The idea of cryptocurrencies stem from the attempt to ease online payments and transactions, while eliminating traditional banking channels in the process. Bitcoin is the first cryptocurrency in world that was released as an open source software a decade ago in 2009. This was the first decentralised currency system, which worked without a central bank or administrator dictating the rules of transaction or controlling the channels.
Bitcoins were initially posed as rewards for a process called mining. However, they can also be acquired by exchanging other currencies, products, or services. The entire system of Bitcoin is based on a peer-to-peer network where the transactions are not routed through a mediator. The transactions that take place are verified by network nodes using cryptography. The transactions are recorded in a ledger that is publicly distributed, and is known as blockchain.
How does Bitcoin work?
Beginning transactions using Bitcoin is not difficult, and does not require the user to have extensive technical knowledge. The user is first required to install a Bitcoin wallet on to a secure computer or mobile phone. This process will create a Bitcoin address; a user can end up having more than one Bitcoin address based on their needs. The Bitcoin address is then shared with friends and associates so as to enable transactions. The Bitcoin system works loosely on the principles of e-mail, but the Bitcoin address can be used only just the one time.
Balances – Blockchain
The entire system of Bitcoin relies on blockchain. Blockchain is a publicly shared ledger. All Bitcoin transactions that are confirmed and authorised are incorporated in the blockchain. The wallets that are used for Bitcoins are designed to calculate the amount that can be spent and any number of new transactions that can take place. Complex cryptography is used to maintain the chronological order of transactions and ensure the integrity of the blockchain.
Transactions – Private Keys
A transaction refers to the effective transfer of value between two distinct Bitcoin wallets and its subsequent inclusion in the blockchain. A secret data stored in Bitcoin wallets — called the private key — is used as a digital signature to complete transactions. The private key provides a mathematical proof of the Bitcoin’s origin from an owner’s wallet. The private key works similar to how signatures work in traditional money transactions through banks. The signature — in Bitcoin too — prevents alteration of the transaction while authorising it.
Processing – Mining
Every Bitcoin transaction is broadcasted among all users, and is subsequently confirmed by the network within a few minutes. This process is called mining. Mining is referred to the distributed consensus system that is used to confirm all waiting transaction by adding them to the public ledger of blockchain.
Advantages of Bitcoin
From being called the future of financial transactions to being lauded for the decentralised open source nature, Bitcoin has been accepted as a truth that is here to stay. The benefits of using as a means of payment are definitive, and can be discussed as follows.
Simplest Form of Exchange
The entire system of Bitcoin is highly complicated and comparatively secure from cyber attacks. Therefore, the digital nature of this virtual currency makes it perfect for cross-border transactions. Additionally, the rules and bindings of foreign exchange rates do not apply on virtual currency. Thus, dealing in cryptocurrencies allows users to make and accept international payments without having to hassle themselves with foreign exchange. Transacting with Bitcoins, thus, is faster, cheaper, and easier than traditional payment options.
Bitcoins can also be purchased in exchange of traditional, conventional currencies. Alternatively, Bitcoins can also be acquired in exchange of a service provided to a Bitcoin owner. However, there are multiple companies that allow individuals to buy Bitcoins through their banks. On mobile phones, Bitcoins work on the principle of scan-and-pay using a QR code — thus, eliminating the need of swiping a card, typing a PIN, or signing a receipt.
The ecosystem where Bitcoin exists and operates is an extremely safe environment. The Bitcoin wallets are secure places to store, exchange from, and use for cryptocurrency. The digital signature of each wallet allows transactions to take place through coded pathways that secure the transaction until it is authorised by the blockchain and processed, then transferring the amount to another wallet.
The Bitcoin ecosystem has no space for slow and expensive intermediaries in a financial transaction. The world of cryptocurrencies reduce the conventional cost of any transaction by creating a direct bridge between the two parties involved — irrespective of their geographical distance in the world.
Bitcoin Wallet Application Development
Drawing from the advantages of Bitcoin discussed in the previous section, we are not far from a reality where it is a standard, accepted payment option along with multiple other payment gateways. For a company that employs Bitcoin as a payment option has a competitive edge over others in terms of technical innovation and preparedness for the future.
For companies that do not want to hold cryptocurrency, they have the option of integrating Payment Service Providers (PSPs) for Bitcoin to ensure that they include this payment gateway.
Blockchain and cryptocurrency are growing in significance in the general conscience of companies and consumers alike. There is no doubt that it will transform online transactions in the coming years. It is important that companies integrate this technology at this stage, so as to ensure that they are prepared for a world where Bitcoins are mainstream and hugely conventional.
About Fusion Informatics
Cryptocurrencies are cryptic, and in good measure. It is essential for companies to find a service provider that understands the complex world of blockchain, and is able to utilise it in a way that fits the company. We, at Fusion Informatics, offer juts that. We tailor the technology to meet the needs of our clients. The experts on our team are masters that marrying need with technology.