A Beginner’s Guide

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How Does Bitcoin Works? A Beginner’s Guide

How Does Bitcoin Works?

No need to go into much detail about how Bitcoin works, but we’ll try to explain it as best as we can.

Bitcoin uses a public ledger. All transaction records are kept in a “block” that is confirmed by network participants over an open Internet.

Every 2 minutes, the Bitcoin network generates a new block. Transactions are verified by applying a “tender” or a small transaction fee.

In addition to making the transaction simpler, this blockchain method (bitcoin’s public ledger) provides an element of safety for both buyers and sellers.

Then the transaction is broadcasted to the network. This creates a change in the amount of bitcoin, which is then added to the miner’s bitcoin balance.

The miner that won the right to add these bitcoins is considered the new owner of these bitcoins. The miners become the miners when they validate a transaction.

In the case of bitcoin, when the miner adds the transaction to the blockchain, these miners earn these bitcoins (“proof of work”).

For example, if a buyer and a seller have an agreement and the buyer wants to pay 1 bitcoin to the seller and the seller accepts this and also sends a bitcoin to the buyer, the transaction is valid and it is added to the blockchain.

When the miner adds this transaction to the blockchain, this miner now owns this bitcoin. The important thing to understand is that there is no person who controls Bitcoin.

It’s about people who have bitcoin, who can verify all transactions on the bitcoin network, and anyone who has bitcoins can validate the other people’s transactions.

You can think of it as “an Internet currency”, and “an electronic cash system”. One such example is that a company or an individual cannot have more than a certain amount of bitcoins in their possession.

Those who hold bitcoin are called “miners”. Miners run the computing machinery that adds transactions to the blockchain and mints bitcoins.

However, if you don’t want to mine bitcoins, then you can exchange bitcoin for dollars or any other major currency. Bitcoin exchange companies allow you to convert your bitcoin to any other currency.

There are different exchanges out there that will help you buy and sell bitcoins in exchange for any other currency you want. They are:

Nowadays, because it has been in the news a lot, bitcoin is becoming a subject of everyday discussion.

You’ve probably heard something about it from your friends or family, read about it in the newspapers, or even saw something about it on television.


Digital cash

  • You can trade them anonymously, away from tax authorities.
  • All transactions are done peer-to-peer.
  • Only valid on peer-to-peer networks.
  • If your private keys are lost, your coins are lost forever.

Cyber security

  • Because it’s peer-to-peer you can’t be hacked.
  • Only people you know can access your keys and transfer coins.
  • It’s so easy, anyone can use it.

How do you buy Bitcoin?

In the beginning, you can send money to anybody who has a Bitcoin address.

There’s a site called Tradehill which allows people to send Bitcoin to their e-mail address and get it back immediately in their bank account.

You can also buy bitcoins with a credit card from your bank.

There are also several local Bitcoins ATMs that sell Bitcoin, with real Bitcoins, on the spot.

There’s an official exchange, where you can buy Bitcoin with actual cash (using cash, as if you are handing them cash).

There’s an online exchange where you can buy or sell Bitcoins.

I also read that you can sell goods on these sites. For example, you could buy cheap Cuban cigars and sell them on the local site, with your Bitcoin.

But the best way is to wait for Bitcoin to become mainstream.


A new era of money?

A lot of people seem to think Bitcoin is a great solution for illegal activity. If that’s the case, I’m not going to make any comments about that.


What should I do with Bitcoins?

  • Actually, you can buy anything online with Bitcoin.
  • Yes, you could buy drugs online, with Bitcoin.
  • But that’s not what Bitcoins are about. They’re about putting power back into the hands of individuals.
  • They have something that no other currency can offer.

Free transactions.

It will probably take another year until Bitcoin becomes mainstream, but I’m sure we’ll see more and more of these digital currencies popping up.


Bitcoin and Its Impact

The main things that bitcoin has taken away from the traditional financial system are transparency and ease of transactions.

Nowadays, with the increase of mobile penetration in developing countries, this digital currency is able to provide them with a new form of transaction.

For instance, let’s say I want to buy this t-shirt from this online company that sells branded clothing. I’ll enter my e-mail id and password, the system will confirm that I am the owner of the e-mail id and password, and then, it will ask me to type in the required amount of money. It will then send a confirmation e-mail to me.

This transaction happens quickly and without delay. Now that I’m able to pay for the t-shirt online. Traditional payment methods like cash are no longer widely accepted.

However, the modern payment systems are still far behind the modern means of payment. Transactions on these systems take a lot of time, if not days or weeks to be processed.

In developing countries like Zimbabwe, this is the case.

To send the money from my Zimbabwe bank account to someone in the US, it would take weeks or even months for them to be delivered to the receiver.

So as an alternative payment method, you can use bitcoin. Bitcoin can be considered the cryptocurrency of the digital age.

Before you buy anything online with bitcoin, you should know that it is not legal tender in most countries and that it is unregulated in the country of purchase.

Because there is no central authority controlling the flow of money in this market, money laundering is another risk that consumers should be aware of.


Problems with Bitcoin

As bitcoin grows in popularity, there is also a general lack of awareness about the system, which leads to fraudulent transactions and illegal money laundering.

Bitcoins are actually produced by a process known as mining. In order to keep the system up and running, miners must discover new bitcoins and add them to the blockchain.


Legal issues with bitcoin

In many developing countries, bitcoin can be considered a virtual currency, which is unregulated in the country.

The creation of bitcoin is actually not controlled by any central entity. It is a completely decentralized method of payment.

Unfortunately, this means that bitcoin in developing countries cannot be regulated as much as it can in developed countries.


Conclusion

  1. A lot of people are excited about Bitcoin. And it’s not hard to understand why.
  2. It is, in my opinion, the perfect currency.
  3. It’s anonymous.
  4. It’s peer-to-peer.
  5. It’s digital.
  6. It’s decentralized.
  7. But, at the same time, it’s real money.
  8. And it’s good to be part of the revolution.

Must Read:

What is Blockchain Technology And Its Future?

What Is Actually Cryptocurrency And Its Types


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