Technology has always startled us with mind-blowing innovations. One such marvelous example is Bitcoin. With people facing difficulties in transacting physically, this new currency paved the way for decentralization, making cross-border transactions and other payments much easier.
In this blog, we look at some rudimentary aspects of this coin, such as what Bitcoin is, how it works, how it is stored, and more.
Let’s get started.
Bitcoin: The Crypto Trailblazer
At its most basic, bitcoin is a blockchain-based cryptocurrency characterized by remarkable decentralization features. In 2009, Satoshi Nakamoto released a whitepaper that led to the emergence of the first-ever decentralized asset, Bitcoin.
So, what makes Bitcoin different? Well, the idea of decentralization was something unique and long desired. In a typical scenario, when you need to send or receive money, a third entity like a bank or financial institution comes into the picture. Quite often, the process gets more time-consuming and cumbersome. This is where a term like decentralization finds its relevance.
How does Bitcoin work?
Unlike your traditional currency, bitcoin is created, stored, and distributed on a decentralized public ledger, the blockchain. Bitcoin is created by a process called mining. The technique uses powerful computers, known as mining rigs, to solve complex mathematical or cryptographic puzzles to mine the Bitcoin blocks. The first computer that solves the puzzle correctly gets the opportunity to confirm the transactions, which are then added to a previously verified group of transactions or the block.
This way, each block created gets added sequentially to the preceding block, forming the blockchain. The computer or node receives a reward as Bitcoins (BTC). In this process, the nodes in the Bitcoin blockchain use a consensus algorithm known as Proof-of-Work (PoW).
The process of mining is highly energy-intensive and requires extremely powerful computers to perform the computations.
How is Bitcoin stored?
Similar to physical cash, bitcoin is stored in special kinds of wallets. While there are many types, the two major categories are hot digital wallets and cold digital wallets.
Hot Digital Wallets :- These digital wallets let you connect to the internet and use the funds to make purchases. You can easily access them on your smartphone, tablet, etc., through your private and public keys. These keys are important; if you lose them, your crypto assets are also lost. Besides, as these wallets work through the internet, they make you susceptible to technical glitches, cyber-attacks, and other threats, increasing the risk of losing your cryptos. The best practice is to store a smaller amount of crypto funds in hot wallets.
Cold Wallets :-These are wallets that don’t connect to the internet. Some of them are hardware devices like a thumb drive or a joystick where you can safely store your private keys. They don’t need you to connect to the internet and thus are much more secure than hot wallets, storing your crypto offline. A class of cold wallets is paper wallets, which store your private keys on a printed document that you can safely keep in a locker. You alone have access to the locker, so your private keys remain secure.
Wrapping Up :- While many other cryptocurrencies have emerged, the role of Bitcoin is still prominent. As a pioneer in crypto coins, it introduced the world to an entirely new form of currency, much different from the traditional or fiat currencies. As the crypto arena gains momentum, Bitcoin is also coming up with newer developments, and there’s immense potential to unlock.
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