Today’s world all business activities mainly use Internet of Things. It is interesting to know how bitcoin works.

You see most of business transactions in digital form.

All money transactions are in digital mode.

Cryptocurrency

Cryptocurrency

A cryptocurrency (or crypto currency) a digital asset designed to work as a medium of exchange.  

Strong cryptography is used to store individual coin ownership records in  ledger  in the form of computerized database .  

  • to secure transaction records
  •  to control the creation of additional coins
  •  to verify the transfer of coin ownership

Crypto currency does not exist in physical form (like paper money). Any central authority is not issuing it . It is interesting to know how bitcoin works.

Crypto currency  uses decentralized control.

This is when compared to centralized digital currency and central banking systems.

Before issue of cryptocurrency to a single issuer it is minted or created.It is interesting to know how bitcoin works.

Implemented with decentralized control, each crypto currency works through distributed ledger technology, typically a block chain, that serves as a public financial transaction database.

Distributed Ledger:

a ledger of any transactions or contracts maintained in decentralized form across different locations and people.

Block Chain:  Block Chain is the digital information as “block” stored in a public database called the “chain”).

The digital information in blocks are about:

Date, Time, and Amount(in terms of dollar) of most recent purchase.

Who is participating in transactions.

Blocks store information that distinguishes them from other blocks by hash.

How Block chain Works ?

A block stores the new data and then added to the block chain.

Block chain, consists of multiple blocks strung together.

In order add to the block chain,  four things must happen:

  1. A transaction.
  2. Verification.
  3. Storage of transaction in a block.
  4. Allocation of hash to a block.

When the new block added to block chain, then it becomes publicly available for anyone to view—even you.

Cryptocurrency system

Cryptocurrency system
  1. Does not need a central authority.
  2. cryptocurrency state is maintained by distributed consensus.
  3. Keeps an overview of crypto currency units and their ownership.
  4. Defines whether new cryptocurrency units need to be created.
  5. Proves the ownership of cryptocurrency cryptographically .
  6. Allows transactions to perform in ownership of the cryptographic units changed.
  7. When multiple instructions are given, it performs only one request at a time to change ownership.

What Is Bitcoin ?

Bitcoin
  • #Launched in 2009,
  • #Bitcoin is the world’s largest cryptocurrency by market cap.
  • # Block chain used to create Bitcoin, distribution, trade

Who Invented Bitcoin?

#No one knows who invented Bitcoin, or at least not conclusively. It is interesting to know how bitcoin works.

# Satoshi Nakamoto’s name associated with Bitcoin 

How Bitcoin Works ?

To facilitate instant payments Bitcoin acts as one of the first digital currencies to use peer-to-peer. It is interesting to know how bitcoin works.

Individuals and companies who own the governing computing power can take part in the Bitcoin network.

Bitcoin network is consists of nodes or miners.

Miners,” are  the people who process the transactions on the blockchain.

Bitcoin Miner

Miners get motivated by rewards

Transaction fees paid in bitcoin.

Miners work as the decentralized authority enforcing the credibility of the Bitcoin network.

Bitcoin mining is the process of release of  bitcoins into circulation. How bitcoin works is a skill to understand.

Bitcoin Mining

Bitcoin mining requires the solving difficult puzzles to discover a new block, to add to  the blockchain.

In Block chain it is interesting to know how bitcoin works., mining adds and verifies transaction records across the network.

By  adding blocks to the blockchain, miners receive a reward in the form of a few bitcoins

In 2009 the block reward was 50 new bitcoins and now it is 12.5.

“Mining rigs” are the elaborate mining processors.

Normally one bitcoin is divisible to eight decimal places (100 millionths of one bitcoin).  The  smallest unit  referred to as a Satoshi. How bitcoin works is a skill to understand.

New bitcoin being released to the miners are fixed. The total supply of bitcoins approaches 21 million.

As of July 2020, there are roughly 3 million bitcoins which have yet to be mined.

 In centralized banking systems the  Bitcoin operates differently from fiat currency.

Cryptocurrency released at a rate matching the growth in goods in trying to maintain price stability.

How Bitcoin Began its journey ?

Aug. 18, 2008:  Registration of domain name as bitcoin.org .

Oct. 31, 2008: A group using the name Satoshi Nakamoto   announces ‘The Cryptography Mailing list’ at metzdowd.com

Jan. 3, 2009:  Mining of first Bitcoin block. Known as the “genesis block”.

Jan. 8, 2009: Anouncement of first version of the Bitcoin software.

Jan. 9, 2009:  First Block  mined, and Bitcoin mining commenced in earnest.

Salient features of Bitcoin that fascinated the users are

#There are no physical Bitcoins, 

#Balances are kept on a public ledger that everyone has transparent access to, that – along with all the persons knowing each other transactions in records in a public ledger and

#Protect by the number assign to them. 

#Bitcoin transactions – are verified by a huge amount of computing power. 

#Bitcoins are not issue or back by any banks or governments, 

#Individual bitcoins valuable as a commodity. 

#Despite Bitcoin not being legal tender it charts high on popularity.

Triggered the launch of hundreds of other virtual currencies named as ALTCOINS ( another name of various currencies launched after Bitcoins).  

Some other noted features of Bitcoin are

  • Balances of Bitcoin tokens are keep using public and private “keys,” which are long strings of numbers and letters link through the mathematical ENCRYPTION (it’s a means of securing the digital data using an algorithm and a key algorithm that was use to create them.) This is another features of Bitcoin.
  • The public key (comparable to a bank account number) serves as the address which is publish to the world and to which others may send or receive the bitcoins. 
  • The private key (which is like ATM PIN) works as secret guard, only to authorize Bitcoin transmissions.
  • A Bitcoin wallet,( not to confuse with Bitcoin keys) is a physical or digital device that facilitates the trading of Bitcoin and allows users to track ownership of coins.
  • Maybe the term “wallet” is a bit misleading, as Bitcoin’s decentralize nature means that it is never stored “in” a wallet, but rather decentrally parked on a block chain like a file in a computer system. This is an important features of Bitcoin.
  • Bitcoin also can “mine”.
  • People who mine Bitcoin are reffed as “Miners”
  • Miners process the transactions on the block chain.
  • During release of new bitcoin, the miners are motivated by rewards.
  • Transaction fees paid in a bitcoin.
  • The new bitcoin being released to the miners as an incentive for mining is given at a fixed rate.
  • Ironically the rate is periodically declining. 

Bitcoin BTC as a currency

Bitcoin as currency

The currency of bitcoin  represented as BTC. Today, the value of 1 BTC is around 10000$.

BTC is volatile, unpredictable because of the random nature of human transactions and media hype.

These factors make it difficult to carry out any stability-ensuring mechanism on BTC but, it has a pre-determined supply i.e. 21 million BTC’s.

This factor helped in representing BTC, in terms of fiat currencies like USD and euro.

BTC’s are divisible up to 8 decimal places = 0.00000001.

0.00000001 BTC is 1 Satoshi.

Medium of Exchange Bitcoin

For a currency to accept widely, it has to stand high as the following:

Bitcoins have properties similar to other fiat currencies like USD, euros etc. like:

Portable:

The transactions are electronic-based, will require an internet connection.

Transactions are easily done between people, regardless of the distance between them.  There is no involvement of any third-party like bank hence, the transactions are very convenient and the transaction fee is very little and thus, making it very popular.

Divisible:

It is divisible up to 8 decimal places thus, promoting more number of transactions among the people.

Recognizable: It is widely accepted and recognized within many developed countries, with a variety of payment methods.

Scarce:

If the bitcoin creation system is not altered, then there are only 21 million bitcoins available for circulation

This being a major reason for being so high in value.

Bitcoin Transaction Mechanisms

There are 3 ways of transacting bitcoins:

a) Bitcoins for assets

Bitcoins can be easily traded for assets between people or organizations,

You can sell your asset to a person, who will transfer a later amount of BTC’s into your BTC wallet, depending upon the value of BTC in the market.

The bitcoins, which you get, can be stored in a cryptocurrency wallet.

b) Bitcoins for money

Bitcoins can be exchanged for money through banks,

Accept BTC as a valid currency.

c) Bitcoins for Bitcoins

A peer-to-peer nodal network, created by bitcoin.org, the stake holders of bitcoin, monitors the bitcoin transactions.

Problems and Limitations of Bitcoin

  • Generally not accepted method of payment.
  • only accepted by a few  wholesalers or traders
  • could be uncomfortable or complex to use
  • it is a niche product,
  • It is expensive to use for small transfers and payments

Is Bitcoin it secure ?

When transaction a made, every transaction is recorded publicly.

it  very difficult to copy Bitcoins, make fake ones or spend ones you don’t own.

There is a Possibility to lose your Bitcoin wallet or get deleted.

May loose Bit coins forever.

Also there are thefts on websites which store Bitcoins remotely.

The value of Bitcoins has gone up and down over the years.

Some people don’t think it’s safe to turn ‘real’ money into Bitcoins.

Sending Bitcoin

#Open Bitcoin.com wallet app and select Send.

#Copy and paste the recipient’s wallet address into wallet app. Or, in person, select Scan QR code and simply scan it with your app.

#Choose which wallet want to send Bitcoin from. Select a BCH wallet to send Bitcoin Cash or a BTC wallet if you want to send Bitcoin.

#Enter how much to send and select Next.

#Carefully check with the details and then Slide to send.

#To move money between own wallets, select Transfer between wallets in the Send section of  app.

Receiving Bitcoin

#Open Bitcoin.com wallet app and select Receive.

#Choose wallet to receive Bitcoin to. Select a BCH wallet for receiving Bitcoin Cash or a BTC wallet for receiving Bitcoin.

#Chosen wallet will generate an address that lets to receive coins. Copy by tapping the QR code on mobile, or by clicking on desktop.

#Provide this address to the crypto currency exchange or person sending Bitcoin.

#Or, if you’re in person, the sender can simply scan your wallet QR code with their device.

Legality of Bitcoin in India

Bitcoin in India

In India the bitcoins were introduced around the year 2012.

From then, the exchange and trading of Bitcoins started to expand rapidly.

The question is, are cryptocurrencies legal in India?

Laws about regulation of bitcoins and other cryptocurrencies have yet not found their way to the statute book.

In the year 2018, the Reserve Bank of India (RBI) issued directions restricting Banks and Financial institutions from dealing with virtual currencies.

The Supreme Court lifted the ban imposed by RBI.

This means, trading in Bitcoin is a big yes but without acknowledging it as a legal tender.

While securities trading are regulated by SEBI, Competition Law by CCI, Banks by RBI, there is no statutory body or government authority to regulate bitcoins.

A bit of virtual currency may come under securities contracts regulation Act, and a bit of it under Money Laundering Act.

There is no genuine law to govern it. 

And if the situation remains, then it could perhaps lead bitcoin trading in India out of control in no time.     

What happens to your cryptocurrency after you die?

Bitcoin Transaction System

Crypto currency uses cryptography for security.

because of crypto technology it’s difficult to counterfeit, or steal .

 Also makes whatever digital currency you’ve earned nearly impossible to pass on.

No one knows how long bitcoin will last (some sceptics wouldn’t put it past 5 years), if it remains intact then it’s likely to outlast you.

what happens to your cryptocurrency when you die ?

Who can Use your cryptocurrency?

One of the largest advantages of a crypto wallet when you’re still alive is that no one can get into it.

To get into a crypto account, you’ll need a private key.

A private key is an unchangeable password,

This is generated to create a new cryptocurrency wallet.

Each wallet uses a string of random characters called a public key visible to anyone, this as an address for sending and receiving the cryptocurrency.

Private key allows the owner access to the wallet’s contents.

So, the process must be simple after you die – just make sure that someone gets a copy of the private key.

In practice it’s simple, but it isn’t always safe or viable.

Can you name beneficiaries to your cryptocurrency?

Bequeathing crypto empire to loved ones, though, is not simple.

Cryptocurrency exchanges don’t allow to name a contact or person.

A person must be able to keep in contact with the crypto bank once you die.

Coinbase, the largest trading platform, won’t flag any unclaimed assets, and it’s up to the family to come forward.

Can anyone show crypto currency in his will ?

One of the solutions to make sure your hoards of Bitcoin  not to lost forever by writing will to outline the details of what you’ve got stored on the block chain

Letting your family know you have got crypto stashed away.

Wills aren’t designed to hold private information, and are technically public documents.

A will won’t enter public records immediately, it’s unwise to risk exposing the keys to your crypto wallets at all.

After you die how to give your crypto wallet password to someone else?

It isn’t advised to put your crypto password in your will

You could create a secure trust to house it in. 

We’ve written about how to create a trust in your will here.

Still feeling a bit itchy about that idea, you could cut up your password and put it in separate trusts, numbering the parts.

Make sure each person knows about this plan to stop it from getting too complicated.

Can you just show the person’s death certificate?

The Coinbase exchange,

The exchange that already allows you to name a beneficiary, also allows access to someone’s crypto wallet provided you produce a death certificate, and the crypto holder’s will has outlined the details of the coin stash in their will.

What’s the future of cryptocurrency and death?

Industry experts feel  that between 2.3 million and 3.7 million bitcoins have been lost. While this is for a variety of reasons, a big chunk of that lost bitcoin is from it simply disappearing with those who’ve died. Current prices, that’s worth between $15 billion to $24 billion.

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An academician with 30 + years of Teaching & Research experience in the field of Mechanical Engineering. Passionate about writing technical reports and Research proposals in engineering. Successfully completed "Certified Digital Content Writer(CDCW)" course from Henry Harvin Education. Life member of Professional bodies like Institution of Engineers (INDIA), Indian Society for Technical Education (ISTE), Indian Institute of Welding (IIW), Indian Welding Society (IWS) and many more. Published 10 + research articles in International Journals and presented 30 + technical papers in International and National conferences.