Bitcoin is the buzzword these days. You must have heard the terms like public keys, private keys, HODL etc. Millions of people invested in bitcoin and there are people who will invest only after understanding the concept of Bitcoin.
Bitcoin is an intangible asset, you cannot hold bitcoin in your hand. It is a digital currency in the form of software. Bitcoin is stored in digital wallet and these wallets have unique address (keys) which secure the ownership on blockchain network. With the use of private key, one can transfer the bitcoin from one wallet to another.
The question is what is blockchain network - Blockchain is a distributed ledger akin to a spreadsheet. The distributed or decentralised ledger is maintained through nodes. Nodes record the blockchain and validate new blocks that are added to the chain.
How a new block is validated- this is done through a proof of work which solve a cryptographic puzzle. This is called mining and the miner who solves the puzzle gets Bitcoin.
Let’s Talk About economics of Bitcoin
It is important to understand the money aspect of bitcoin as there is no central authority which can control bitcoin. A currency is a legal tender, people have trust that they will buy the things with the use of money. There is a trust behind printed currency. This trust is established by the Govt. Without trust we cannot use any currency to buy and sale anything. The currency is to be trusted globally.
Money cannot lose value like used furniture or machine. The value of money can change but it is is totally fungible like gold. The other features of money are stability and conversion to small fractions.
The fundamental question is why we need govt to control the money. Can have a free money i.e. without anyone’s control.
Bitcoin is free money it is decentralised, there is no control of any govt on Bitcoin. Then the question is how bitcoin is trusted, who gives security to Bitcoin.
The Bitcoin was started in 2008 by a person named Satoshi Nakamoto. Is this a real person? A fake name? A group of people using a fake name? We don’t really know. This mystery surely adds intrigue to the story of Bitcoin.
Lets understand blockchain to understand the security of bitcoin:
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.
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"
Advantage of Bitcoin
Payment freedom
Choose your own fees
fewer risks for merchants
security and control
Transparent and neutral