Before we analyze over the trading system of Bitcoins, let us answer a few fundamental questions which would help in detailed analysis.
What is the basic difference between centralized and decentralized money?
Currency in India is regulated by Reserve Bank of India which decides the supply of currency by printing units of fiat money (Money that is declared to be legal by the central government). However in the case of cryptocurrency or decentralized money, supply or creation of additional units is decided by the cryptocurrency system.
What is Bitcoin?
Bitcoin is Crypto-Currency which means it is a medium of exchange using cryptography to secure the transactions. Bitcoin transactions are recorded in a public distributed ledger and take place between the users directly without an intermediary. As the bitcoin system works without a central repository, it is known as the first decentralized digital currency. Bitcoin system uses decentralized control which is exactly opposite to centralized electronic money / banking system. It has been created as a reward for mining which can also be exchanged for other currencies, products or services legally or illegally.
How do we get a Bitcoin account?
To have a bitcoin account, one needs to open a digital currency wallet. There are several companies which are working on digital currency. Coinbase, bitcoin.org, unocoin to name a few. One can register with them and open a free account. This account is now to be connected with the bank account, debit card or credit card for digital transactions of bitcoins.
What is the design of the Bitcoin system?
To know more about the functionality of Bitcoin, let us understand its technicalities.
The blockchain is a distributed database or a public ledger that records bitcoin transactions. This ledger is run and maintained by a network of communicating nodes running bitcoin software. This system is maintained without any centralized authority as it is in the case of centralized money.
Blockchain has been created to achieve independent verification of every bitcoin that is stored or spent.
Example: Suppose, a customer Z pays X number of bitcoins to the customer Y, then this transaction is immediately transferred to a network. The nodes of this network validates the transaction and transfers the information to the blockchain. This information is also broadcasted to other nodes.
Every transaction should be having one or more inputs in the account. Bitcoin account cannot be of zero balance or zero transaction account which is possible in the case of centralized money. A every bitcoin transaction should have the digital signature of the owner. And it has to be the output of a previous transaction.
A transaction can also have multiple outputs, which allows multiple payments possible in a single transaction.
And in case of a cash transaction, the sum of debits can exceed the amount available in the account or the intended amount of credit. This remaining payment is projected as an additional payment returned back to the payer. And it is termed as transaction fee.
Mining: Bitcoin mining is a record keeping service. Miners are responsible to keep the blockchain consistent and authentic by continuous verification. They also keep record of newly broadcast transactions into a new group which is called as a block. Now this block contains a set cryptographic algorithm which links the present block to the previous block, thus creating a blockchain.
Wallet: A wallet is a place where bitcoins are stored. A wallet stores information which is necessary to transact bitcoins. A wallet is also a collection of cryptographic keys, one public and one private.
There is also a software wallet which is further divided into two categories: full clients and lightweight clients.
Mechanism of buying and selling Bitcoins
Bitcoins can be bought and sold both on- and offline in the form of bidding. Online participants exchange bitcoins to buy and sell bids. Offline bitcoin purchase is also possible through direct transaction or through an ATM.
A Bitcoin can be sold in three ways
- First: Direct trade with prospective candidate
- Second: An online exchange between two people
- Third: New peer-peer bitcoin marketplace that allows bitcoin owners to obtain discounted goods in exchange of bitcoin currency
Bitcoins can be sold in following ways
- One can use a bitcoin price from a prominent bitcoin exchange or Bitcoin Price Index to sell.
- A percentage is also used by some sellers to cover the costs on top of these prices.
- Bitcoins can also be sold or exchanged in bitcoin meetups where people trade bitcoins.
- Some of the popular platforms to sell bitcoins online are coinbase, localBitcoins, BitQuick, CoinCorner and many more.
Career in Bitcoin world
With various start-ups taking over bitcoin transactions, there is a huge job prospect in bitcoin system. There are many job openings in the world of Crypto-Currency with respect to product development, management, customer relations, finance analysis, software engineering and many more. An alternative career opportunity for a prospective candidate interested in Bitcoin system is trading and consultancy.
Guest Posted By: Jennie is a technology blogger and has written many articles on various latest technology trends. She is working is a Business Development Manager in an online training company.