Bitcoin, the most discussed topic in the world of finance, since its meteoric rise in the year 2017
Bitcoin has been in the news for quite some time. It has become an entity that has delivered multi-bagger returns. Although, many industry leaders have had a wide range of opinions on Bitcoin.
Some strongly believe and back the idea that BTC and similar currencies are the future of freely moving economies. But some people reject the idea, describing it as a digital entity of questionable and uncertain value.
What is Bitcoin?
Bitcoin is a currency, just like the Dollar, Euro, Yen, Pound sterling, Indian Rupee. But that is the only similarity between the traditional currencies and Bitcoin.
Let us further understand the term cryptography- Crypto meaning secret; Cryptography is the practice of secure communication that uses algorithms to convert the message transmitted into unreadable data that can only be decoded/decrypted by authorized senders/receivers.
Bitcoin is a decentralized digital cryptocurrency that operates on a peer-to-peer basis. It is a computer code with value encrypted with a strong crypto-algorithm to maintain its integrity of being authentic.
How and Why was Bitcoin created?
In 2008, a person or group of people with a pseudonym SATOSHI NAKAMOTO published a whitepaper defining, “ Bitcoin- A Peer-to-Peer Electronic cash system”.
Later on January 9, 2009, its code got released as open-source, and Satoshi Nakamoto started to mine Bitcoins. Satoshi, after being involved in Bitcoin development till December 2010. That is about all the information about Nakamoto, available in the public domain.
The idea behind creating the decentralized currency was to create an ecosystem, parallel with the centralized system of economy which is administered by the rules set by the authorities, where the people had to trust the central bank to uphold the value of its currency. The currency operated completely under the discretion of the government.
How does Bitcoin work?
Bitcoin is a digital currency that needs a platform to record its transactions called a ledger. Bitcoins use Blockchain, another revolutionary technology for a ledger operation.
Bitcoin has some key terms. A public key, Private key, Wallet.
The public key is the location where transactions are deposited into and withdrawn. This key represents the holders’ digital signature on the blockchain ledger, similar to a username on a social media newsfeed. The private key is the password required to buy, sell, and trade the bitcoin in a wallet.
A private key should be a guarded secret and only used to authorize Bitcoin transmissions. Some users protect their private keys by encrypting a wallet with a strong password and, in some cases, by choosing the cold storage option; that is, storing the wallet offline.
A cryptocurrency wallet is an application used to store cryptocurrencies. There are many types of wallets like hot wallets, cold wallets, used on different platforms like mobile, desktop, etc.
How to Safeguard & Store Your Bitcoin?
Just like we use wallets for safeguarding fiat currency, there are tools called Digital Bitcoin Wallets. These wallets store your public key & private keys.
The Public key acts as an address to your account.
The Private key– Sensitive key used as the password to access your wallet. Anybody who has access to your private key can spend the associated cryptocurrency.
The different types of wallets:
- Desktop wallets
- Mobile wallets
- Online wallets
- Paper wallets
- Hardware wallets
Advantages of Bitcoin
As mentioned earlier, Bitcoin cannot be controlled/administered by any central authority but is distributed among all peers worldwide. Bitcoin eliminated the intricacies of transactions in the current financial system that was trust-based transactions via banks. With the integration of Blockchain technology, Bitcoin is being transacted on a peer-to-peer basis, eliminating third-party interference.
Blockchain also allows the digital assets to be transacted with much ease as there is less paperwork and wait time for transaction confirmations. Since most of the processes are automated, there are very few issues related to human errors.
Since the fiat currency was centralized and there was no other option other than using banks or financial companies like PayPal, which charge a hefty percentage on transactions. Charging nominal transaction fees helps to address the issue. Bitcoin transactions are set at the time that the miners might accept.
No matter how secure the banks claim their systems would be since human interference is necessary for verification processes, there are always risks of fraud and insecure transactions. But Bitcoin offers multi layer crypto-algorithms to evade the risk of illegally privatizing the majority of digital asset networks. Most importantly, there is the slightest involvement of humans, which eliminates the factor of human error.
It is a cause of concern that how much information is demanded by financial institutions for executing transactions. Your banking details or important identities may be stolen and misused. But using Bitcoin offers a feature to keep your identity anonymous that is valued by many.
Bitcoin has been through a lot of ups and downs since its inception in 2009. Bitcoin is legal as a mode of payment and transaction in some countries like Japan, the USA, Singapore, Germany passed legislatures to allow trading bitcoins to some countries where it is illegal to transact bitcoins and other such currencies. It is Strictly advised to do your due diligence before investing. Cheers!!