Understanding The Structure of Bitcoin


Understanding The Structure of Bitcoin

Safe Milli
| March 10, 2021 Last Updated 2021-03-10T23:01:05Z

An Introduction to Bitcoin

Bitcoin was launched in 2008 by an anonymous programmer. His idea was to introduce a digital currency called Bitcoin that can be used by everyone to make or receive payments. The supply of Bitcoin is limited. There are 21 million bitcoins worldwide out of which 18.6 million are in circulation. It was created as a decentralized alternative to the banking system. This means that Bitcoin does not have a central authority or regulatory body. There does not exist any one particular organization responsible for making decisions about how much bitcoin to produce or how many to produce. There is also no specific organization keeping a track of where the bitcoins are or for prevention of fraudulent activities.

Bitcoins can be transferred one computer to another through a peer to peer network that is spread worldwide. A transaction with bitcoin is recorded on a global ledger. This ledger is called a blockchain, which means that it is a chain of blocks of transactions.

The blockchain is decentralized. Anybody can volunteer to take the responsibility of keeping the ledger updated. All proceedings involving bitcoins are registered by all users simultaneously. As a result any attempt to commit fraudulent activities would be noticed and the transaction rejected. Thousands of people separately maintain the bitcoin blockchain.

For each transaction to take place, a user needs to declare a set of information to the bitcoin network. They are: account number of the sender, account number of the recipient, how many bitcoins are being sent. Users keep copies of the global ledger. So when a transaction takes place, it is added to the blockchain. To add a block of transactions to the chain, each person maintaining a ledger is required to solve a mathematical problem.

Thousands of people invest in supercomputers to constantly solve such problems. The people solving these problems are known as miners. Miners who successfully solve a problem get to add a block to the blockchain. This in turn generates a new set of problems that are needed to be worked out. So the problem is constantly being updated in order to add to the ledger. Miners get compensation out of this in the form of bitcoins. This is an inbuilt reward system in the bitcoin network.

Bitcoins are kept safe with the help of cryptography that is they are kept safe with a bunch of keys:

An account on the bitcoin network can be created by anyone. A person's account in the bitcoin network is their wallet. Each account has a set of keys attached to it. The keys are of two types, public and private. A private key is like a password that allows the holder of the key access into his bitcoin wallet. A public key is derived from the private key. The public key is a public address using which other people can send you bitcoins. The bitcoin network and users wallet keeps a track of the number of bitcoins a user has and whether they are enough to carry out transactions.

Bitcoin can be invested or traded. Advantages of trading in bitcoins are as follows:

  • Bitcoins are very volatile. But correctly predicting market movements, one can make profits from holding bitcoins.
  • Bitcoin trading is open 24/7, unlike other conventional markets set opening and closing time. 
  • Being unregulated, it is relatively easy to start trading without the need of a long identification process. 

There are two types of trading

Day Trading - Day traders carry out numerous trades throughout the day. They try to earn profits from short term changes in prices. All day trading is ended by traders daily.

Swing Trading - Traders carry out this kind of trading to make the most of the natural flow of price cycles. Such trades are carried out until the price movements stop. Swing traders can maintain their trading positions for weeks or months.

Investing in bitcoin can be done by buying a coin. In order to buy a coin, or a part of it, personal information is needed. For creation of an account this information is essential. The money that is going to be used to buy the coin is then deposited in this account. Bitcoin can be used for all sorts of transactions, be it international payments, payments of college fees salaries etc. A lot of retailers have also started accepting payments using bitcoin. However since its launch, bitcoin has been attracting a lot of popularity and intrigue. However, being a new and strange concept, people are still fearful of investing or trading with bitcoin. Not everyone knows everything there is to know about bitcoin and how they work.

A lot of aps have been launched to understand and introduce themselves to the world of cryptocurrency and bitcoin. The purpose of these apps is to experience using this digital currency. It has been designed to make the transition to bitcoin smoother. Bitcoin Victory is just one of them!

Enjoy trading away cautiously.
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