Questions about Bitcoin have increased dramatically as investors have seen the price of Bitcoin rise from 30 cents per Bitcoin in 2011 to $2,550 per Bitcoin in July 2017. Needless to say, there’s a lot of uncertainty when it comes to whether or not one should invest in Bitcoin, but here’s a breakdown of the basics.
What Is Bitcoin, and How Does it Work?
Bitcoin is one type of digital currency also known as cryptocurrency. Users of Bitcoin pay each other directly without traditional intermediaries, such as banks or even governments, using what is known as blockchain technology to effectuate transactions.
First, you would install a bitcoin wallet on your device, and it will generate a Bitcoin address. When you provide your Bitcoin address, the person paying you can transfer funds to your address and into your Bitcoin wallet. This transaction and all transactions in the Bitcoin network are done using this blockchain technology, which is a ledger that tracks balances.
Cryptography (mathematical proofs that provide high levels of security) are used to strengthen the security of the bitcoin network. By the way cryptography is not some untested technology—it is through cryptography that online banking is currently done. As a bitcoin user, you would authorize a transaction using a secret piece of data called a private key. A transaction isn’t finalized until it has been mined, which is a confirmation process to ensure the integrity of the transaction.
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