We’re well aware that Bitcoin is an entirely digital currency that lets its users trade money without the involvement of any third-party authority (such as bank, government etc.). Also, these trades are made anonymously, that means no personal information is given out or even required for a transaction.
Out of the many perks of Bitcoin, two happen to stand out the most:
- With Bitcoin, you can exchange money almost instantly with anyone anywhere in the world (but do check if Bitcoin is banned in that country or not). You don’t require a bank account, just a Bitcoin wallet that could be installed on your smartphone, tab, computer etc.
- You aren’t required to mention any personal details which reduce or eliminates the risk of identity theft.
Bitcoin Mining & Blockchain:
For understanding Bitcoin, one must understand how Bitcoin mining works. It is the process behind the creation of bitcoins. During this process, complex mathematical equations are solved by mining hardware in order to verify and generate a block. Every time a transaction takes place, it is tracked digitally by computers in a record, where all transaction details are described.
Bitcoin miners are the people who own those computers and confirm transactions. Moreover, they’re also paid in bitcoins and sometimes even paid a fee for the transactions. Since there’s no involvement of a central authority, miners ensure whether the right amount has been transferred and each member has the right balance after the transaction is completed.
These transactions are shared onto a public ledger, also known as, the Blockchain, which can be accessed by anyone. Every transaction that ever took place is mentioned here along with the Bitcoin address linked to it.
Now you must be wondering, what’s a Bitcoin address?
Let me help you. In order to own bitcoin(s), one must have a Bitcoin wallet. You can get all sorts of wallets, hardware, and software. Install one on your phone, computer or just purchase a physical one. After you’ve got your personal wallet, the next step is generating a bitcoin wallet address and a private key. This is the address you’re going to share with everyone, whenever you want to make a purchase or transaction. Whereas, a private key is meant to be a secret as it basically holds the key to your coins, if you lose your private key, you lose everything.
Remember! Every transaction generates a new Bitcoin address and this is the reason for its anonymity. No one can actually trace the transaction back to you since it’s always a different address.
While Bitcoin has major advantages compared to fiat currency, it’d only seem fair if the drawbacks are pointed out as well.
- The Bitcoin network is also vulnerable to hackers and viruses. Remember, you cannot enter any personal details on a site promising to give out free bitcoins.
- Bitcoin is highly volatile, which means that its price is constantly fluctuating.
- Another drawback is that there are only 21 million bitcoins available. So nobody knows what’s going to happen once it reaches that limit.
- If you lose your wallet, those coins are gone forever, unless you’ve created a backup of it.