The latest hush going in the digital world is about Bitcoins. And why not? No other investment ever gave as much return as this cryptocurrency.
1 Bitcoin (BTC) which was available at USD 1,000 last February (2017) sprang to USD 20,000 by December (2017). And same is true for most of the others in the cryptocurrency market.
If you check the cryptocurrency news, you will see the prices have now dropped to USD 8,000. Too wavy, isn’t it? But what is it all about, why was Bitcoin created and how does digital currency work? Let’s see.
What is Bitcoin all about?
Bitcoin is a decentralized digital currency which doesn’t have any physical form; it only exists as codes. And how is it decentralized?
There is no governing body to control Bitcoins or the transactions involving Bitcoins. Everything in this peer-to-peer system happens with the help of the blockchain technology and trust.
This peer-to-peer system doesn’t need you to reveal your identity and all you are there is a number, a long code. Sounds like something from a sci-fi movie but it isn’t.
So, when was Bitcoin created? The technology is almost a decade old now. Satoshi Nakamoto, the anonymous inventor, presented his proposal in the year 2008.
The idea was to develop a system which is faster than the current financial system. Bitcoin transactions complete in an instant, and there are no intermediaries to suck away a large chunk of charges.
How does Bitcoin work?
The real power of Bitcoins is in the blockchain, the decentralized public ledger. The blockchain records all the transactions that happen in the world of Bitcoin. And this ledger is not stored on a single server, but on the user’s computers.
When a transaction takes place, everyone knows about it, but before adding it to the blockchain, it needs confirmation.
This is the job of a miner, and every node on the network can be a miner. The role of a miner is to solve a cryptograph using the computer’s processing power and confirm that the transaction is legitimate.
This cryptography is based on the Proof-of-Work algorithm, and the one who solves it gets (new) Bitcoins as a reward.
That’s why the process is called mining (like gold mining). Once someone solves the puzzle, the transaction then becomes a part of the public ledger, the blockchain.
But in spite of this transparency, the Bitcoin transactions are secure and offer more privacy to the users.
You can buy Bitcoins, hold them in your wallet and also deal without revealing your identity. You don’t need an ID to start with.
Anyone can see your balance but to use it, they need a private key which is with you. So, no one can empty your wallet without your permission.
There is no central authority here, remember? No one to freeze your assets. You are the owner of your money, and you decide what to do with it.
How to get more private with Bitcoins?
It’s a wicked world out there, and even though the system doesn’t reveal your identity, someone can find out.
The transactions in blockchain are permanent, and someone can trace all the activities of an address (including yours). So, using different addresses for purchases, donations and transfers will help.
You can create an unlimited number of addresses. Also, you can use different wallets for transactions. None of the addresses links to each other. Moreover, remember not to share your address outside the Bitcoin world. You don’t want anyone to find your Facebook ID using the Bitcoin address, right?
Apart from all those measures, you should also use a VPN service. Why?
Bitcoins with VPN
However secure and private the system is, it’s still on the Internet. It’s possible that someone can trace and link Bitcoin addresses to real-life IP addresses and take away your mask, your privacy. So, what you can do is to hide your IP address, and there’s nothing better than a VPN to do so.
A Virtual Private Network helps you browse the Internet without revealing your IP address. When you connect to a VPN server, it creates a private tunnel for all your traffic, the data using up your network. It masks your IP address with a random one allocated to that particular server.
You can be in Melbourne and connect to a VPN server in Perth, and if anyone peeks at your IP address, they will assume you are in Perth.
Doesn’t it sound great? An extra layer of security (as well as privacy). You can even go overseas by connecting to a server in the US, the UK or China, wherever you want.
So, if you are serious about some business with Bitcoins, subscribe to a VPN service soon.