Before you dive into Bitcoin trading you need to know how the Bitcoin works and whether Bitcoin transactions are indeed safe as they are said to be. The Bitcoin is really a digital currency that is decentralized; this means that its issuance or circulation is not controlled or regulated by any centralized institution like the banks. You simply have to download a Bitcoin wallet, generate the address and start sending or receiving Bitcoins.
How does the Bitcoin work?
The Bitcoin will work on the basis of a blockchain; all Bitcoins transactions are verified by this blockchain. The chronological orders and authenticity of transactions are enforced in the blockchain by cryptography. Transactions refer to value transfers between wallets which are part of the blockchain. The wallet will have a private key for signing transactions and this is proof that the Bitcoins have come from a certain wallet owner. This signature also ensures that the transaction thus made cannot be changed by anyone. All Bitcoin transactions will be confirmed through a process of mining and this takes about 20 minutes.
Mining refers to the distributed consensus system used for confirming Bitcoin transactions. It will put in place a chronological order within the blockchain, preserve the network neutrality, and let different computers agree on this. In order for transactions to be confirmed, they have to be part of a block that conforms to strict cryptographic rules. Such rules are there to prevent these blocks of data from being tampered with; any interference will invalidate all subsequent blocks. All the above processes are also automated by the introduction of trading software. Its not surprising that the software minimizes human intervention. One of the interesting robot is bitcoin rush, which is advantageous than human traders.
Are Bitcoin transactions safe?
- Bitcoin transactions are secure and encrypted. Blockchain makes use of miners for encrypting transactions taking place in the Bitcoin network. This ensures that all confidential private information is hidden from prying eyes and even if hackers can infiltrate the system, they cannot steal anything of value.
- Bitcoin is said to be “public” but that may cause people to think that transactions are not safe. However, the truth is that while transaction amounts may be transparent, the identity of the sender or recipient is not viewable. So, it is not possible for anyone to cheat the system. Moreover, the data is immutable and irreversible; once you have bought or sold your Bitcoins, you cannot get it back.
- Finally, Bitcoin is a decentralized digital payment system and there are millions of nodes spread across the globe that track such transactions. So, if any one node or computer is tampered in any way or get hacked, other nodes will automatically detect this. Hacking into a node is futile because as soon as you change the data the unique hash for that node changes and this causes corresponding changes in all other nodes. You need to have more than 51% of control over the computing power to do anything. This is why hacking into the Bitcoin network is likely to be an impractical and unfeasible possibility.
That said Bitcoins can be stolen under exceptional circumstances; for instance, phishing may be dangerous for your wallet, regardless of the coins you may own. Spoofing is another common practice that attempts to steal by pretending to sell stuff; malware targeting Bitcoin wallets are also quite common, and it is also possible to steal the wallet key from a cold storage wallet.