Monday, 6 January 2014

BITCOIN : What is it? How does this work?

Okay, so maybe you would've been wondering from a while that what is a bitcoin that everyone has been talking about, how does this thing work and more importantly, how you can get them. So calm down peeps because you are about to know everything.

Basically, a BITCOIN is peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto.
It is a cryptocurrency, so-called because it uses cryptography for security. Users send payments by broadcasting digitally signed messages to the network. Transactions are verified, timestamped, and recorded by specialized computers into a shared public transaction history database called the block chain. The operators of these computers, known as miners, are rewarded with transaction fees and newly minted bitcoins.

Don't be surprised after knowing this but Bitcoin's exchange rates are way to high. It is damn true 1 BTC(bitcoin) has currently 952.5 USD. Isn't that super crazy. If you don't believe feel free to check the exchange rates here yourself.

That was the very basic knowledge about a bitcoin. But how does this thing work exactly ? This is the question that causes confusion. Here's a quick explanation.

Well you can watch this video for explanation of what is a bitcoin and how does this thing work or you can read the summary after the video.

The basics for a new user
As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.

The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.

Transactions - private keys
A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.

Processing - mining
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.

Okay, so this much is obviously just a summary of it's working. But if want to know in detail which not really needed but for that you can look into the original paper by clicking here.

Now, here comes the most important part. How can you get Bitcoins.
The process of getting or say earning bitcoins is through a process called mining. We basically use our computer to do some task and ultimately it results in adding some bitcoins to our wallet. Remember, that this quantity can be very low but still it has got bigger value, so don't go on numbers. For mining you got to have computers with very good configurations. Your dual celeron processors with 1 GB of RAM ain't gonna do the job. Here's the best video available, that will make evrything clear about how to mine Bitcoin.

PART - 1

PART - 2

Watching a video is much better way to get things clear, and this will make everything very clear.
For mining bitcoins it is also necessary to know about good mining pools. To know about good mining pools out there available watch this --
About mining pools, trading and exchanging.

So, i believe things about will be pretty clear to you. It is something that everyone can do and it is no illegal as well. So i don't find anything wrong in mining bitcoins myself. So start mining today.
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