Cryptocurrency sounds like something from a Sci-Fi movie. But despite the fact that it’s intangible money, it’s very real. And for users looking for an alternative to the traditional monetary system, it offers an enticing sense of freedom and security.
With virtual currency, there’s no need to be concerned about a government or financial meltdown; there’s no third party involved. However, the lack of a governing body is causing some governments to see virtual currency as a threat. Some are even enforcing laws banning their usage.
But if you’re in a country that welcomes cryptocurrencies, there’s no better time than now to check it out. There are quite a few types on the market: litecoin, ethereum, Zcash, etc. We’re going to dive into my personal favorite: Bitcoin.
Here’s how it works.
How to Get Bitcoins
You can currently receive a bitcoin by doing a job and asking to be paid in bitcoin, buying or selling a bitcoin on coinbase (the company we use here at eZanga for our AdPad payments), or finding a bitcoin ATM.
One bitcoin can be expensive to purchase depending on the current market price, but that doesn’t mean you can’t purchase part of a bitcoin and slowly get to a whole.
How to Use Them
Each bitcoin owner has a pair of unique cryptographic keys (e.g. long random numbers). These keys are called the Public and Private Key. The Public Key is accessible to everyone, while the Private Key is only viewable by the owner and serves as their digital signature.
Let’s say you owe a coworker for lunch. To pay them, you need your Private Key (to access your bitcoin), as well as their Public Key (to send your bitcoin to their wallet).
Bitcoin wallet apps are a convenient way for users to send and receive bitcoin. These fancy tools remove the stress of remembering your keys for you. There are a range of options to choose from depending on the device you use. If one doesn’t fit your taste, test out another.
Although this form of transaction doesn’t require a third party to exchange the money, there is a backend process to verify you have the appropriate amount of bitcoin in your wallet, and the recipient has received it.
This is when Miners and the blockchain come into play.
How to Verify Transactions
After you’ve sent your bitcoin to your coworker, it needs to be recorded on the public ledger. This ledger is called a blockchain.
Your transaction will be collected with other transactions in a list called a block. Miners confirm these transactions and add them to the blockchain, which is a list of transactional blocks dating back to the first transaction.
The miners take all the data from the block and create what’s called a hash. A hash is a random sequence of numbers and letters, which keeps the blockchain from being tampered with.
If someone were to change a block after it’s been added to the blockchain then everyone would know because the hash would change. In order to create the hash for the newest block, you need the hash from the previous block. This is how the blockchain stays intact and cannot be meddled with.
I’m sure you're wondering why someone would take the time to go through this whole process. The miners are all competing with each other for an incentive. For every hash they are rewarded with a small amount of bitcoin. They have a hard job, but it’s worth it in the end.
Putting It All Together
So, there you have it. There are a lot of backend pieces in order to make one transaction, but if being in control of your money sounds appealing to you, bitcoin might be something to take a deeper look into.
Keep in mind, there are only 21 million bitcoins in supply. After they go, getting bitcoins will become more difficult.
But out of all the virtual currency, bitcoin has been around the longest, making it feel slightly safer than the new versions of cryptocurrencies. There’s no better time than now to take the plunge.