In the cryptocurrency economy, users who make computational resources available to the network to process blocks are rewarded in Bitcoin. And this, together with other elements, is one of the reasons why the system, as it was conceived eight years ago, begins to falter. After a couple of years of rollercoasters on the exchange value (which has oscillated from 200 to over one thousand dollars per unit), experiments on university campuses attempt to enter the stock exchange and dozens of scandals that have however attracted the attention of the media, Mike Hearn, technology developer and one of the most vocal proponents of Bitcoin, has publicly declared the failure of the project. It had to be a new form of decentralized currency, without system institutions, and too big to fail. But it has become even worse: a mechanism completely controlled by a few people.
1What Bitcoins are and how they work?
As already mentioned, the application, to date, most used for the Blockchain (and that has made the Blockchain famous in the world) is the Bitcoin system. Bitcoin can be considered a new currency, indeed how a cryptocurrency is defined.
But how does Bitcoin work? The official page gives a very clear explanation. Let’s see in detail, and in a simplified way, how Bitcoins work.
In theory, this address should only be used once, but it can also be used multiple times. The whole system is protected by encryption, so as to be safe against cyber attacks. But if you still want to make safe your wallet from hackers by yourself, then the best idea is to keep your password safe. Don’t use a very common password, if your password gets stolen then contact with cyber police so that you can avoid the losses. Also don’t put your password on your mobile or computer because from them stolen chances are more.
2The private key
The money is transferred between two Bitcoin wallets, and the transaction is protected by a private key i.e. a signature through which the transactions are signed, and which therefore allows ensuring that the money transferred is actually of the person who carried out the transaction and that nobody changes this transaction, making the transaction safe.
Bitcoins, although virtual, do not show substantial differences compared to traditional currencies. In fact, they do not represent anything in the physical world, but they have value for the simple fact that people agree to exchange them for goods/services, in order to have an increasing number of them on their behalf, convinced that other people do the same. The real bitcoin revolution lies in having built a control system – called Blockchain – which, according to many, will be able to generate new disruptive paradigms for the financial and non-financial world. Know how you can earn money with bitcoins online.
3How Bitcoin works
Unlike traditional currencies, Bitcoin does not use a central body but rests on a distributed database, where all the nodes of the network that wants to contribute to the system, keep track of the individual transactions that took place in it.
Bitcoins are basically files, which every user of the network can save in their own digital wallet (residing on their PC or on systems that emulate the service of traditional banks). Each “bitcoin address” present in the wallet see red squares in the following) can be associated with a variable number of Bitcoins. Generally, to facilitate anonymity and make transactions less complicated, each of them is managed by generating a new address in which to receive the currency. Each address (public key) is associated with the equivalent of a digital signature (private key), useful to make sure that only the owner of a certain address can initiate a transaction and it is tied.
4Let’s try to simplify the operation of Bitcoin
If we look at the Bitcoin protocol, a transaction can be read as the declaration of one user to reduce his share of Bitcoin and to increase that of a second user by an equal value. When managing a transaction, each node on the network participating in the system updates the register, transferring the information to the next node.