Bitcoin is a digital currency that can be used globally. It is not controlled by a central party, rather nodes participating in its network perform this duty. The central controlling party, such as banks, is thus decentralized.
If you don’t know anything about it yet, here’s what you should keep in mind starting off:
– Bitcoin itself is kind of token that represents value on the internet.
– Bitcoin token is exchanged and used by people on the bitcoin network, which is based on the blockchain technology.
So, it means bitcoin can be used just a US dollar on its network to perform various transactions. It is value represented in digital form.
There is no central authority or bank that is running the bitcoin network. In fact, you can also join in and participate in the process of running the bitcoin network by setting up a mining rig.
Miners are essentially the ones running the network. Now what is a miner and what does it do?
In order to keep track of all the transactions that are happening on the network, such as A sent B 2 bitcoins, all the miners keep a record. Once a transaction is proposed to the network, each and every node in the network needs to be informed that this happened, and everyone has to keep a record of it happening so that no double-spending occurs and everything is transparent and open.
A pool is formed of the transactions that need to be validated by the whole network. On average, after every 10 minutes, a block is formed on the bitcoin network. This block includes information about the new transactions and is shared on the network. Every miner on the network adds this block to their blockchain, and the entire blockchain record is kept by every node. In this way, transactions are visible to all, and transparency is maintained.
In order to form a block, a cryptographic puzzle needs to be solved and as a result, rewards are distributed to the solver. Now, this is the incentive for the miners to participate in the network. Whichever miner solves the puzzle first gets the reward, forms the block and adds it to its blockchain, which is then shared with the whole network. This algorithm is termed as Proof-of-Work (PoW).
This is how the bitcoin network operates, blocks keeping a record of all the transactions, and a chain of blocks, a blockchain.
The bitcoin network is global and nodes from anywhere around the world can participate. The bitcoin network is also immutable, meaning if a transaction is pushed to the network and is added in the blockchain, it cannot be changed. Since the record of every person is maintained by everyone, a transparent fabric of operation is established.
Developments are being made in the bitcoin world every day and there are people who claim it to be the future. It still has a lot of issues associated with it. But it will be interesting to see how much does this asset affect the global financial market moving into the future.