What are Bitcoins and How It Works?

There are a lot of buzzes about Bitcoins.

However, there are still many internet marketers that are not familiar with Bitcoins.

If you are still one of those who are not familiar with Bitcoins, then let me tell you that this post is dedicated to describing everything you need to know about “Bitcoins”.
Today, Internet commerce has grown by leaps and bounds. In fact, Internet commerce registers billions of dollars of transactions each year across the globe. However, there was a widely felt the need of a secured, transparent, reliable, and easy online transaction system that has a wide acceptance base among users across the globe. As of now, Internet Commerce relies heavily on financial institutions, which serve as trusted third parties for the processing of electronic payments.

Although the system is widely used to process online payments; however it has some inherent weaknesses, as well. For example, non-reversible transactions are not possible. There is cost of mediation, which increases mediating costs.


All this goes to limit minimum practical transaction size. This in turn, affects the small casual transactions. There is a loss in the ability of carrying out non-reversible payments. So, in the present system of online transaction there is no method of making payments over a communications channel without the involvement of a trusted party.

So, there exists a need of such an electronic payment system that is not merely based on trust but which is build on the base of cryptographic proof thereby facilitating transaction directly between any two parties without the requirement of a trusted third party. For this, you basically need a secured digital currency which can help you to make international payments easy and cheap.

You need a digital currency which is not limited to any country or which is subjected to any regulation. Such a secured currency should not attract any regular fees for making transactions (such as credit card fees). Moreover, such a digital currency should have the possibility of being used as an investment means having the inherent capacity to go up in value.

The solution comes in the form of a new online transaction system which is facilitated by “Bitcoins”.

Use of Bitcoins brings into picture secured and safe online digital currency.

In fact, Bitcoins provides an innovative payment system and comes in the form of a new kind of money.

Let’s learn some hard facts about Bitcoins – the new digitized online payment currency.


What is Bitcoin?

Bitcoin is a new digital currency which came into existence in 2009. It comes as a decentralized digital currency through which you make instant online payments throughout the world. The Bitcoin currency operates using the peer-to-peer technology and involves no central authority. Issuing money and managing transactions are collectively performed through the network itself. Bitcoin is regarded as the first successful implementation of a distributed crypto-currency. It has been designed with the idea of using cryptography as a means for controlling and transferring money. Being a complete digital currency, Bitcoin provides a new payment system through a consensus network.

It has been termed as the “Internet Cash”. Using Bitcoin you can carry out instant peer to peer transactions. With Bitcoins, you can make worldwide payments and involves low or virtually zero processing fees. Originally the Bitcoin software was released by Satoshi Nakamoto under the MIT license. The Bitcoin software, as well as, its protocol is published openly. Any developer can review its code and can their own modified version of Bitcoin software.

The working of Bitcoin

Taking the users perspective, Bitcoin can be seen as a mobile app or computer software that go onto create a personal Bitcoin Wallet using which you can send and receive Bitcoins thereby facilitating online transactions over the Internet. This is actually the working of Bitcoins for most of the users. The Bitcoin Network goes onto create a public network referred as “Block Chain”. The ledger contains each transaction ever processed so that a user’s computer can verify the validity of each transaction. Users get full control for sending Bitcoins. The transaction authenticity is protected by digital signatures corresponding to the sending addresses. The Bitcoins digital currency is vastly popular throughout the globe. As of August 2013, the value of all Bitcoins exceeded US$ 1.5 billion.

How to Acquire Bitcoin

Buy Bitcoins from Bitcoin Exchanges

There are marketplaces called “Bitcoin Exchanges” which allow people to buy or sell Bitcoins using various currencies. One such widely popular and huge Bitcoin marketplace is Mt. Gox. It is the largest Bitcoin Exchange so far.

Exchange Bitcoins – Transfers

Using mobile apps or software people can exchange or transfer Bitcoins to one another. It is similar for sending cash digitally.


For acquiring Bitcoins, people can compete to “mine” Bitcoins. Through “Mining”, you can create Bitcoins. Usually people need to solve math puzzles for mining Bitcoins. Presently, winners are being rewarded with 25 Bitcoins (approx) every 10 minutes.

Owning Bitcoins
Bitcoins can be stored in a “digital wallet” which can be kept in your computer or over the cloud. The digital wallet functions as a bank account using which you can send or receive Bitcoins, or can use to pay for goods. However, they are not insured by the FDIC.

Making Bitcoin Payment?

As against debit or credit card purchase, it is easy to make Bitcoin Payments. One can make payment using a wallet application which you can have either on your computer or on your Smartphone. You just have to enter the recipient’s address, the amount that you have to pay, and need to click on the send button.

The Bitcoin Trust?

As already mentioned, Bitcoin is fully open source and decentralized. So, you can actually verify how Bitcoin works. The whole system is thoroughly protected with peer-reviewed cryptographic algorithms. You get the same level of protection as you get in online banking. Each of the Bitcoin is recorded in a public log. However, you need to take certain precautions. For example, if you store your Bitcoin Wallet on your computer, you need to ensure that your computer is protected against virus attack.

All-in-all, Bitcoin can be a viable option for making online transactions. It is easy, safe and cheap method of making online payments. However, Bitcoins has still to cover many roads before it is universally adopted by most businesses around the world.

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