How does Bitcoin Work?
Bitcoin the most widely used digital currency is a global phenomenon and use of this technology has been rapidly increasing over the past few years, yet still many users and skeptics are scratching their heads wondering ‘how does bitcoin work?’
How Does Bitcoin Work?
The world’s foremost cryptocurrency exists online within its blockchain network, and is a transferred digitally peer-to-peer (P2P). It is decentralized, meaning that no single-person owns or controls the network; rather, its operation is sustained by users who process bitcoin transactions through a Proof-of-Work (PoW) consensus algorithm with powerful computing hardware, also known as ‘miners’.
When a bitcoin transaction is made, the data is put into a block that is loaded with secure cryptographic checks that need to be verified on the network, miners confirm the pending transactions on the blockchain and ensure that each encrypted transaction is genuine. It can take up to six confirmations or more for a bitcoin trade to be completed.
Also known as ‘Distributed Ledger Technology’ (DLT), the blockchain records and stores every single transaction on a public ledger for anyone to view. Combined with complex cryptography, transactions are incredibly secure making it relatively impossible to falsify a transaction or copy bitcoins.
Miners secure the bitcoin network against hacks, attacks, and alterations by distributing the total network hash power required to mine blocks, preventing what is known as a 51% attack, which is the only way to reverse bitcoin transactions.
They are also responsible for issuing new bitcoins to the network, it takes on average ten minutes to process a block and once complete a lucky miner is given the coveted block reward of new bitcoins, which is one of the ways in which miners are incentivized to keep the network operating. The other is a fee in the form of a small percentage from any transaction confirmed by a miner.
In order to own any bitcoin, it is wise to have somewhere to store them securely. Bitcoin wallets hold a piece of data known as a private key, these are unique to each wallet and are stored either on the computer of a user if they use a software wallet, or exist on remotely on web wallets.
Bitcoin can also be stored offline on a compatible piece of hardware or by password key printed/written on paper; this is also known as ‘cold storage‘ and is the safest known way to store bitcoin.
Backing them is a cryptographic signature that is defined as a “mathematical mechanism” that provides proof of ownership. When a user signs a transaction, the signature is broadcast to the whole network so it can match the signature to the spent bitcoin; furthermore, it is impossible to guess the private key of another user.
Each wallet has ‘address’, this is simply a series of alphanumeric characters that display a destination for a bitcoin payment, allowing for users to input this data and send or receive bitcoin.
Bitcoin works as a store of value, investment asset and can be used to purchase goods and services.
CoinCola is a two-in-one cryptocurrency exchange and over-the-counter (OTC) platform, it supports six of the most popular cryptocurrencies on the market, and through the OTC marketplace, users can buy or sell cryptocurrencies for fiat. Get to know the difference between exchanges and OTC here.
Through the simplicity offered by CoinCola, users can easily purchase bitcoin directly from other users using a debit/credit card payment method via. the CoinCola over-the-counter (OTC) platform. Posting an advertisement is free; buying or selling cryptocurrencies from an existing advertisement is also free.
CoinCola is currently running a promotional offer as part its outreach to Venezuela; this comes with a 0.5% OTC transaction fee for advertised trades as well as a refer a friend programme that provides a 50% commission on trades made through the referral.