Imagine the world where you do not wait for money release from the central bank, where to send money within or across borders is free. Bitcoins are a digital currency laying a foundation for such a world. Bitcoins not only helps to issue money but also gives people the incentive to get the coins, unlike some other currencies.
How then do bitcoins operate?
Block chain refers to a public ledger, recording of all transactions carried out. Whenever a new transaction comes up, it has to go through the accounting for cross checking, ensuring that new transactions don’t make use of used up bitcoins. There is decentralization of accounting data around 5000 locations on the globe on permanent records. Validation of transactions takes place via the decentralized network.
How are fraud attempts caught and handled?
Bitcoin’s block chain conducts a self-audit. It discovers fraudulent transactions and locks them out of the block chain. The bitcoins block chain has also made it possible to rid third-party interference in transactions. It makes this possible using peer-to-peer computer networking. Without the third-party, we can record health data, issue debts and increase cross-border payments.
The process is resource-intensive and challenging. One has to mine ‘blocks,’ each block has to have proof of work. Evidence of work is a low probability random process, entailing lots of tests and trials. At the close of a day, the number of blocks with approved proof of work go to the block chain and if accepted, turns into bitcoins.