Tags: Bitcoin, Investing, Bitcoin Transaction, Cryptocurrency

Business Perspective of Bitcoin Transactions

September 1st, 2020

 Investing your profits in cryptocurrency can be a bit confusing. Come  to understand the basics of Bitcoin Transactions

Bitcoin can provide whopping returns to all its investors and this event creates a curiosity in millions of people as to what it is, what differentiates it from fiat money, how does it work, how to start investing in it, and how Bitcoin transactions take place? In this short and brief article, I’ll walk you through how does Bitcoin and cryptocurrencies work by avoiding technical jargon and making this as simple as possible.

 

Technically speaking, the definition of Bitcoin comprises two basic words ‘Bit’ and ‘Coins’. If you segregate the information stored inside your computer into a stream of 0s and 1s, they are regarded as Bits. And you already know what a physical coin is, right, so we don’t need to shed light on this.

 

Bitcoins don’t exist physically, they are stored digitally just like all other cryptocurrencies. That’s why we call it digital currency. From a technical standpoint, Bitcoin is a peer-to-peer electronic cash transfer system.

 

Bitcoin and cryptocurrency sound a bit confusing at first glance, but I sincerely hope this aids in widening your understanding of how Bitcoin works and by the end of this article, you’ll be able to understand the underlying phenomenon behind Bitcoin and maybe even start investing in it. For a comprehensive analysis about how Bitcoin works and the Technical Aspects of Transactions click here.

 

From the business perspective, people can be categorized into three types: the consumer, the producer, and the middleman.

 

If you are using an Amazon platform to sell your product, then 40-50% of your total profits will be deducted by the middleman or woman generally speaking. The same is the case in every industry, middleman deducts a substantial amount of profits of the producer’s money. Check the world leading Cryptocurrency and Bitcoin news feed from Boracchia Wiviott Wealth Partners 

 

Bank Transactions

 

To strengthen our understanding of Bitcoin and cryptocurrencies, it is pertinent to know why it was created. Initially, Bitcoin was created to remove peoples’ reliance on an intermediary to process their transactions which in most cases is the bank.

 

To keep this in perspective, let’s suppose you want to spend $500 on your friend who lives in the US. If you use a Bank for cross-border remittance transfer then the bank will deduct a significant amount of money for processing your transaction. Additionally, once your friend receives money, your friend will also have to pay some charges.

 

Banks and other financial institutions earn hefty profits from payment processing systems. Besides high transaction processing charges, banks store alot of what I would call unnecessary data about the sender and a recipient which might be exploited by some nefarious actors. Herein the real irony lies when people worry that blockchain is not as safe as the banks.

 

Data stored in the centralized storage system of the banks always remain vulnerable to malicious activities. Many banks have been compromised in the last few years and hackers managed to steal billions of dollars, which still we hear about all the time.

 

A wonderful solution without replacing the banks is adding to them with the power of a Blockchain-driven peer-to-peer decentralized transaction processing system.

 

Contrary to Bitcoin, Banks have total rights over their account holder’s money thereby they can freeze anyone’s account whenever they want. Banks play a significant role in the 2008 global economic recession. This economic crisis is an impetus for the Bitcoin creation. Achieve More with the Gold Stock & Silver Stock Market Portfolio!

 

 

Creator of Bitcoin

bitcoin-investing

 

The Creator of Bitcoin still remains anonymous to thousands of people. Some peoples claim Satoshi Nakamoto is an inventor of Bitcoin, but nobody really knows the real identity of its creator.

 

The goal behind the creation of Bitcoin is to build a system that is free from any governing body like banks or central government. People strongly believe that one single authority shouldn’t have adequate powers to control the whole of humanity.

 

Central banks have always been involved in creating cost pull inflation by pumping behemoth money into the country’s economy. There is a strong demand amongst the people that the prevailing financial system must be refurbished.

 

 

Working Procedure of Bitcoin

 

To understand Bitcoin Transactions, three main concepts must be understood:

  • Cryptography

  • Supply and demand

  • Decentralized Network

Decentralized Network

 

When you open your web browser and type www.Google.com in it, your system will send a request to the server. Eventually, your computer and the remote server will communicate with each other and as a result of this communication, you’ll be able to view Google search engine.

 

If Google’s server wasn’t working properly, you wouldn’t be able to view the Google search engine because all the data is stored in one centralized network.

 

A decentralized network has the data distributed amongst several nodes. If Google unleashes a decentralized network, instead of one single centralized server, you would still be able to access Google. Thereby Google never goes offline.

 

Cryptography

bitcoin-investing

 

Usage of Cryptography dates back to World War II. Cryptographic techniques were used at the beginning to transform radio messages into code so that no one could understand and tamper it.

To read it, you first need to convert the message into an original text and to get this job done, you need a key. All this process takes place with the aid of complex mathematical formulas.

 

Bitcoin leverages cryptographic algorithms in the same manner, but instead of converting radio messages, Bitcoin uses it to convert transactional data. 

 

As the name cryptocurrency suggests, all the Bitcoin transactions are stored using cryptography. That being said, it is pertinent to know without cryptography, data integrity, anonymity and confidentiality cannot be achieved in Bitcoin.

 

Bitcoin transactions achieve this goal by leveraging the power of Blockchain technology.

 

 

Supply and Demand

 

In order to strengthen our understanding of how Bitcoin maintains supply and demand balance, let’s take a very simple example. Suppose you visited the bakery to buy one cake, unfortunately only one cake was left in that bakery. Meanwhile, four other people arrive in the bakery and demand the same cake. Eventually, the price of one cake escalates $4 to $2.

 

This is the underlying concept beneath supply and demand. When a specific commodity is scarce, it has more worth and people are willing to pay more money to buy it. 

 

The same is the case for Bitcoin. The Bitcoin supply is restricted algorithmically. At any given time, the number of Bitcoins cannot exceed 21 million. That’s why BTC best suits for all those countries whose local currency has depreciated massively. 

 

On the flip side, some economist envisages Bitcoin as the perfect hedge to invest against the major economic disruptions such as inflation, currency depreciation, hyperinflation, and recession. Click here for more detailed information on the behavior of Bitcoin and the evolution of its price over time.

 

How Bitcoin Transaction Takes Place

 

Now let’s try to understand how a Bitcoin transaction takes place. Simply speaking, in order to keep the complete track record of all the transactions, we need to put all of them in a separate database such as a simple excel sheet.

 

Now the most common solution that comes in your mind is to record all the transactions in a simple centralized storage system. But in reality, it doesn’t happen. 

 

Bitcoin uses a decentralized storage system. The Bitcoin database is distributed amongst all the participants of the network. To send a Bitcoin to an intended recipient, all you need to do is to digitally sign a message “I intend to send 0.17 BTC to John” this message is then broadcasted to all the participants of the network. Your BTC won’t reach the intended recipient unless all the members verify this transaction.

 

 

What makes Bitcoin Worthy?

 

There are plenty of other commodities for invest apart from Gold and silver that we envisage as valuable. For instance, Aztecs used cocoa beans as money.

 

Bitcoin is perceived value because it can be used as a medium of exchange for goods and services. Achieve More with the Gold Stock & Silver Stock Market Portfolio!

 

 

Conclusion

 

The inception of Bitcoin has completely revolutionized the financial landscape. It paves the way for a trustless future that’s why plenty of budding-tech entrepreneurs start investing their profits in cryptocurrencies. 

 

Bitcoin has the ability to pave the way for replacing traditional financial institutions but its widespread adoption is hamstrung by the legislative constraints.

 

At Investing Profits from Boracchia Wiviott Wealth Partners  we have a world leading  Cryptocurrency and Bitcoin news feed.  We are here to guide you in the diversification of your portfolio.

 

Be sure to visit our Stock Market and Cryptocurrency Investing Blog and don't miss any of the new information and tips.

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Lea Wiviott Boracchia, Co-Founder, FinancialPlans.Info and InvestingProfits.Pro, both apart of the renowned Boracchia Wiviott Wealth Partners

We are a registered investment advisory focused on accessible wealth planning for everyone. Our mission is to help women, men and people of all ages, races, locations, and anyone plan and secure their most successful future. We were originally established in 2005 by way of 3 firms before my husband Marc and I registered our independent advisory in California.

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