What is bitcoin?
Bitcoin has taken the world by storm in the past few years but, it has been around for a long time.
What is bitcoin?
By
Sana Hassan
Bitcoin has taken the world by storm in the past few years but, it has been around for a long time.
Bitcoin is a type of digital money (cryptocurrency). It exists on the internet. It has no physical form. It is a decentralized currency with no central bank or administrator. Decentralized means that there is no one mega storage space of data.
Cryptography
To understand bitcoin, we need to understand cryptography. Cryptography is used to convert messages into codes. To decode the messages, a key is required. Cryptography was widely used in world war II. Bitcoin uses cryptography to convert transaction data into codes using blockchain technology.
Supply and demand
Bitcoin works on the principle of supply and demand. if the supply of a product is limited, its value increases. Similarly, bitcoin also has a limited supply. It has a limit of 21 million bitcoins. 16.7 million bitcoins are currently in circulation.
Transactions
Transactions of bitcoins are stored in a database. But this database is not centralized. Every bitcoin user has a unique public key and private key to access this shared database and make transactions. Once a bitcoin transaction is made, it is stored on the database. Now the transaction of the same bitcoin cannot be done twice. Because it has already been recorded.
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Hacking
A bitcoin can be used twice if the decentralized database is hacked and transaction information is changed. In order to do that, control over 51% of the computers connected to the database is required. Even if someone has that sort of control, changing the information in the database creates may more problems for the hacker. The electricity consumed costs much more than the bitcoin. Hence, the hacker loses money. So, it is unlikely for bitcoin to be hacked.
Advantages
Bitcoin has a lot of advantages. It allows fast online transactions without the involvement of a third party (banks, PayPal). You don’t need to give your identity to use bitcoin. No verification is required to register. It is decentralized and cannot be shut down.
Disadvantages
However, there are a couple of downsides to bitcoin. Due to a lack of identity, it can be used for illegal transactions. It consumes a lot of electricity. It is not as fast as other crypto-currencies. The transaction fees change a lot.