Bitcoin is the most common, the first decentralized and the most valuable digital currency that represents means of payment on the internet outside the control of any financial, national on international institution, or a single company from any industry. Each relocation from one collection to another is recorded in the cryptogram of the bitcoin so that the recorded history of all transactions makes it achievable to launch clearly.
What differentiates the bitcoin from national currencies is its independence from any central authority that controls trade, but on a participatory functioning of all users. It is difficult to find a currency in our history which has already been free from political influence or national economy. The bitcoin is a universal currency that is even accessible to population that does not use banking services, which is seen as the key potential of its development, considering the large number of people who do not have bank accounts or are willing to find some type of alternative for it.
Unlike the regular currencies, bitcoin crosses all the barriers between nations, policies and cultures. Its position on the market and its features show that could be characterized as a libertarian currency based on open source and decentralized software. It has no legal framework, unlike other the subjects of the monetary system, since it has no legal tender, though it may be refused by a trader.
Bitcoin transactions take place on its fundamental technology, the blockchain, which represents a distributed public database that contains a record of all exchanges since its initiation, is an ground-breaking technology to make its functioning confident all the way through the world and holds a key function in transparency of the exchange. The bitcoin is accepted as a means of payment by a growing number of online and physical traders.
The technological and methodological features of bitcoin do not relate to any central currency issuer, currency managing is extended over every part of the network, the proper functioning of the system relies exclusively on cryptographic techniques as well as that anyone can generate money at the price of a resulting utilization of time-machine. The creation of bitcoin takes place via the process called mining. Mining is essentially a circulated system of compromises used to authenticate expected transactions by counting them in the blockchain platform, maintaining a chronological order in the system, protecting impartiality of the network and permitting other computers to be in agreement on system status.
In order to be confirmed, transactions must be enclosed in a block that follows very strict cryptographic rules that will be verified by the network. These rules also take account of a creation of the comparable game of chance that puts a stop to anyone from simply adding new blocks successively into the blockchain. Mining is the track of action by which bitcoin transactions are protected and for this purpose the miners accomplish mathematical calculations for their bitcoin network with their computer equipment.
The hash of a block must be slighter than an assured value and in order to accomplish this, miners must discover and insert the block keeping the hash small enough. The miners perform cryptographic hashes on what is called a block header and for each new hash the mining software uses a different random number the only possible way to discover it is to find one that suits, which requires a lot of CPU work. This is actually the key of the ground-breaking aspect of the bitcoin system, since this verification of work causes all those found spots to vote with their CPU, and it is complicated for a single entity that would want to take advantage of to do so.
These procedures prevent everyone from having control over what is incorporated in the blockchain, as well as from replacing parts so that it can pull through. Instead of that, bitcoin permits each individual to firmly accumulate and switch over value on a network that cannot be detained, influenced or blocked by any institution or individual.
When an operation is completed, the user can also give a small amount to minors to encourage them to take the transaction into account, which means that the transactions are not without charge, but that the transaction costs are insignificant. The aim of minors is to distribute a block and they have an interest in finding a block in the course of the return they are allowed to give themselves.
It should first be noted that there is only one method for creating bitcoins that belongs to an algorithm, which is to say to a deterministic computer process. The money supply is generated by the computing power of the network computers, by correlation with mining process and the increase in the number of flow bitcoins is known in advance. At the same time, giving free access to powerful tools plays a significant role in protecting individual privileges and autonomy.
In this regard bitcoin has many advantages that are increasingly creating a center of attention of many users and investors, first of all because there are no exchange fees, while the transaction costs are much smaller in comparison to the traditional monetary system. Besides that, users are anonymous, while their transactions are public, observable and made in a way that, once recorded, they cannot be interfered with or changed.
Since the bitcoin is not regulated by any central authority and the offer of bitcoin is fixed in advance, totaled at 21 million there is no guiding principle or inflationary heaviness that is one of the key problems regarding traditional currencies. A single bitcoin can be divided up to 100 millionths and since the volume of bitcoins that are currently in circulation exceeds 10 million units, according to Brito et al, it expected to reach the limit of 21 million by 2140.
The monetary swiftness of the bitcoin identifies itself in advance and operates through the mining process. These are the features that prevent any type of inflation to occur, since, by structure, the upper limit of bitcoin will not exceed the amount of 21 million, being, at the same time, also characterized by an outsized divisibility of the bitcoin, even though so far it is applied for up to 8 or 10, but theoretically it is infinite.
Bitcoin offers a remarkable list of security-related appearances, since the protocol is also designed to be very opposed to a wide range of hacking attacks, including attempts such as distributed denial-of-service. Users are also allowed to broadcast their credit card number over the internet and what many users see as the key of benefit of bitcoin usage is the fact that the transactions are both secret when it comes to their own privacy, as well as completely public, when it comes to the transparency of the process.
In other words, not a single name or other data that in any way could reveal identity of the user appear in transactions, nevertheless their numeric addresses are broadcasted and stored by all the parts of the network. The blockchain is itself formed by a series of blocks, where each block traces the newest transactions that has not yet been validated and recorded in the preceding blocks, protected by the innovative types of technology.
The condition of every user’s account is open and it results from all the transactions that are connected with this process. The confirmation of operation is not a matter of any central entity, but by the other nodes of the network, while the addresses are alphanumeric chains of approximately 30 characters. Each transaction is accumulated in a special register called blockchain, which is helpful in authenticating the whole procedure in order to complete it successfully, so that the transiting assessment was essentially owned before being finally deposited. Once the process is confirmed by the network, this block is added to the blockchain and consequently it spreads the information.
Bitcoin can be used in transactions to buy goods and services with, both on online shopping sites and in physical stores that accept this currency. To make a payment with bitcoin, the buyer is supposed have an electronic wallet via one of the available software services installed on their computer that uses an application installed on their mobile device, and to go to a website that allows one to generate and handle this particular type of online file.
Electronic wallet is the software creation that allows users to have an access to the bitcoin network, where its selection contains addresses and keys to carry out financial transactions that have the same purpose as money transfers. In this system the wallet is a type of a personal bank for bitcoin and can be either installed on the smartphone for small payments with QR Code or used as a web service, as well as it can represent a software that offers users to have a total command of their assets even offline, though in that type of backup option the security risks are at the owner’s full accountability.
The transaction goes on when the merchant sends the sequence of letters and numbers to the client’s electronic wallet to which the customer is obliged to reassign the quantity of bitcoins at the price of goods or services procured.
There are particular types of members of the bitcoin network that are called miners and their role is to authenticate the regularity of the operation, checking the validity of the payer and their accessibility of funds in order to receive electronic money in exchange. The purpose of introducing this type of process is producing the capability for users to have a free access to the market, without both a central bank and the conventional banking network, avoiding at the same time any type of governmental control and without a risk of inflationary manipulations thanks to its inherently deflationary nature.
The function of this is to authenticate that all transactions in a block are compatible with all preceding transactions, which means that users who initiated the transaction paid the money in advance. The operation could not be allowed even at the slightest inaccuracy, since the block in question will not be registered in the blockchain. The work of the miner consists of adding blocks to the chain of blocks, putting the computing power of his computer at the service of the community. For this work, miners are paid in bitcoins.
This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018