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How do Bitcoins work?
To understand how bitcoin transactions work, you need to know about the following terminologies.
· Bitcoin Wallet – It is similar to the bank account that can be used to store, send/receive bitcoins.
· Blockchain – It is similar to the ledger book used in accounting. But blockchain is a digital ledger that is used to record the every single bitcoin transaction made by the bitcoin users all over the world. The blockchain is the backbone of bitcoin transactions.
· Bitcoin address – It is similar to the email address of an individual. Bitcoins are sent using this address only. But the address can be used for only one transaction. An individual can have many bitcoin addresses.
· Private key – It is similar to the transaction password in net banking. A private key or signature is a small piece of text that is added to every bitcoin transaction to prevent it from corruption or unauthorized access.
· Mining – It is similar to the deposit/withdrawal process in banking. The whole process of verifying a and adding a bitcoin transaction to the blockchain is called mining.
To send money to someone, you have to send the equivalent XBT of the currency from your bitcoin wallet to the address of the receiver and the transaction gets recorded in the blockchain.
What are the pros and cons of Bitcoin?
· Anonymity: The main reason for the popularity of bitcoin is its anonymity. You don’t need to have a bank account or use a real name for using bitcoins.
· Low fees: As there are low fees for receiving bitcoins, international transfers can be made with fewer transaction fees.
· Bitcoin value varies depending on the market.
· Loss of bitcoin if the wallet or your computer gets corrupted.
· As the currency is not regulated, it cannot be used in local stores or government organizations.