What does “bitcoin” really mean and how does the currency work? Understanding the new currency that has become so popular that is mentioned all over the news, tv shows and movies could be hard for many to grasp but the currency and the idea behind bitcoin is truly amazing.
First we should look at the definition of what bitcoin really means. It is digital currency that uses encryption techniques to regulate the generation of units as well as verifying transfers and transactions while being operated independently from any centralized authority.
But what does that mean for us? Basically there is no bank or country involved among bitcoin transactions. That means there is not a “middle man” charging fees for any transactions you make and you do not have to give your name to complete any transaction. With bitcoin the payments for merchandise can be cheap and easy since the digital currency is not tied to any country or bank to regulate nor charge fees. And businesses are able to accept bitcoin for payment with no additional fees, unlike accepting credit cards. Also people are allowed to buy or sell in the bitcoin exchange using the dollar, euro or yen.
Many people wonder why we would use bitcoin as a currency since it is not tangible money. But when you really think about that concept: is credit cards or checks tangible money? They are simply a piece of plastic or paper used for a payment. Well think of bitcoin as the digital version of currency that is stored on your computer, cell phone or tablets that you can use for payment or investments. One difference between bitcoin and conventional money is the fact that it is decentralized from any bank or country. Actually the public regulates bitcoin and confirms.
Bitcoin is not based on the price of silver or gold like conventional currency like the dollar, euro and yen but rather on mathematics. To produce bitcoin, people use software programs that follows a mathematical formula. The outcome from that mathematical formula is a bitcoin. This is called “mining.”
So how does bitcoin mining actually work? Well here is the short answer. Unless you are looking to start bitcoin mining, I think this explains it enough. With people sending transaction back and forth to each other all day, the network will collect all of the transactions during a set period of time and put them into a list. This is called a block.
The miners take the information in each block and applies it to the mathematical formula that is set up for the bitcoin network. This information is used by miners to confirm each transaction and create a general ledger for public viewing which is called blockchain. The blockchain shows every transaction made through the bitcoin network. That could scare a lot of people when they find out that all transactions are public. But remember it is all done anonymously, the only thing the public will see it the bitcoin address.
Since miners verify each transactions, the process allows users to have full control over exchange, payments or other bitcoin related transactions. This means there is not fraud, chargebacks or identify theft.
