The emergence of digital money is closely related to developments in the field of cryptography. It proposes fundamental challenges related to the use of bits to represent value that can be exchanged for goods and services.
Bitcoin is a system based on complex algorithms and is specific in that each user has an insight into their own transactions and the transactions of other participants in the network, which makes it transparent. To prevent bitcoin counterfeiting, each user has a private key, which is associated with the user’s digital signature, and it differs in each individual transaction. Precisely because of the private key and digital signature, counterfeiting and misuse of bitcoin are impossible. All bitcoin-related transactions are recorded in the public general ledger.
The general ledger is transparent and accessible to all. The path of all transactions of a particular cryptocurrency can be followed at any time. At the same time, the parties involved in the transaction are not identified by personal data, but by a series of characters and numbers. By creating a transaction, the main one is the book expands with information on the number of currency units and the address to which they are transferred. The address is a series of alphanumeric characters intended for sharing and is therefore also called a public Bitcoin address. With each payment, the transaction is spread over the network, along with a signature based on the sender’s private key and the recipient’s address.
The private key is also a series of alphanumeric characters of different lengths. Since the sender’s private key is the only predisposition needed to create a valid signature, other than the recipient’s address, it should be stored in a secure location. The general ledger is updated, i.e. recorded and checked, by the bitcoin community. The community is often referred to as the Bitcoin Network or Bitcoin System, with an initial capital letter.
The virtual currency Bitcoin probably wouldn’t be what it is without blockchain technology behind it, created to maintain privacy in every transaction, no matter how many there are at any given time. Thus, it offers many advantages, it is decentralized, it stores everything that has ever been done or is being done in a revolutionary way, which means that the technology is transparent like nothing before and that it has to do with making more money.
But the problem still exists throughout the story, which has become quite widespread lately. The blockchain, however, does not seem as secure as it is believed to be. And that is because of the technology itself, but not for the reason that is thought.
What is it that every trader can do to protect their money from various risks?
The first and most important thing is to provide a secure wallet. Crypto wallets can be hot and cold. People prefer to choose hot because they are free, but since they require internet access, they are considered to be exposed to hacker attacks. On the other side is hardware, cold wallet. This can be a big investment, but it is definitely worth it because it will keep your money safe.
Another equally important thing is finding a valid platform because today there are a lot of fake ones, the ones that disappear as soon as they take your savings from your account.
If mining is your choice, technical problems arise the moment you notice that electricity consumption is much higher than usual. This usually refers to hackers who withdraw money from your account.
Omissions of digital currencies
The most successful traders who accept bitcoin are precisely IT companies that provide applications, cryptocurrency exchanges, or bitcoin-related hardware. A realistic insight into bitcoin adoption can be seen from the data collected from the general ledger of all transactions. Most transactions involve transfers between speculative investors, and only a small portion of them is used to purchase goods and services. Bitcoin still seems to have an inconspicuous share of the global market. One of the problems traders face is collecting new bitcoins. If the consumer is not a successful miner, they will have to seek bitcoin from online stock exchanges or third parties and find a way to store it safely.
Another problem faced by bitcoin as a currency is sudden price fluctuations. As the value of bitcoin against other currencies changes from day to day, traders would often have to recalculate prices. This process would be costly and time-consuming for the trader and confusing for the buyer. In practice, this problem would have disappeared if bitcoin had been used as the main currency, but there is still no such place in the world. A related problem lies in the diversity of market prices at which bitcoin can be purchased. The price of the cryptocurrency, in this case, bitcoin, will depend on the chosen intermediary to buy it.
Final thoughts
Cryptocurrencies use encryption to generate money and enable secure transactions. They enable electronic trading outside the regulatory framework of a third party. Implementing such a system was considered a difficult task due to the problem of double consumption, which from the beginning created efforts to create electronic money on the web. So, it was mostly a theoretical concept with limited practical application until the revolutionary 2009 White Paper of the so-called Satoshi Nakamoto.
The promise of lower transaction fees than standard internet payment mechanisms and the fact that it is managed by a decentralized system, ie. outside the government or regulatory body has ensured that Bitcoin finds its way to a large number of users very quickly. But more importantly, the supply of Bitcoin is controlled in a way that ensures a limited supply in the market, which is one of the main causes of current high prices. Today, the market capitalization of cryptocurrencies is more than $ 180 billion, and approximately 300,000 BTC transactions are performed daily.
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