How do Bitcoins Work?

As human society improves, technology also advances over time. While it is good to obtain real and actual cash, it’s better to have money in your hands, without them actually bulking in your bag. Bitcoins are virtual coins that are transported over the internet for trading all over the world. They are widely used due to efficient and easy transactions.

The Exchange Rate

Real world currency can be exchanged to bitcoins. The exchange rates vary from country to country and depending on the supply and demand rate. Once you have enough real world currency, you can find websites on the internet that allows exchanging of your local currency to bitcoin.

Bitcoin Ledger

A ledger is a collection of files used to record and total economic transactions measured in terms of a unit of account, in this case, a bitcoin. This ledger is completely decentralized. This means that there is no party in total control of revising the all amounts recorded in the payment network. The only person who can make changes to a certain account is the person who holds the password to that account. The fact that the ledger is not controlled by a third part means that there is little to no censorship. Therefore, you don’t need to ask a third party for permission to spend. Before, there were cases when credit card companies blocked a certain website. This means that the website can’t receive any kind of payment or donation from users under the selected credit card companies. It was a hassle, especially because it limits the rights of users. In a decentralized ledger, like Bitcoin, cases like this won’t happen since the ledger is controlled mainly by people who handle the private key, or key word identification.

Bitcoin Mining

To regulate the supply of bitcoins, there has to be a source to create them. In a real world example, your local currency are generally made of a special kind of paper and printed with various shapes and numbers. These papers are what we call money. Money is created in the national bank, where they make sure that the regulation of money is enough for its people. In bitcoins, there is also a way to obtain coins in addition to bitcoin trading. This is through bitcoin mining. These miners don’t actually use a shovel and dig in the soil; rather they use computers to recreate a value that makes up a bitcoin. They do the accounting to create what we call a bitcoin. The bitcoin network creates bitcoins regularly on a predefined schedule. Upon finishing the accounting of the bitcoins, they are awarded to miners who put in the effort to finalize them for further usage. Many people claim that bitcoins are deflating, which to some, implies that bitcoin creation is abnormally decreasing. The truth is that it is inflating, which means that its creation is continuously increasing until the bitcoin amount created has reached 21 million. When that happens, bitcoin creation would decrease and eventually, no new coins shall be created. The bitcoins would just circulate over time.

Why Bitcoin?

Bitcoins are the same as any other payment system, but why has it attracted a lot of users? Here’s why. First, as mentioned above, there is little to no censorship. Usually, before you use a credit card, you shall have to inform the company. Unlike the Bitcoin system, it is peer-to-peer and users can transact directly with each other. Also, since there is no third party, the costs would be lower. Instead of paying that delivery charge that sometimes costs even more than the actual product purchased, bitcoin network gives a much lower fee of roughly less than $0.15. Due to its user-friendly interface, sending and receiving money has never been this easy and efficient! Since bitcoin transactions occur instantly, the receiving end would obtain the sent coins just as quick. Due to the presence of the bitcoin ledger, it is possible to keep track of previous transactions for further reviewing, given that the person holds the private key to be able to access the ledger. The bitcoin network also practices transparency for users to keep track of the circulating bitcoin currencies around the network.