The Bitcoin Breakdown: Everything You NEED to Know
If you bought a bitcoin one year ago, you would have paid only about a thousand dollars. However, if you sell the same bitcoin in 2017, you could have gotten about seventeen thousand dollars.In fact, the current rate of bitcoin is around 11,400 US dollars. So, what makes bitcoin so valuable? Well, the main reason the price of bitcoin is skyrocketing is that everyone wants to get their hands on it.Bitcoin is a virtual or a cryptocurrency that isn’t backed by any physical means. Some people may confuse bitcoin with some sort of stock, but it is important to know that bitcoin is, in fact, a currency.Many people are unaware how these cryptocurrencies work, and the basic knowledge of bitcoin is necessary if you plan to invest in bitcoin. Here are some basic concepts about bitcoin that you need to know to understand the currency and its future:
No Central Command
Bitcoin isn’t owned or regulated by any single organization or authority. Unlike any other currencies that are backed by banks and are regulated by different countries, bitcoin has no regulatory authority.Bitcoin transactions are in fact irreversible, and no authority or government can stop you from sending or receiving bitcoin. All this freedom means that there is no one to complain to of anything goes wrong so, just like any other currency and cash keep your bitcoin safe and don’t send them to untrustworthy people.
Unlike any other currency that is physical and can be held in your hand, Bitcoin relies on the blockchain. Now, what is the blockchain exactly?A simple way to understand it is to imagine a ledger and every time anyone participates in a transaction using Bitcoin; the transaction is recorded in the blockchain. Then the bock chain copies itself hundreds and thousands of times every single hour and stores itself across multiple computers to make sure that everyone is on the same page. The blockchain is public and can be accessed by anyone. The blockchain also contributes to the security of this virtual currency as hundreds and thousands of copies that are updated every hour are impossible to tamper with.
Like any other currency, the rates of bitcoin are also governed by the laws of supply and demand. The supply of bitcoin is currently limited to 21 million bitcoin. And as the number of people using bitcoin increases the demand for bitcoin is increased and the increasing demand fixed with the fixed supply forces the prices to go up.At this time, the number of people using bitcoin worldwide is significantly less, so the rates of bitcoin fluctuate on daily basis. For example, in early 2011 one bitcoin was worth less than a dollar and now the price has reached around 13600 dollars for a single bitcoin.
The blockchain has to be maintained and updated; this is done by many people who are called bitcoin mines. Bitcoin is a cryptocurrency, and every transaction is encrypted for security. To add a block of transactions to the blockchain each person maintaining a ledger has to solve a specific kind of hash problem that is created by a cryptographic hash function. Bitcoin uses a hash algorithm called sha-656.The process of solving these hash algorithms is performed by computers. Every time someone wins the race to add a block to the blockchain, a reward in the form of bitcoin is added to their account.This reward is halved every 210,000 blocks, and this will continue to happen until the limit of 21 million bitcoin is reached. This process of earning money through maintaining bitcoin ledgers is called bitcoin mining.
Bitcoin transactions aren’t completely anonymous
As the blockchain that stores all the data of your transactions is a public ledger, people could be able to link your identity to your transactions over time. Tools like bitcoin mixers are provided by some companies to achieve more privacy but this demands a huge amount of work.Even though there is no authority to enforce the laws on you, it is best to follow your country’s tax laws to avoid any trouble in the future. To improve their privacy, some bitcoin users may try to use a different address for every transaction.
The security of your bitcoin account
Bitcoin accounts that are also called wallets are secured by the use of keys. Any bitcoin account is linked to two keys a private key and a public key. In this case, the private key can take some data and mark it which is also called signing so that other people can verify you later by those signatures if they require.If the public key works that are proof that the transaction by your private key and is something that you actually wanted to send or receive.Unlike any ordinary signature or proof of identity, this private key cannot be duplicated by any scam artist. Some companies work like bitcoin banks and hold your private keys on your behalf. But keep in mind that you trust all of your currency to that company.On the other hand, maintaining your own private key can be equally dangerous as people can try to steel it from you. So, if you are holding your own private key then don’t go around bragging about how much bit coins you own. Attracting too much attention to your money can be dangerous.
Spending your bitcoin
As with all types of currency, bitcoin is only useful if you are able to spend it. It has been gradual, but there are emerging more and more commodities that are becoming available to bitcoin holders. Perhaps that most high-profile accepter of the currency is virgin-galactic, their upcoming space tourist flight is purchasable by bitcoin.If your transport demands are more traditional, then Lamborghini is the first automobile company that is accepting bitcoin as payment. Apart from these high-profile companies, many other commodities are now available to be purchased through bitcoin.