Cryptocurrencies

Bitcoin – Definition, How It Works, Future And More

What is Bitcoin?

Bitcoin (BTC) is the pioneer among cryptocurrencies. It is a decentralized, censorship-resistant digital currency based on blockchain technology. Any state or central bank does not regulate it. It is inflation-proof as the inventor Satoshi Nakamoto limit the absolute amount to 21 million.

How Does Bitcoin Work?

The decentralized structure of Bitcoin means that all transactions take place transparently within the Bitcoin network. To become part of the web, you need some “Bitcoin account,” which Wallet called.
The Wallet has a unique identifier and a cryptographic key pair (so-called “private key” and “public address”) and can installed on the computer as well as on the smartphone.

The private key acts as a digital signature, a kind of password, to dispose of your Bitcoin in the blockchain. The public key serves as a public address (comparable to an email address) to which Bitcoins can send.

Also Read: Some Helpful Resources on Dyifo

The Benefits of Bitcoin

The decentralized and tamper-proof architecture of Bitcoin makes intermediaries/middlemen, such as banks or credit institutions, sometimes excessive. This eliminates the expensive transaction costs that banks often charge their customers for international transactions.

The fact that all transactions have to be signed gives the participants the security to reach the intended recipient. In addition, transactions within the network are processed and confirmed in a few minutes without any detours.

Bitcoin’s Weaknesses

Bitcoin is subject to some restrictions that have deliberately set out in the protocol. The volume of transactions increases with the ever-increasing number of users. The high frequency means that nowadays, transactions can often no longer be processed quickly enough.

The origin of the problem lies in the block size determined by the protocol, the limit of which is simply insufficient for the current transaction density. The current block size was in 2010 to 1 MB fixed. This means that all blocks that exceed this size will rejected. The measure initially intended to prevent hackers from crippling the system through attacks. Today, however, this decision is a limitation for the network and is increasingly causing users’ frustration.

So it is not uncommon for users to have to wait several hours for a transaction in times of heavy workload. Many Bitcoin developers and groups are currently working on solutions for the bitcoin scaling problems. One of the most determined and advanced projects is the so-called. Lightning Network

The Future Of Bitcoin

Bitcoin is open-source software, which means that the community constantly works on new technological developments, innovations, and features. Two of the most exciting and promising developments at the moment are the so-called “Schnorr signatures” and “MimbleWimble.”

Schnorr signatures

Every Bitcoin transaction that takes place within the network must be signed. This signature enlarges the transaction data and thus harms the speed and inflates the size of the blockchain. With the help of Schnorr’s signature be, several transactions signed together. This will noticeably reduce the size of the trade and can help solve storage and scaling issues.

MimbleWimble

“MibleWimble” is a protocol that focuses in particular on scalability and anonymity. The basis of the protocol is again the blockchain. All transactions cryptographically concealed so that they can no longer assign. Thanks to mathematical algorithms, however, it still ensured that no false coins can generated. In addition, it is not possible to send more money than is available in the account (“double spending”). The system’s lean architecture reduces the transaction data size, which greatly reduces the scaling problem. Therefore, The approach is currently in its infancy, which means that MimbleWimble currently only being used and test in a few projects.

Also Read: What is Creativity – Definition, Training, Professions and More

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