What is bitcoins? By reading this article you will know what it is. But first, let us try to understand what is the underlying meaning of " bitcoins". It is actually a very simple concept of a digital currency one that is made up of digitally signed documents (the " Bitcoins"), which cannot be altered once they are placed in a public key.
The bitcoin protocol enables people to use their own computers to perform bitcoin transactions. This is achieved by "mining" new blocks of transactions that have been validated by users. When a miner finds a valid, previously unspent transaction in the "blockchain", he validates it and adds it to the ledger called the "blockchain", and starts an extended chain of transactions. This is how you get your money! This system, source: Economy Watch, every transaction is guaranteed to be secure and there is no risk of hacking or robbery.
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Decentralized Payment System
However, when someone tries to spend bitcoins, they are doing so from their own private computer. This way, the person doesn't need to go through any kind of third party intermediary. Transactions are performed solely between two parties with their private keys. So, does this mean that the digital currency bitcoins are truly a decentralized payment system?
The answer is yes. The only thing that is required is for a user of bitcoins to be comfortable enough with his/her decision to transact using the internet. Otherwise, the entire system breaks down because there is no intermediary for the transaction! Therefore, the transactions are not truly decentralized, but are instead semi-decentralized (like using a paper check). This is what makes a payment system based on bitcoins work so wonderfully - the buyer is able to purchase a product from a seller who has chosen to accept the payment system known as bitcoins.
Traditional Public Record
One good way to understand how the bitcoin transaction ledger really works is to imagine a
public record, such as the IRS's "IGolf," or the Federal Trade Commission's "Fast Track." There are two parts: the ledger itself, which acts like a book of account for all transactions; and the ledger of approved members of the bitcoin community, which acts as a digital record of the ledger. In the case of the IRS's IRS, you would need to get permission from the person you're trying to pay, in order to use the system. With the bitcoin system, you don't need to go through any middleman at all - it is all done with the public ledger.
Unlike the conventional way of completing financial transactions, the bitcoin system is completely open. When you transmit a transaction, it goes from your computer to the public ledger of approved members of the bitcoin community. Every single transaction is recorded in the ledger and can be watched by anyone who cares to look. Everyone must be willing to participate in order for a transaction to go through. The miners are also acting as the keepers of the records in this case; they keep the copies of all the prior transactions that have been performed every time.
Bitcoin Mining Algorithm
Unlike most other currencies, the supply of bitcoins is controlled by an algorithm which is written in the bitcoin protocol. This algorithm decides how the supply will be distributed and when it will change. One of the most effective ways of securing the supply of bitcoins is called "mining." Nakamoto came up with this idea when he noticed that with the regular ways of recording transactions, there is often a fair amount of human error which can delay or halt a transaction.
Mining is what takes place behind the scenes of the bitcoin network. While there are no special skills required to participate in the mining process, it does require a lot of time and dedication on the part of miners. Because of this, Nakamoto added a new feature to the bitcoin protocol: proof of mining. This essentially means that a user of the
can show that they have mined a certain amount of bitcoins by actually proving to the network that they have mined a certain amount of coins using their computer.