How Bitcoin works?
From a user perspective, Bitcoin is the only mobile application, or computer program, which gives them access to bitcoin wallet and enables them to receive and spend . That is how Bitcoin works for most users.
At the core of the network Bitcoin is a public register called blokchain, or “chain of blocks.” This register contains the history of ever conducted transactions, allowing users’ computers to check the validity of each transaction. The authenticity of each transaction is protected electronic signatures used in the relevant transactions addresses, allowing users to have full control over transferring bitcoins from their bitcoin addresses. In addition, anyone can engage in transaction processing, using specialized equipment and computer power and earn bitcoins for these services. This is commonly called “mining”.
More and more companies and individuals are using Bitcoin, including offline companies, such as restaurants, hotels, law firms, and online services such as Namecheap, WordPress, Reddit and Flattr. Currently Bitcoin is still a relatively new phenomenon, but it is growing rapidly. By the end of August 2013, the value of bitcoins in circulation exceeded US $ 1.5 billion and daily turnover of bitcoin transactions in the millions of dollars.
A significant part of the credibility of the Bitcoin stems from the fact that it does not require any trust. Bitcoin source code is completely open, and the network is completely decentralized. This means that anyone has access to the complete source code at any time. Therefore, any developer in the world can see how Bitcoin works. Anybody can track in real time all bitcoin transactions and newly issued bitcoins. All payments are made without relying on third-party organization, and the whole system is protected by a reliable and well-proven cryptographic algorithms similar to those used in online banking. No organization or individual can not control Bitcoin, and the network is secure, even if not all of its users to trust.
Bitcoin virtual same as credit cards and online banking network that people use every day. Bitcoins can be used for online payments in real shops, as well as any other type of money. Bitcoin can also be exchanged for physical equivalents, such as coins Casascius, but usually, payment via mobile phone more convenient. Bitcoin balances are stored in a large distributed network, and they can not be modified by anyone fraudulently. In other words, Bitcoin users have exclusive control over their resources and bitcoins can not disappear just because they are virtual.
Bitcoin is arranged so as to allow all users to submit payments with a sufficient level of privacy comparable to other forms of payment. However, Bitcoin is not anonymous and can not offer the same level of confidentiality as cash. Using Bitcoin leaves a shared public record. There are various mechanisms to ensure users’ privacy, and more in development. However, there is still a lot of work to correct these functions could be used by users.
Some doubts were expressed about the fact that the confidentiality of bitcoin transactions may be used for illegal purposes. However, it should be noted that Bitcoin is undoubtedly falls under the regulation, which is already taking place in existing financial systems. Bitcoin can not be more anonymous than cash, and are unlikely to prevent the carrying out of criminal investigations. In addition, Bitcoin is able to prevent a wide range of financial crimes.
Bitcoin protocol itself can not be changed without the consent of almost all of its users, who are free to decide what software to use. Attempts to assign special privileges to any local authorities in the global Bitcoin fact, in practice, unrealistic. Of course, any rich organization can invest in mining equipment to gain control of half the computer network capacity, enabling it to block or roll back the recent transaction. However, there is no guarantee that they will be able to achieve or maintain a position, because it would require constantly invest as much invested all other miners of the world put together.
However, it is possible to regulate the use bitcoins, like other financial instruments. Like dollar, Bitcoin can be used for a wide range of purposes which may be recognized as legitimate or not, according to the laws of each country. In this respect, Bitcoin is no different from other tools or resources, and can be regulated in different ways in different countries. You can do so that the use of Bitcoin will be difficult, with the help of rules and restrictions, and in this case is difficult to predict what percentage of users will continue to use this technology. The government, which decided to ban Bitcoin, prevent its domestic market and entrepreneurs to develop, resulting in overflow of innovation in other countries. The challenge for regulators, as always, is to develop effective solutions, while at the same time weakening the growth of emerging companies and markets.