Many people have heard about or are using the digital currency called “Bitcoin.” Some have even exchanged it for cash. What is Bitcoin? The answer is simple: It’s an internet-based virtual currency that is created and maintained by its users. You might think this is complicated, but in fact, it’s really not.
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Bitcoin is a form of decentralized, peer to peer digital currency, which is transferred from user to user over the open source peer-to Peer platform of the bitcoin network without the use of third-party intermediaries. The bitcoin system is based on the Bitcoin protocol which is also known as the bitcoin protocol fork. This allows two different types of transactions to take place under the same system. Users can transact in two ways under the bitcoin protocol; they can buy or sell the currency represented by the Bitcoin they have and transfer it to another user through the bitcoin exchange.
How do you get bitcoins? The most common way to get bitcoins is to mine them. You mine for them by solving complex mathematical equations called hash functions. This problem is difficult to crack, thus it is computationally intensive and extremely timely. Once a solution to a hash function has been found, a new address with the newly generated bitcoins is published for public view.
Now that you know how to get bitcoins, how do you spend them? An easy way to spend your bitcoins is through a wallet or merchant account. A popular wallet is the bitcoin wallet app. There are several good ones out there. The most popular among them is the Silkroad market.
What’s so great about the wallet? The wallet lets you move your money around just like you would in a conventional bank. You can hold some bitcoins in cold storage for a future use or transfer them to another wallet when you’re ready to spend them. In addition, many of these wallets also allow you to add more coins to your existing balance. All of these features make the bitcoin marketplace one of the best places for digital currency to be held.
What about the privacy issue people often raise when talking about bitcoins? The main thing that makes block chain private is the proof-of-work (or what is called the mining) that goes into creating the network. This proof-of-work is transferred to a group that validates it. This group, called the network of nodes, will keep track of the entire chain of blocks. Transactions are only made with the approval of these nodes.
Can you trust the miners if they can collude and divide the mining workload between themselves? The answer is no. Mining is for profit, and dishonest miners would resort to illegitimate methods to profit from their fellow miners. To ensure the integrity of the network, the developers of the bitcoin wallet software include robust security safeguards to prevent the Mining Pool Fraudulent Transactions from affecting the general ledger of the system.
What happens if there isn’t enough computing power or if the network experiences a failure? When the node operator cannot receive a new block, he has to remove it and start again. But he can’t do that if he hasn’t upgraded his software! He’ll have to wait until a new hash schedule has been established and if his client has not yet downloaded the latest version of the software, then he’ll have to start the download process over.
When a new block is mined, the software will add extra data block to the main mining pool. The miner who mines this new block is now added to the network and there’s a backlog of transactions waiting to happen. Meanwhile, all the other miners who haven’t mined a new block yet are at zero incomes because they haven’t produced new blocks. That’s where the problem comes in. Those who own the majority of the computing power have suddenly become the minority, and a large proportion of all coins are now being controlled by the less powerful group of miners.
The backlog of transactions keeps growing, and it gets to the point where the network becomes unsteady. One day, a new transaction goes through and the previous one is replaced by another, and soon enough the whole thing is congested and the only thing left is for the Mining Pool to split the mining power into smaller groups. This is the reason why the whole concept of the cryptocurrency gets under way in the first place!
In this way, only those with the most computing power could possibly survive the high risk of having their transactions get stuck in the backlog. And if a small percentage of your subscribers or supporters start having problems with this, then it’s only natural that you will consider changing your system. But this is probably not a solution that anyone should go for. What we need is a solution that solves the problem of the Bitcoin ledger itself and by doing so we’ll be able to stay safe from the possibility of having a significant portion of our subscription holders and supporters quit the project. This is a problem that shouldn’t need to be solved – it should be used as a warning to those who would abuse the power of the ledger.
