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How Does Bitcoin Work?

Money in its physical form differs according to country, but the cryptocurrency Bitcoin has managed to give new meaning to currency while only existing in a digital format. Additionally in spite of less Bitcoin being created, and mining estimated to stop in 2140, the cryptocurrency continues to make headlines and refuses to die out. Currently other cryptocurrencies such as Libra by Facebook and Ethereum are attempting to copy Bitcoin’s success. We look at how Bitcoin effortlessly moves across borders and is increasingly being accepted as payment options in stores and online. Additionally we look at how Bitcoin works, whether it is safe or not and how you can use it to replace traditional currency.

How to get Bitcoin

Similar to money Bitcoin can be earned, bought and uniquely “mined”. Traditional money can also be used to buy the cryptocurrency with the current exchange rate being around 9,646.69 US dollar for one Bitcoin.  Earning Bitcoin is done by selling services or products and having people pay with the cryptocurrency. As less Bitcoin is being mined currently, most people get Bitcoin by buying it with other currency.

Creating or mining Bitcoin

Bitcoin is created by the process of mining which is done with the aid of Application-Specific Integrated Circuits (ASIC) computers. The process of earning or mining Bitcoin includes verification of one megabyte transactions of the currency. Each of these transactions usually consists of several thousand smaller transactions. Another part of the mining is the solving of a complex mathematical problem as part of “proof of work” and as a result of this a “hash” or 64-digit hexadecimal number is produced. The odds of guessing the “hash” that matches or is less than the target hash is currently about 1 in 6 trillion.  As a result the process of mining Bitcoin is very expensive, and using a conventional desktop computer is not profitable.

Spending and tracking Bitcoin

Once created a Bitcoin exists as a file which is stored in a wallet. A Bitcoin owner spends it by providing a key and then transferring it to another electronic wallet. Each transaction or transfer of the Bitcoin is recorded in a blockchain which is made available to the public. With each transaction recorded in the blockchain the problem of people spending Bitcoin that is not theirs is negligible. Currently the blockchain is updated every 10 minutes but it is expected that the waiting time for processing transactions will gradually become longer.

The value of a Bitcoin

The current value of a Bitcoin is less than what it was in the months of May and June of 2019.  The value of a Bitcoin however is expected to hover around 10,000 US dollars in a few months time. In spite of the high valuation of each Bitcoin very few stores accept it.

An attractive aspect of Bitcoin is the fact that it is not controlled by a central bank in a country, such as the Federal Reserve in the United States which backs the US dollar and records how it is spent. This allows people who own Bitcoins to spend them without being tracked. So even through transaction records of Bitcons are available publicly the cryptocurrency can be stored and spent safely without the owner being known. However, the major problem with Bitcons is that if you lose your wallet or delete it they are lost forever.