What is Bitcoin? Why is it used?
If you would have asked this before 2009 or 2011, nobody would have been able to answer.
Now, if you go and search on Google, you would find hundreds and thousands of articles explaining Bitcoin. And, if you try to read all of them, it would take hours and hours for you to understand everything about the same.
But, even after that, hardly, people get a picture-perfect idea about each and every term related to Bitcoin.
Let’s learn everything that could help you understand about the entire Bitcoin system that too in just five minutes:
What is Bitcoin?
Bitcoin is a form of digital currency or digital cash. This type of digital cash is encrypted to generate new units of digital currency and verify the transfer of funds.
Bitcoin is one kind of cryptocurrency.
Here is what you get when you search for Bitcoin on Google:
And, here is what you see when you search for Cryptocurrency on Google:
You can send or receive Bitcoins just like you do with the real money. The only difference is, you have to transfer Bitcoins using the Internet. In fact, not necessarily that a Bitcoin account is linked to any real identities. So, you can exchange the Bitcoins with known as well as unknown people.
But, the security is maintained with the help of a mathematical field, Cryptography.
Bitcoin is operated independently without a central bank or a system administrator.
What is a Bitcoin Address?
The most common way to communicate with people over the Internet is, using Email Addresses.
The same is the case with Bitcoin. We can exchange Bitcoins using Bitcoin addresses. Bitcoin addresses can be created in a few seconds that too with no costs attached with the help of any exchange or digital wallets.
Bitcoin address consists of 26 to 35 letters and numbers and it only begins with either the number ‘1’ or ‘3’.
Nobody can know who owns a Bitcoin address until and unless one explicitly link their name to it.
Here are a few sample Bitcoin addresses found from Google:
What is a Public Key?
A public key is an identification (ID) number of a Bitcoin owner which is used to create a Bitcoin address.
Just like you have a bank account number for bank transactions, here is a public key which you can give to somebody who is transferring Bitcoins to your Bitcoin address.
The public key of Bitcoins is easy to read and type. So that, one does not make a mistake while transferring Bitcoins.
What is a Private Key?
A private key is the other half of your Bitcoin address which only you know it. It is like a CVV of your credit/debit card which you can use to make payments or online transactions.
So, you cannot share it with anyone. And, if anyone gets the private key of yours, they can transfer your Bitcoins to their addresses and you cannot do anything to it. That is why it is highly important to keep your private key, private.
What is a Blockchain?
A Blockchain is a public digital ledger that keeps a track record of transactions taking place between various websites and users in the Bitcoin network.
It is kind of a global database that stores each and every Bitcoin. In fact, any new Bitcoin that is generated is recorded in the Blockchain.
Here is what you get when you search about “what is blockchain” on Google:
What is Bitcoin Mining?
Bitcoin mining is a process which verifies the transactions taking place in the Bitcoin network and adds them in the public ledger, blockchain.
Bitcoin mining is also used to create new Bitcoins.
If you want to participate in Bitcoin mining, you need to have the Internet connection and the special hardware that can help you in participating in the Bitcoin mining.
To create new Bitcoins, you need to assemble recent transactions into blocks. And, you can only do that by solving a computerized mathematics puzzle. The puzzles are not at all easy to crack and its difficulty level depends on the people available in the mining process.
If you are able to solve the puzzle, you are allowed to place the next block on the blockchain. And, this helps you earn Bitcoin rewards.
This is the process of Bitcoin mining explained by SupportSages
The Bitcoin rewards can be two things –
1. The transactional fees attached to the transactions on which assembling them into the blocks took place on the blockchain
2. Newly generated Bitcoins
So, this is how you earn Bitcoins.
An example of the Bitcoin reward by BitcoinMining.com:
What is a Digital Bitcoin Wallet?
A digital Bitcoin wallet is similar to digital wallets that you use to store your electronic cash. In digital Bitcoin wallet, you can store all of your public as well as private keys.
As you have multiple Bitcoin addresses, Bitcoin wallets help you stay organized while dealing with multiple people and transactions.
This is a sample of a digital Bitcoin wallet by Wikipedia
Cryptocurrency, the Blockchain, Bitcoin, etc. all of these things are so complicated when you sit down and try to understand what all these things actually mean. Well, we have just tried to cover the basics that you need to understand about Bitcoin, Bitcoin Mining and other stuff related to the same in the simple and plain English language.