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The digital currency known as Bitcoin operates via a network that is completely decentralized. Each and every transaction that is made with Bitcoin is recorded into a log that is publicly available, although users are able to keep themselves completely anonymous within the network via encrypted keys. Transactions are performed without the need for middlemen and so there is no need for them to be made through a bank.
Bitcoin’s fully decentralized system is not owned by any central authority, financial institution, or government. As a result, it means that users do not need to have names, account numbers or any other sort of identifiers to connect them with their Bitcoins. This enables users to both sell and buy things without any of the transactions being linked back to them.
Creating Bitcoins
Unlike fiat money, Bitcoins are not printed. However, they are mined by using highly powerful computers that work to solve incredibly complex mathematical algorithms. When they were first created by Satoshi Nakamoto, it was decided that there could only ever be a maximum of 21 million individual Bitcoins.
As the current process stands, it is very difficult to create Bitcoins, as it requires a great deal of computational power, thus using up a large amount of electricity. This, therefore, can end up costing anyone who is attempting to mine for the cryptocurrency a lot of money. With so many people mining for Bitcoins throughout the world, one is created roughly every 10 minutes or so.
Buying Bitcoins
Cryptocurrency or Bitcoin exchanges are the best place to either sell or Buy Bitcoin using various different currencies. One of the easiest and most well-known cryptocurrency exchanges and wallets is one called Coinbase.
In regards to security, exchanges and wallets are not very different from regular bank accounts, in that they keep hold of your personal details, private key, and password. Some of the biggest and most used cryptocurrency exchanges in the world that people buy Bitcoins from including Bitfinex and Etoro. Unfortunately, though, these exchanges are often subject to illegal hacking activity, whereby hackers attempt to steal funds. For example, Bitfinex lost $72 million due to hacking.
Storing Bitcoins
After someone has bought a Bitcoin or Bitcoins via an exchange, they need to be kept in something called a digital wallet. This is a group of addresses and keys that unlock the monies that are kept within it. Digital wallets are very much similar to digital bank accounts in that they allow users to both send and receive cryptocurrency.
Digital wallets are also used for paying for services and goods, like purchasing vehicles or saving money. The main difference between a conventional bank account and a digital wallet is that the user is solely responsible for keeping the funds within the wallet secure. With a bank account, this is the job of the bank. This is why there are many different types of digital wallets available with varying levels of security.
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