What are bitcoins and how does it work?

What are bitcoins and how does it work?

This is the continuation of my previous blog about Bitcoins.I will make you understand in a interactive way of question ans answers.So here it is...

What is Cryptocurrency?
As the name tells it all, any guesses.?Yes it is a currency which is encrypted.!But how money can be encrypted and what is the necessity of money encryption?Well in the previous blog i mentioned it all in secure transaction section.

So moving it to answer to this question, here it is:

• Its a money which uses some kind of algorithm(SHA-256, Scrypt).In simple terms this algorithm ensures faster and secure transactions, transaction history through Public Ledger or Blockchain. Algorithms define some rules for creation of these money and ensuring proper usage of these currencies.It is a bunch of programming codes.
• Its a kind of peer-to-peer money.This is a great boost to crypto currencies over fiat currencies.This means that that this money is controlled by everyone who is generating this money(Mining).This also means that when it is used for transfer of funds there is no third party involved.!That is why crypto currencies have negligible transaction fees.

Let us go little bit deep inside
Mining Simplified- Mining refers to generation of coins.Now at first it becomes very hard to digest  that how normal people can generate money.!(yea you can also), but this comes with conditions which paradigm the algorithms.But why they are giving you power to mine or generate coins.?because it is a quid pro quio.Actually when you mine, you are generating money as well as  help in transacting other people's money.In nutshell you are lending your computer power to bank network.(Think like this as banks spend billion of dollars to maintain their servers and networks to ensure proper money transaction, maintaining security and couple of million dollars as current bill and pay-offs.)You are just hosting a server from your computer.Now the size of this server depends on the hardware you have invested.

• Decentralized- This means that the network of these currencies is not centralized that is shared by everyone.Advantages of having these type of network is that if some hacker wishes to hack a network it becomes difficult for him to hack each server hosted individually by the users.And it eliminates the cost and effort to maintain a central server as done by banks.If any computer fails in these networks it is not affecting the network in a whole.Only possible way to hack these network is to hack each and every computer which is mining.And if government wants to ban bitcoins, they have to do the same.The concept is like Bit-Torrent and that is why government in spite of it's full effort can not stop Bit-Torrent.If government wishes to stop these they have to do like 5 Afghanistan war..!

Now, how to generate these coins?
For generating or mining these you need following:

1. A wallet (can be offline/online) is specific to the coin which you mine.  FREE
2. Mining software is common for all the coins.                                       FREE
3. Mining hardware                                                                                FREE

If you know the technical aspects of bitcoin, here it is (Courtsey - Khan Academy)



                                                            Bitcoin – Overview

                                                              Bitcoin – Proof of Work

                                                   Bitcoin – Transaction Block Chains

                                                        Bitcoin – The Money Supply

                                                          Bitcoin – Digital Signatures

                                                     Bitcoin – Transaction Records

                                                  Bitcoin – Cryptographic Hash Functions

And as always, have a great day.!


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BTC - 1Mm1CPVaNiieskztnY2PJo8dcEs2TVfCUi
LTC  - LdE66fy4V7Mse3hyruEKRXF2zo36CLiuhb
NXT - 3791936988034107349
XPM - AS6uZ9QgpDzKZEgTWY7wWV4yVU3kTe48e6